-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K9V98tKe3grl2y28NiihGNWwnIuTz4hemyh5VH0EUCIubOFD/kYoI6SXVfRYB7EF Yy37tiGoSnnxBwLkPZwJ0g== 0001047469-99-020088.txt : 19990514 0001047469-99-020088.hdr.sgml : 19990514 ACCESSION NUMBER: 0001047469-99-020088 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19990513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDITRUST CORP CENTRAL INDEX KEY: 0000314661 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 953520818 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08131 FILM NUMBER: 99620474 BUSINESS ADDRESS: STREET 1: MEDITRUST CORP STREET 2: 197 FIRST AVE STE 100 CITY: NEEDHAM STATE: MA ZIP: 02194 BUSINESS PHONE: 7814336000 MAIL ADDRESS: STREET 1: MEDITRUST CORP STREET 2: 197 FIRST AVENUE SUITE 100 CITY: NEEDHAM STATE: MA ZIP: 02194 FORMER COMPANY: FORMER CONFORMED NAME: SANTA ANITA REALTY ENTERPRISES INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDITRUST OPERATING CO CENTRAL INDEX KEY: 0000313749 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 953419438 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08132 FILM NUMBER: 99620475 BUSINESS ADDRESS: STREET 1: 197 FIRST AVE STREET 2: STE 100 CITY: NEEDHAM STATE: MA ZIP: 02194 BUSINESS PHONE: 7814336000 MAIL ADDRESS: STREET 1: MEDITRUST OPERATING CO STREET 2: 197 FIRST AVENUE SUITE 100 CITY: NEEDHAM STATE: MA ZIP: 02194 FORMER COMPANY: FORMER CONFORMED NAME: SANTA ANITA OPERATING CO DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______ --------------------- Commission file number 0-9109 Commission file number 0-9110 MEDITRUST CORPORATION MEDITRUST OPERATING COMPANY (Exact name of registrant as specified (Exact name of registrant as specified in its charter) in its charter) DELAWARE DELAWARE (State or other jurisdiction of (State or other jurisdiction of incorporation or organization) incorporation or organization) 95-3520818 95-3419438 (I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.) 197 FIRST AVENUE, SUITE 300 197 FIRST AVENUE, SUITE 100 Needham Heights, Massachusetts 02494-9127 NEEDHAM HEIGHTS, MASSACHUSETTS 02494-9127 (Address of principal executive (Address of principal executive offices including zip code) offices including zip code) (781) 433-6000 (781) 453-8062 (Registrant's telephone number, (Registrant's telephone number, including area code) including area code)
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes /X/ No / / The number of shares outstanding of each of the issuers' classes of common stock, as of the close of business on April 30, 1999 were: Meditrust Corporation 142,434,349 Meditrust Operating Company 141,128,972 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE MEDITRUST COMPANIES FORM 10-Q INDEX
PAGE(S) ------------- Part I. Item 1. Financial Information The Meditrust Companies Combined Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998 1 Combined Consolidated Statements of Operations for the three months ended March 31, 1999 (unaudited) and 1998 (unaudited) 2 Combined Consolidated Statements of Cash Flows for the three months ended March 31, 1999 (unaudited) and 1998 (unaudited) 3 Meditrust Corporation Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998 4 Consolidated Statements of Operations for the three months ended March 31, 1999 (unaudited) and 1998 (unaudited) 5 Consolidated Statements of Cash Flows for the three months ended March 31, 1999 (unaudited) and 1998 (unaudited) 6 Meditrust Operating Company Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998 7 Consolidated Statements of Operations for the three months ended March 31, 1999 (unaudited) and 1998 (unaudited) 8 Consolidated Statements of Cash Flows for the three months ended March 31, 1999 (unaudited) and 1998 (unaudited) 9 Notes to Combined Consolidated Financial Statements (unaudited) 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 23 Part II. Other Information Item 5. Other Information 40 Item 6. Exhibits and Reports on Form 8-K 40 Signatures 42
ITEM I. FINANCIAL INFORMATION THE MEDITRUST COMPANIES COMBINED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 ------------- -------------- (Unaudited) ASSETS Real estate investments, net..................................................... $ 5,015,852 $ 5,086,736 Cash and cash equivalents........................................................ 39,269 305,456 Fees, interest and other receivables............................................. 66,398 54,712 Goodwill, net.................................................................... 480,645 486,051 Net assets of discontinued operations............................................ -- 305,416 Other assets, net................................................................ 220,931 221,180 ------------- -------------- Total assets............................................................... $ 5,823,095 $ 6,459,551 ------------- -------------- ------------- -------------- LIABILITIES AND SHAREHOLDERS' EQUITY Indebtedness: Notes payable, net............................................................. $ 1,156,102 $ 1,155,837 Convertible debentures, net.................................................... 185,190 185,013 Bank notes payable, net........................................................ 1,230,624 1,831,336 Bonds and mortgages payable, net............................................... 122,826 129,536 ------------- -------------- Total indebtedness........................................................... 2,694,742 3,301,722 Accounts payable, accrued expenses and other liabilities......................... 237,525 206,901 ------------- -------------- Total liabilities.......................................................... 2,932,267 3,508,623 ------------- -------------- Commitments and contingencies.................................................... -- -- Shareholders' equity: Meditrust Corporation Preferred Stock, $.10 par value; 6,000 shares authorized; 700 shares issued and outstanding at March 31, 1999 and December 31, 1998; stated liquidation preference of $250 per share.............................. 70 70 Paired Common Stock, $.20 combined par value; 270,000 shares authorized; 149,707 and 149,326 paired shares issued and outstanding at March 31, 1999 and December 31, 1998, respectively (including treasury shares).............. 29,941 29,865 Additional paid-in-capital..................................................... 3,896,325 3,891,987 Treasury stock at cost, 1,635 paired common shares at March 31, 1999 and December 31, 1998............................................................ (176,759) (163,326) Unearned compensation.......................................................... (9,403) (6,718) Accumulated other comprehensive income......................................... 20,787 16,971 Distributions in excess of net income.......................................... (870,133) (817,921) ------------- -------------- Total shareholders' equity................................................... 2,890,828 2,950,928 ------------- -------------- Total liabilities and shareholders' equity................................. $ 5,823,095 $ 6,459,551 ------------- -------------- ------------- --------------
The accompanying notes, together with the Notes to the Combined Consolidated Financial Statements contained within the Companies' Form 10-K for the year ended December 31, 1998, are an integral part of these financial statements. 1 THE MEDITRUST COMPANIES COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 --------- --------- Revenue: Rental................................................................................... $ 43,712 $ 43,656 Interest................................................................................. 34,202 38,579 Hotel.................................................................................... 148,534 -- Other.................................................................................... 856 26,000 --------- --------- 227,304 108,235 --------- --------- Expenses: Interest................................................................................. 66,657 25,417 Depreciation and amortization............................................................ 33,859 10,458 Amortization of goodwill................................................................. 5,308 1,576 General and administrative............................................................... 4,918 4,384 Hotel operations......................................................................... 70,990 -- Rental property operations............................................................... 8,907 1,265 Gain on sale of assets................................................................... (12,271) -- Income from unconsolidated joint venture................................................. -- (111) Other.................................................................................... 34,887 21,541 --------- --------- 213,255 64,530 --------- --------- Income from continuing operations before benefit for income taxes.......................... 14,049 43,705 Income tax benefit......................................................................... (826) -- --------- --------- Income from continuing operations.......................................................... 14,875 43,705 Discontinued operations: Income from operations, net.............................................................. -- 7,916 Gain (loss adjustment) on disposal of Santa Anita, net................................... 1,875 -- Gain (loss adjustment) on disposal of Cobblestone Golf Group, net........................ 2,994 -- --------- --------- Net income................................................................................. 19,744 51,621 Preferred stock dividends.................................................................. (3,938) -- --------- --------- Net income available to Paired Common shareholders......................................... $ 15,806 $ 51,621 --------- --------- --------- --------- Basic earnings per Paired Common Share: Income from continuing operations........................................................ $ .07 $ .48 Discontinued operations.................................................................. .04 .08 --------- --------- Net income............................................................................... $ .11 $ .56 --------- --------- --------- --------- Diluted earnings per Paired Common Share: Income from continuing operations........................................................ $ .07 $ .48 Discontinued operations.................................................................. .04 .08 --------- --------- Net income............................................................................... $ .11 $ .56 --------- --------- --------- ---------
The accompanying notes, together with the Notes to the Combined Consolidated Financial Statements contained within the Companies' Form 10-K for the year ended December 31, 1998, are an integral part of these financial statements. 2 THE MEDITRUST COMPANIES COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
(IN THOUSANDS) 1999 1998 ----------- ----------- Cash Flows from Operating Activities: Net income............................................................................... $ 19,744 $ 51,621 Adjustments to reconcile net income to net cash provided by operating activities Depreciation of real estate.............................................................. 32,965 10,347 Goodwill amortization.................................................................... 5,308 1,576 Gain on sale of assets................................................................... (17,140) -- Shares issued for compensation........................................................... 39 182 Equity in income of joint venture, net of dividends received............................. -- 289 Other depreciation, amortization and other items, net.................................... 11,413 4,843 Other non cash items..................................................................... 30,788 15,600 ----------- ----------- Cash Flows from Operating Activities Available for Distribution............................................................... 83,117 84,458 Net change in other assets and liabilities of discontinued operations.................... (148) -- Net change in other assets and liabilities............................................... (53,829) (19,573) ----------- ----------- Net cash provided by operating activities.............................................. 29,140 64,885 ----------- ----------- Cash Flows from Financing Activities: Proceeds from issuance of paired common stock............................................ -- 277,313 Purchase of treasury stock............................................................... (13,433) -- Proceeds from borrowings on bank notes payable........................................... 355,000 170,000 Repayment of bank notes payable.......................................................... (963,000) (300,000) Equity offering and debt issuance costs.................................................. (577) (5,636) Principal payments on bonds and mortgages payable........................................ (6,762) (6,876) Dividends to shareholders................................................................ (71,956) (53,545) Proceeds from exercise of stock options.................................................. 307 1,105 ----------- ----------- Net cash provided by (used in) financing activities.................................... (700,421) 82,361 ----------- ----------- Cash Flows from Investing Activities: Acquisition of real estate and development funding....................................... (59,337) (286,710) Investment in real estate mortgages and development funding.............................. (11,956) (78,491) Prepayment proceeds and principal payments received on real estate mortgages............. 8,182 259,102 Net proceeds from sale of assets......................................................... 476,950 4,709 Working capital and notes receivable advances, net of repayments and collections, and other items............................................................................ (8,745) 938 ----------- ----------- Net cash provided by (used in) investing activities.................................... 405,094 (100,452) ----------- ----------- Net increase (decrease) in cash and cash equivalents................................... (266,187) 46,794 Cash and cash equivalents at: Beginning of period...................................................................... 305,456 43,732 ----------- ----------- End of period............................................................................ $ 39,269 $ 90,526 ----------- ----------- ----------- -----------
Supplemental disclosure of cash flow information (Note 2) The accompanying notes, together with the Notes to the Combined Consolidated Financial Statements contained within the Companies' Form 10-K for the year ended December 31, 1998, are an integral part of these financial statements. 3 MEDITRUST CORPORATION CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 ------------- -------------- (UNAUDITED) ASSETS Real estate investments, net..................................................... $ 4,996,179 $ 5,067,217 Cash and cash equivalents........................................................ 37,300 292,694 Fees, interest and other receivables............................................. 51,218 42,039 Goodwill, net.................................................................... 446,487 451,672 Net assets of discontinued operations............................................ -- 280,330 Other assets, net................................................................ 190,344 187,033 ------------- -------------- Total assets............................................................... $ 5,721,528 $ 6,320,985 ------------- -------------- ------------- -------------- LIABILITIES AND SHAREHOLDERS' EQUITY Indebtedness: Notes payable, net............................................................. $ 1,156,102 $ 1,155,837 Convertible debentures, net.................................................... 185,190 185,013 Bank notes payable, net........................................................ 1,230,624 1,831,336 Bonds and mortgages payable, net............................................... 122,826 129,536 ------------- -------------- Total indebtedness........................................................... 2,694,742 3,301,722 ------------- -------------- Due to Meditrust Operating Company............................................... 51,790 29,169 Accounts payable, accrued expenses and other liabilities......................... 122,171 116,741 ------------- -------------- Total liabilities.......................................................... 2,868,703 3,447,632 ------------- -------------- Commitments and contingencies.................................................... -- -- Shareholders' equity: Preferred Stock, $.10 par value; 6,000 shares authorized; 700 shares issued and outstanding at March 31, 1999 and December 31, 1998; stated liquidation preference of $250 per share................................................. 70 70 Common Stock, $.10 par value; 270,000 shares authorized; 151,012 and 150,631 shares issued and outstanding at March 31, 1999 and December 31, 1998, respectively (including treasury shares)..................................... 15,101 15,063 Additional paid-in-capital....................................................... 3,824,725 3,820,436 Treasury stock at cost, 1,635 common shares at March 31, 1999 and December 31, 1998........................................................................... (173,401) (160,223) Unearned compensation............................................................ (6,497) (6,718) Accumulated other comprehensive income........................................... 20,787 16,971 Distributions in excess of net income............................................ (811,889) (799,118) ------------- -------------- 2,868,896 2,886,481 Due from Meditrust Operating Company............................................. (2,943) -- Note receivable--Meditrust Operating Company..................................... (13,128) (13,128) ------------- -------------- Total shareholders' equity................................................. 2,852,825 2,873,353 ------------- -------------- Total liabilities and shareholders' equity............................... $ 5,721,528 $ 6,320,985 ------------- -------------- ------------- --------------
The accompanying notes, together with the Notes to the Combined Consolidated Financial Statements contained within the Companies' Form 10-K for the year ended December 31, 1998, are an integral part of these financial statements. 4 MEDITRUST CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 --------- --------- Revenue: Rental................................................................................... $ 43,712 $ 43,656 Interest................................................................................. 34,030 38,512 Rent from Meditrust Operating Company.................................................... 68,248 -- Interest from Meditrust Operating Company................................................ -- 211 Royalty from Meditrust Operating Company................................................. 3,620 -- Hotel operating revenue.................................................................. 3,210 -- Other.................................................................................... 856 26,000 --------- --------- 153,676 108,379 --------- --------- Expenses: Interest................................................................................. 66,547 25,417 Depreciation and amortization............................................................ 32,058 10,458 Amortization of goodwill................................................................. 5,087 1,375 General and administrative............................................................... 4,918 3,794 Hotel operations......................................................................... 950 -- Rental property operations............................................................... 8,907 1,265 Gain on sale of assets................................................................... (12,271) -- Income from unconsolidated joint venture................................................. -- (111) Other.................................................................................... 4,389 21,541 --------- --------- 110,585 63,739 --------- --------- Income from continuing operations.......................................................... 43,091 44,640 Discontinued operations: Income from operations, net.............................................................. -- 7,062 Gain (loss adjustment) on disposal of Santa Anita, net................................... 6,655 -- Gain (loss adjustment) on disposal of Cobblestone Golf Group, net........................ 9,439 -- --------- --------- Net income................................................................................. 59,185 51,702 Preferred stock dividends.................................................................. (3,938) -- --------- --------- Net income available to Common shareholders................................................ $ 55,247 $ 51,702 --------- --------- --------- --------- Basic earnings per Common Share: Income from continuing operations........................................................ $ .26 $ .48 Discontinued operations.................................................................. .11 .08 --------- --------- Net income............................................................................... $ .37 $ .56 --------- --------- --------- --------- Diluted earnings per Common Share: Income from continuing operations........................................................ $ .26 $ .48 Discontinued operations.................................................................. .11 .07 --------- --------- Net income............................................................................... $ .37 $ .55 --------- --------- --------- ---------
The accompanying notes, together with the Notes to the Combined Consolidated Financial Statements contained within the Companies' Form 10-K for the year ended December 31, 1998, are an integral part of these financial statements. 5 MEDITRUST CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
(IN THOUSANDS) 1999 1998 ---------- ---------- Cash Flows from Operating Activities: Net income............................................................................. $ 59,185 $ 51,702 Adjustments to reconcile net income to net cash provided by operating activities Depreciation of real estate............................................................ 30,737 10,347 Goodwill amortization.................................................................. 5,087 1,375 Gain on sale of assets................................................................. (28,365) -- Shares issued for compensation......................................................... 38 179 Equity in income of joint venture, net of dividends received........................... -- 289 Other depreciation, amortization and other items, net.................................. 9,673 4,030 Other non cash items................................................................... (2,123) 15,600 ---------- ---------- Cash Flows from Operating Activities Available for Distribution........................ 74,232 83,522 Net change in other assets and liabilities............................................. (49,603) (23,992) ---------- ---------- Net cash provided by operating activities............................................ 24,629 59,530 ---------- ---------- Cash Flows from Financing Activities: Proceeds from issuance of common stock................................................. -- 272,044 Purchase of treasury stock............................................................. (13,178) -- Proceeds from borrowings on bank notes payable......................................... 355,000 170,000 Repayment of bank notes payable........................................................ (963,000) (300,000) Equity offering and debt issuance costs................................................ (577) (5,531) Intercompany lending, net.............................................................. 38,619 3,065 Principal payments on bonds and mortgages payable...................................... (6,762) (6,876) Dividends to shareholders.............................................................. (71,956) (53,545) Proceeds from exercise of stock options................................................ 302 1,083 ---------- ---------- Net cash provided by (used in) financing activities.................................. (661,552) 80,240 ---------- ---------- Cash Flows from Investing Activities: Acquisition of real estate and development funding..................................... (59,029) (286,710) Investment in real estate mortgages and development funding............................ (11,956) (78,491) Prepayment proceeds and principal payments received on real estate mortgages........... 8,182 259,102 Net proceeds from sale of real estate.................................................. 453,077 4,709 Working capital and notes receivable advances, net of repayments and collections, and other items.......................................................................... (8,745) 938 ---------- ---------- Net cash provided by (used in) investing activities.................................... 381,529 (100,452) ---------- ---------- Net increase (decrease) in cash and cash equivalents................................. (255,394) 39,318 Cash and cash equivalents at: Beginning of period.................................................................. 292,694 24,059 ---------- ---------- End of period........................................................................ $ 37,300 $ 63,377 ---------- ---------- ---------- ----------
The accompanying notes, together with the Notes to the Combined Consolidated Financial Statements contained within the Companies' Form 10-K for the year ended December 31, 1998, are an integral part of these financial statements. 6 MEDITRUST OPERATING COMPANY CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 ----------- -------------- (UNAUDITED) ASSETS Cash and cash equivalents......................................................... $ 1,969 $ 12,762 Fees, interest and other receivables.............................................. 15,180 12,673 Due from Meditrust Corporation.................................................... 25,295 46,874 Other current assets, net......................................................... 10,202 10,423 ----------- -------------- Total current assets.......................................................... 52,646 82,732 ----------- -------------- Investment in common stock of Meditrust Corporation............................... 37,581 37,581 Goodwill, net..................................................................... 34,158 34,379 Property, plant and equipment, less accumulated depreciation of $1,261 and $760, respectively.................................................................... 28,913 30,895 Other non-current assets.......................................................... 11,400 12,603 ----------- -------------- Total assets.................................................................. $ 164,698 $ 198,190 ----------- -------------- ----------- -------------- LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable.................................................................. $ 20,016 $ 18,349 Accrued payroll and employee benefits............................................. 30,948 33,457 Accrued expenses and other current liabilities.................................... 58,075 30,980 ----------- -------------- Total current liabilities..................................................... 109,039 82,786 ----------- -------------- Note payable to Meditrust Corporation............................................. 13,128 13,128 Other non-current liabilities..................................................... 6,570 7,629 Net liabilities of discontinued operations........................................ -- 16,140 ----------- -------------- Total liabilities............................................................. 128,737 119,683 ----------- -------------- Commitments and contingencies..................................................... -- -- Shareholders' equity: Common Stock, $.10 par value; 270,000 shares authorized; 149,707 and 149,326 shares issued and outstanding at March 31, 1999 and December 31, 1998, respectively (including treasury shares)...................................... 14,970 14,933 Additional paid-in-capital...................................................... 109,051 109,001 Unearned compensation........................................................... (2,906) -- Treasury stock at cost, 1,635 common shares at March 31, 1999 and December 31, 1998.......................................................................... (3,358) (3,103) Retained earnings (deficit)..................................................... (58,244) (18,803) ----------- -------------- 59,513 102,028 Due from Meditrust Corporation................................................ (23,552) (23,521) ----------- -------------- Total shareholders' equity.................................................... 35,961 78,507 ----------- -------------- Total liabilities and shareholders' equity.................................. $ 164,698 $ 198,190 ----------- -------------- ----------- --------------
The accompanying notes, together with the Notes to the Combined Consolidated Financial Statements contained within the Companies' Form 10-K for the year ended December 31, 1998, are an integral part of these financial statements. 7 MEDITRUST OPERATING COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 ----------- --------- Revenue: Hotel.................................................................................... $ 145,324 $ -- Interest................................................................................. 172 67 ----------- --------- 145,496 67 ----------- --------- Expenses: Hotel operations......................................................................... 70,040 -- Depreciation and amortization............................................................ 1,801 -- Amortization of goodwill................................................................. 221 201 Interest and other....................................................................... 110 -- Interest to Meditrust Corporation........................................................ -- 211 General and administrative............................................................... -- 590 Royalty to Meditrust Corporation......................................................... 3,620 -- Rent to Meditrust Corporation............................................................ 68,248 -- Other.................................................................................... 30,498 -- ----------- --------- 174,538 1,002 ----------- --------- Loss from continuing operations before benefit for income taxes............................ (29,042) (935) Income tax benefit......................................................................... (826) -- ----------- --------- Loss from continuing operations............................................................ (28,216) (935) Discontinued operations: Income from operations, net.............................................................. -- 854 Loss adjustment on disposal of Santa Anita, net.......................................... (4,780) -- Loss adjustment on disposal of Cobblestone Golf Group, net............................... (6,445) -- ----------- --------- Net loss................................................................................... $ (39,441) $ (81) ----------- --------- ----------- --------- Basic earnings per Common Share: Loss from continuing operations.......................................................... $ (.19) $ (.01) Discontinued operations.................................................................. (.08) .01 ----------- --------- Net loss................................................................................. $ (.27) $ .00 ----------- --------- ----------- --------- Diluted earnings per Common Share: Loss from continuing operations.......................................................... $ (.19) $ (.01) Discontinued operations.................................................................. (.08) .01 ----------- --------- Net loss................................................................................. $ (.27) $ .00 ----------- --------- ----------- ---------
The accompanying notes, together with the Notes to the Combined Consolidated Financial Statements contained within the Companies' Form 10-K for the year ended December 31, 1998, are an integral part of these financial statements. 8 MEDITRUST OPERATING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 ---------- --------- Cash Flows from Operating Activities: Net loss................................................................................ $ (39,441) $ (81) Goodwill amortization................................................................... 221 201 Loss on sale of assets.................................................................. 11,225 -- Shares issued for compensation.......................................................... 1 3 Other depreciation and amortization..................................................... 3,968 813 Other items............................................................................. 32,911 -- Net change in other assets and liabilities of discontinued operations................... (148) -- Net change in other assets and liabilities.............................................. (4,226) 4,419 ---------- --------- Net cash provided by operating activities............................................. 4,511 5,355 ---------- --------- Cash Flows from Financing Activities: Proceeds from issuance of stock......................................................... -- 5,269 Purchase of treasury stock.............................................................. (255) -- Equity offering costs................................................................... -- (105) Intercompany lending, net............................................................... (38,619) (3,065) Proceeds from stock option exercises.................................................... 5 22 ---------- --------- Net cash provided by (used in) financing activities................................... (38,869) 2,121 ---------- --------- Cash Flows from Investing Activities: Capital improvements to real estate..................................................... (308) -- Net Proceeds from sale of assets........................................................ 23,873 -- ---------- --------- Net cash provided by investing activities............................................. 23,565 -- ---------- --------- Net increase (decrease) in cash and cash equivalents.................................. (10,793) 7,476 Cash and cash equivalents at: Beginning of period..................................................................... 12,762 19,673 ---------- --------- End of period........................................................................... $ 1,969 $ 27,149 ---------- --------- ---------- ---------
The accompanying notes, together with the Notes to the Combined Consolidated Financial Statements contained within the Companies' Form 10-K for the year ended December 31, 1998, are an integral part of these financial statements. 9 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted in this Form 10-Q in accordance with the Rules and Regulations of the Securities and Exchange Commission. The accompanying unaudited combined consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position as of March 31, 1999 and the results of operations for the three months ended March 31, 1999 and 1998 and cash flows for each of the three month periods ended March 31, 1999 and 1998. The results of operations for the three month period ended March 31, 1999 are not necessarily indicative of the results which may be expected for any other interim period or for the entire year. In the opinion of Meditrust Corporation ("Realty") and Meditrust Operating Company and subsidiaries ("Operating Company" or "Operating" and collectively with Realty the "Companies" or "The Meditrust Companies"), the disclosures contained in this Form 10-Q are adequate to make the information presented not misleading. See the Companies' Joint Annual Report on Form 10-K for the year ended December 31, 1998 for additional information relevant to significant accounting policies followed by the Companies. BASIS OF PRESENTATION AND CONSOLIDATION Separate financial statements have been presented for Realty and for Operating Company. Combined Realty and Operating Company financial statements have been presented as The Meditrust Companies. All significant intercompany and inter-entity balances and transactions have been eliminated in combination. The Meditrust Companies and Realty use an unclassified balance sheet presentation. The consolidated financial statements of Realty and Operating Company include the accounts of the respective entity and its majority-owned subsidiaries, including unincorporated partnerships and joint ventures, after the elimination of all significant intercompany accounts and transactions. On July 17, 1998, Realty acquired La Quinta Inns, Inc. and its subsidiaries (all wholly owned) and its unincorporated partnership and joint venture ("La Quinta", "The La Quinta Merger"). La Quinta is a fully-integrated lodging company that focuses on the ownership, operation and development of hotels. As of March 31, 1999, the portfolio of hotels operated under the La Quinta name included 293 operating hotels, and nine hotels under development with approximately 38,000 rooms located in the western and southern regions of the United States. The La Quinta Merger was accounted for under the purchase method of accounting. Accordingly, the financial statements, including the results of operations and cash flows, do not include the operations of La Quinta prior to July 17, 1998. On November 11, 1998, the Boards of Directors of Realty and Operating Company approved a comprehensive restructuring plan (the "Plan") designed to strengthen the Companies' financial position and clarify their investment and operating strategy by focusing on the healthcare and lodging businesses. Significant components of the Plan include selling more than $1,000,000,000 of non-strategic assets, including their portfolio of golf-related real estate and operating properties ("Cobblestone Golf Group"), the Santa Anita Racetrack and adjacent property, and approximately $550,000,000 of non-strategic healthcare properties. 10 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) As a result of the Plan, the Companies have reflected the Cobblestone Golf Group and Santa Anita Racetrack as discontinued operations and certain healthcare properties as assets held for sale, in the accompanying financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. RECLASSIFICATION Certain reclassifications have been made to the 1998 presentation to conform to the 1999 presentation. 2. SUPPLEMENTAL CASH FLOW INFORMATION Details of interest and income taxes paid and non-cash investing and financing transactions follow: The Meditrust Companies:
THREE MONTHS ENDED MARCH 31, -------------------- (IN THOUSANDS) 1999 1998 --------- --------- Interest paid during the period............................................................ $ 92,409 $ 44,120 Interest capitalized during the period..................................................... 2,743 1,652 Non-cash investing and financing transactions: Value of real estate acquired (sold): Land and buildings....................................................................... -- 7,118 Retirements and write-offs of project costs.............................................. (1,518) -- Accumulated depreciation of buildings sold............................................... 13,212 1,561 Debt assumed by buyer of Cobblestone Golf Group.......................................... 5,637 -- Increase in real estate mortgages net of participation reduction......................... 259 461 Change in market value of equity securities in excess of cost............................ 3,816 3,971 Value of shares issued for conversion of debentures...................................... -- 5,962
11 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 2. SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED) Meditrust Corporation:
THREE MONTHS ENDED MARCH 31, -------------------- (IN THOUSANDS) 1999 1998 --------- --------- Interest paid during the period............................................................ $ 92,299 $ 44,120 Interest capitalized during the period..................................................... 2,743 1,652 Non-cash investing and financing transactions: Value of real estate acquired (sold): Land and buildings....................................................................... -- 7,118 Retirements and write-offs of project costs.............................................. (1,518) -- Accumulated depreciation of buildings sold............................................... 13,212 1,561 Debt assumed by buyer of Cobblestone Golf Group.......................................... 5,637 -- Increase in real estate mortgages net of participation reduction......................... 259 461 Change in market value of equity securities in excess of cost............................ 3,816 3,971 Value of shares issued for conversion of debentures...................................... -- 5,849
Meditrust Operating Company:
THREE MONTHS ENDED MARCH 31, -------------------------- (IN THOUSANDS) 1999 1998 ----------- ------------- Interest paid during the period............................................................ $ 110 $ 54 Non-cash investing and financing transactions: Value of shares issued for conversion of debentures...................................... -- 113
3. DISCONTINUED OPERATIONS On December 10, 1998, the Companies sold certain assets, leases, and licenses used in connection with the horseracing business conducted at Santa Anita Racetrack and recorded a loss on sale of $67,913,000 for the year ended December 31, 1998. During the three months ended March 31, 1999, the Companies recorded an adjustment of $1,875,000 to the estimated final selling price of the Santa Anita Racetrack. The Companies anticipate the final adjustment for this transaction to be completed during 1999. The Companies recorded a provision for loss on the disposition of Cobblestone Golf Group of approximately $237,035,000, which included estimated income taxes of $56,848,000, as of December 31, 1998 based upon the estimated proceeds to be realized upon sale. At December 31, 1998, the net assets subject to sale totaled $305,416,000 and were classified as net assets of discontinued operations on the combined consolidated balance sheet. On March 31, 1999, the Companies sold the Cobblestone Golf Group for approximately $393,000,000 before working capital and other adjustments, and reduced the loss on disposition by $2,994,000. The adjustment reflects an estimate of selling costs and an estimate of the adjustment relating to working capital balances at the sale date, both of which are being finalized. The Companies anticipate the final adjustment for this transaction to be completed during 1999. 12 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 3. DISCONTINUED OPERATIONS (CONTINUED) Combined operating results, for the three months ended March 31, 1999, (exclusive of any interest expense, depreciation and corporate charges) of discontinued golf operations are as follows:
COBBLESTONE (IN THOUSANDS) GOLF GROUP ------------- Revenues........................................................................................... $ 26,337 Operating expenses................................................................................. 22,268 ------------- Contribution....................................................................................... 4,069 Other expenses..................................................................................... 430 ------------- Income before income taxes......................................................................... 3,639 Income tax benefit................................................................................. 1,420 ------------- Net income......................................................................................... $ 5,059 ------------- -------------
4. REAL ESTATE INVESTMENTS The following is a summary of the Companies' real estate investments:
MARCH 31, DECEMBER 31, (IN THOUSANDS) 1999 1998 ------------- -------------- Land............................................................................... $ 469,991 $ 475,376 Buildings and improvements, net of accumulated depreciation and other provisions of $209,823 and $186,594............................................................ 3,316,031 3,381,392 Real estate mortgages and loans receivable, net of a valuation allowance of $19,191 and $18,991...................................................................... 1,201,467 1,197,634 Assets held for sale, net of accumulated depreciation and other provisions of $36,129 and $41,562.............................................................. 28,363 32,334 ------------- -------------- $ 5,015,852 $ 5,086,736 ------------- -------------- ------------- --------------
During the three months ended March 31, 1999, the Companies provided net funding of $17,869,000 for ongoing construction of healthcare facilities committed to prior to 1999. The Companies also provided net funding of $33,468,000 for construction and capital improvements to hotels acquired in The La Quinta Merger, and net funding of approximately $8,000,000 for capital improvements to golf courses which were included in net assets of discontinued operations as of December 31, 1998 and subsequently sold on March 31, 1999. Also during the three months ended March 31, 1999, Realty provided $11,956,000 for ongoing construction of mortgaged facilities already in the portfolio. During the three months ended March 31, 1999, Realty received net proceeds of $102,856,000 from the sale of one long-term care facility, one rehabilitation facility and 15 assisted living facilities. Realty realized a net gain on these sales of $12,271,000. In connection with these sales, $856,000 in lease breakage fees were received and have been included in other income in the consolidated statements of 13 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 4. REAL ESTATE INVESTMENTS (CONTINUED) operations. Realty also received $2,943,000 from the sale of a hotel and land held for development. There was no gain or loss realized on the sale. On March 31, 1999, Realty sold 43 golf courses (or leasehold interests in golf courses) as part of the sale of Cobblestone Golf Group (See Note 3). These golf courses were included in net assets of discontinued operations as of December 31, 1998. During the three months ended March 31, 1999, Realty received principal payments of $8,182,000 on real estate mortgages. At March 31, 1999, Realty was committed to provide additional financing of approximately $97,000,000 relating to four long-term care facilities, 9 assisted living facilities and 9 hotel facilities currently under construction as well as additions to existing facilities in the portfolio. 5. INDEBTEDNESS On July 17, 1998, Realty entered into a credit agreement (the "Credit Agreement") which provided Realty with up to $2,250,000,000 in credit facilities, replacing Realty's then existing $365,000,000 revolving credit facilities. The Credit Agreement provided for borrowings in four separate tranches (each a "Tranche"): Tranche A, a $1,000,000,000 revolving loan, amounts of which if repaid may be reborrowed, which matures July 17, 2001; Tranche B, a term loan in the amount of $500,000,000, amounts of which if repaid may not be reborrowed, which matures July 17, 1999 with a $250,000,000 mandatory principal payment on April 17, 1999; Tranche C, a term loan in the amount of $250,000,000, amounts of which if repaid may not be reborrowed, which matures July 17, 1999 with a six month extension option; and Tranche D, a term loan in the amount of $500,000,000, amounts of which if repaid may not be reborrowed, which matures July 17, 2001. On November 23, 1998, Realty amended its Credit Agreement to provide for Realty's cash repayment of a portion of its Forward Equity Issuance Transaction ("FEIT"), the amendment of certain financial covenants to accommodate asset sales, to exclude the impact of non-recurring charges in certain covenant calculations, and to provide for future operating flexibility. The amendment also provided for an increase to the LIBOR pricing of the credit facility by approximately 125 basis points, and the pledge of stock of the Companies' subsidiaries. This pledge of subsidiary stock also extended on a pro rata basis to entitled bondholders. Realty also agreed to a 25 basis point increase to the LIBOR pricing in the event that an equity offering of at least $100,000,000 had not been completed by February 1, 1999. On February 1, 1999 this increase went into effect. On January 8, 1999, Realty repaid $250,000,000 of its Tranche B term loan that was scheduled to mature on April 17, 1999. On March 10, 1999, Realty reached a second agreement with its bank group to further amend the Credit Agreement. The second amendment, which was subject to the successful completion of the sale of Cobblestone Golf Group, provided for a portion of the sale proceeds to be applied to settle a portion of the FEIT. The second amendment also provided for, among other things, deletion of limitations on certain healthcare investments and lowering the Tranche A loan commitments to $850,000,000. On March 31, 1999, the Companies completed the sale of Cobblestone Golf Group. 14 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 5. INDEBTEDNESS (CONTINUED) Of the $850,000,000 revolving tranche commitment, $561,000,000 was available at March 31, 1999, at Realty's option of the base rate (9.75%) or LIBOR plus 2.875% (7.8125% at March 31, 1999). During July 1998, Realty entered into interest rate swap agreements to reduce the impact on interest expense of fluctuating interest rates on $1,250,000,000 of its Credit Agreement. Realty agreed with the counterparty to exchange, on a monthly basis, the difference between Realty's fixed pay rate and the counterparty's variable pay rate of one month LIBOR. During January 1999, Realty cancelled a $250,000,000 contract from the interest rate swap agreement in connection with the repayment described above. At March 31, 1999, Realty was a fixed rate payor of approximately 5.7% and received a variable rate of approximately 4.9%. Differentials in the swapped amounts are recorded as adjustments to interest expense of Realty. 6. SHAREHOLDERS' EQUITY On March 10, 1999, the Companies entered into an agreement with Merrill Lynch International, a UK-based broker/dealer subsidiary of Merrill Lynch & Co., Inc. (collectively with its agent and successor in interest, "MLI") and certain of its affiliates to use the proceeds from the sale of the Cobblestone Golf Group in excess of $300,000,000 to repurchase all or a portion of the remaining paired common shares, outstanding under the FEIT. MLI agreed not to sell any shares of the remaining paired common shares until March 31, 1999, while the Companies completed the sale of Cobblestone Golf Group. On March 31, 1999, the Companies completed the sale of Cobblestone Golf Group and on April 1, 1999, the Companies settled the FEIT by paying MLI approximately $89,840,000 for the repurchase of 6,865,000 paired common shares. As of March 31, 1999, the following classes of Preferred Stock, Excess Stock and Series Common Stock were authorized; no shares were issued or outstanding at either March 31, 1999 or December 31, 1998: Meditrust Operating Company Preferred Stock $.10 par value; 6,000,000 shares authorized; Meditrust Corporation Excess Stock $.10 par value; 25,000,000 shares authorized; Meditrust Operating Company Excess Stock $.10 par value; 25,000,000 shares authorized; Meditrust Corporation Series Common Stock $.10 par value; 30,000,000 shares authorized; Meditrust Operating Company Series Common Stock $.10 par value; 30,000,000 shares authorized. During January 1999, 200,000 restricted shares of the Companies' stock were issued to key employees under The Meditrust Corporation 1995 Share Award Plan and The Meditrust Operating Company 1995 Share Award Plan (collectively known as the "Share Award Plan"). Under the Share Award Plan participants are entitled to cash dividends and voting rights on their respective restricted shares. Restrictions generally limit the sale or transfer of shares during a restricted period, not exceeding eight years. Participants vest in the restricted shares granted on the earliest of eight years after the date of issuance, upon achieving the performance goals as defined, or as the Boards of Directors may determine. 15 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 6. SHAREHOLDERS' EQUITY (CONTINUED) Unearned compensation was charged for the market value of the restricted shares on the date of grant and is being amortized over the restricted period. The unamortized unearned compensation value is shown as a reduction of shareholders' equity in the accompanying consolidated and combined consolidated balance sheets. 7. COMPREHENSIVE INCOME AND OTHER ASSETS As of March 31, 1999, Realty had invested approximately $57,204,000 in Nursing Home Properties Plc ("NHP Plc"), a property investment group which specializes in the financing, through sale leaseback transactions, of nursing homes located in the United Kingdom. The investment includes approximately 26,606,000 shares of NHP Plc, representing an ownership interest in NHP Plc of 19.99% of which Realty has voting rights with respect to 9.99%. The difference between the current market value and the cost, $18,905,000, is included in shareholders' equity in the accompanying balance sheet. As of March 31, 1999, Realty owns 331,000 shares of stock and warrants to purchase 1,006,000 shares of stock in Balanced Care Corporation ("BCC"), a healthcare operator. The stock and warrants have a current market value of $2,987,000. The difference between current market value and the cost of the BCC investment, $1,882,000, is included in shareholders' equity in the accompanying balance sheet. The following is a summary of the Companies' comprehensive income:
THREE MONTHS ENDED MARCH 31, -------------------- (IN THOUSANDS) 1999 1998 --------- --------- Net income................................................................................. $ 19,744 $ 51,621 Other comprehensive income: Changes in market value of equity securities in excess of cost............................. 3,816 3,971 --------- --------- Comprehensive income....................................................................... $ 23,560 $ 55,592 --------- --------- --------- ---------
Other assets includes the investments in NHP Plc and BCC as well as La Quinta intangible assets, furniture, fixtures and equipment, and other receivables. 8. DISTRIBUTIONS PAID TO SHAREHOLDERS On February 16, 1999, Realty paid a dividend of $0.46 per share of common stock, to shareholders of record on January 29, 1999. On March 31, 1999, Realty paid a dividend of $0.5625 per depository share of preferred stock to holders of record on March 15, 1999 of its 9.00% Series A cumulative redeemable preferred stock. 9. OTHER EXPENSES During the first quarter of 1999, the Companies recorded approximately $34,887,000 in other expenses. 16 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 9. OTHER EXPENSES (CONTINUED) On May 10, 1999, The Meditrust Companies entered into a separation agreement with Abraham D. Gosman, former Director and Chairman of the Companies and Chief Executive Officer and Treasurer of Meditrust Operating Company. Under the terms of the separation agreement, Mr. Gosman will receive severance payments totaling $25,000,000 in cash and the continuation of certain life insurance benefits. The Meditrust Companies established a Special Committee of The Boards of Directors of Meditrust Corporation and Meditrust Operating Company (the "Special Committee") to evaluate the applicability of Mr. Gosman's employment contract and whether such severance or other payments were appropriate. Based on the results of the evaluation and recommendation of the Special Committee, the Boards of Directors concluded that the separation agreement was in the long-term best interest of the shareholders of the Companies and approved the separation agreement. The Companies incurred approximately $5,889,000 of non-recurring costs associated with the development and implementation of the Plan. These costs primarily relate to the early repayment and modification of certain debt and professional and other advisory fees. Also, in conjunction with the implementation of the Plan, which included a change in the focus of the lodging division to internal growth, La Quinta management performed a review of the front desk system under development for its lodging facilities, and made a decision to abandon the project. The decision was based primarily on management's intent to integrate the front desk system with new revenue management software, availability of more suitable and flexible externally developed software and a shift in information systems philosophy toward implementation of externally developed software and outsourcing of related support services. A charge of approximately $3,998,000 to write-off certain internal and external software development costs related to the project was recorded in the first quarter of 1999. 10. LA QUINTA MERGER On July 17, 1998, Realty completed its merger with La Quinta whereby La Quinta merged with and into Realty, with Realty as the surviving corporation. The following unaudited pro forma condensed combined consolidated results of operations of Realty and Operating Company have been prepared as if the La Quinta Merger had occurred on January 1, 1998.
FOR THE QUARTER ENDED MARCH 31, 1998 ---------------------- (Unaudited in thousands, except per share amounts) Revenue............................................................... $ 241,561 Net income from continuing operations................................. $ 43,719 Basic earnings per paired common share from continuing operations............................................... $ .32 Weighted average paired common shares outstanding..................... 134,708
The pro forma condensed combined consolidated results do not purport to be indicative of results that would have occurred had the La Quinta Merger been in effect for the periods presented, nor do they purport to be indicative of the results that will be obtained in the future. 17 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 11. EARNINGS PER SHARE COMBINED CONSOLIDATED EARNINGS PER SHARE IS COMPUTED AS FOLLOWS:
FOR THE THREE MONTHS ENDED MARCH 31, -------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 --------- --------- Income from continuing operations.......................................................... $ 14,875 $ 43,705 Preferred stock dividends.................................................................. (3,938) --------- --------- Income from continuing operations available to common shareholders......................... $ 10,937 $ 43,705 --------- --------- --------- --------- Average outstanding shares of paired common stock.......................................... 147,983 91,428 Dilutive effect of: Contingently issuable shares............................................................. 363 143 Stock options............................................................................ 126 336 --------- --------- Dilutive potential paired common stock..................................................... 148,472 91,907 --------- --------- --------- --------- Earnings per share: Basic.................................................................................... $ 0.07 $ 0.48 --------- --------- --------- --------- Diluted.................................................................................. $ 0.07 $ 0.48 --------- --------- --------- ---------
Options to purchase 1,919,000 and 2,586,000 paired common shares at prices ranging from $21.85 to $36.46 were outstanding during the three months ended March 31, 1999 and 1998, respectively, but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the paired common shares. The options, which expire on dates ranging from October 2001 to October 2007, were still outstanding at March 31, 1999. Convertible debentures outstanding for the three months ended March 31, 1999 and 1998, representing 6,540,000 and 7,990,000 paired common shares if converted, respectively, are not included in the computation of diluted EPS because the inclusion would result in an antidilutive effect. 18 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 11. EARNINGS PER SHARE (CONTINUED) MEDITRUST CORPORATION EARNINGS PER SHARE IS COMPUTED AS FOLLOWS:
FOR THE THREE MONTHS ENDED MARCH 31, ---------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 ----------- --------- Income from continuing operations........................................................ $ 43,091 $ 44,640 Preferred stock dividends................................................................ (3,938) ----------- --------- Income from continuing operations available to common shareholders....................... $ 39,153 $ 44,640 ----------- --------- ----------- --------- Average outstanding shares of common stock............................................... 149,288 92,734 Dilutive effect of: Contingently issuable shares........................................................... 363 143 Stock options.......................................................................... 126 336 ----------- --------- Dilutive potential common stock.......................................................... 149,777 93,213 ----------- --------- ----------- --------- Earnings per share: Basic.................................................................................. $ 0.26 $ 0.48 ----------- --------- ----------- --------- Diluted................................................................................ $ 0.26 $ 0.48 ----------- --------- ----------- ---------
Options to purchase 1,919,000 and 2,586,000 paired common shares at prices ranging from $21.85 to $36.46 were outstanding during the three months ended March 31, 1999 and 1998, respectively, but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. The options, which expire on dates ranging from October 2001 to October 2007, were still outstanding at March 31, 1999. Convertible debentures outstanding for the three months ended March 31, 1999 and 1998, representing 6,540,000 and 7,990,000 paired common shares if converted, respectively, are not included in the computation of diluted EPS because the inclusion would result in an antidilutive effect. MEDITRUST OPERATING COMPANY EARNINGS PER SHARE IS COMPUTED AS FOLLOWS:
FOR THE THREE MONTHS ENDED MARCH 31, ---------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 ----------- --------- Loss from continuing operations.......................................................... $ (28,216) $ (935) Preferred stock dividends................................................................ -- -- ----------- --------- Loss from continuing operations available to common shareholders......................... $ (28,216) $ (935) ----------- --------- Average outstanding shares of common stock............................................... 147,983 91,428 Dilutive effect of: Contingently issuable shares Stock options.......................................................................... ----------- --------- Dilutive potential common stock.......................................................... 147,983 91,428 ----------- --------- ----------- --------- Earnings per share: Basic.................................................................................. $ (0.19) $ (0.01) ----------- --------- ----------- --------- Diluted................................................................................ $ (0.19) $ (0.01) ----------- --------- ----------- ---------
19 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 11. EARNINGS PER SHARE (CONTINUED) Convertible debentures outstanding for the three months ended March 31, 1999 and 1998, representing 6,540,000 and 7,990,000 paired common shares if converted, respectively, are not included in the computation of diluted EPS because the inclusion would result in an antidilutive effect. Operating Company holds common shares of Realty which are unpaired pursuant to a stock option plan approved by the shareholders. The common shares held totaled 1,305,377 as of March 31, 1999. These shares affect the calculations of Realty's net income per common share but are eliminated in the calculation of net income per paired common share for The Meditrust Companies. 12. TRANSACTIONS BETWEEN REALTY AND OPERATING COMPANY Operating Company leases hotel facilities from Realty and its subsidiaries. The hotel facility lease arrangements between Operating Company and Realty include base and additional rent provisions and require Realty to assume costs attributable to property taxes and insurance. In connection with certain acquisitions, Operating Company issued shares to Realty and recorded a receivable. Due to the affiliation of Realty and Operating Company, the receivable from Realty has been classified in Operating Company's shareholders' equity. Periodically, Realty and Operating Company issue shares under the Share Award Plan. Amounts due from Realty and Operating Company in connection with awards of shares under the Share Award Plan are shown as a reduction of shareholders' equity in the accompanying consolidated balance sheets of Realty and Operating Company, respectively. Realty provides certain services to Operating Company primarily related to general tax preparation and consulting, legal, accounting, and certain aspects of human resources. In the opinion of management, the costs associated with these services were not material and have been excluded from the financial statements. 13. SEGMENT REPORTING MEASUREMENT OF SEGMENT PROFIT OR LOSS The Companies evaluate performance based on contribution from each reportable segment. Contribution is defined by the Companies as income from operations before interest expense, depreciation, amortization, gains and losses on sales of assets, provisions for losses on disposal or impairment of assets, income or loss from unconsolidated entities, income taxes and nonrecurring income and expenses. The measurement of each of these segments is made on a combined basis with revenue from external customers, and excludes lease income between Realty and Operating Company. The Companies account for Realty and Operating Company transactions as if the transactions were to third parties, that is, at current market prices. Segment contribution for the three months ended March 31, 1998 includes only healthcare. The lodging segment was acquired on July 17, 1998. 20 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 13. SEGMENT REPORTING (CONTINUED) The following table presents information used by management by reported segment. The Companies do not allocate interest expense, income taxes or unusual items to segments.
THREE MONTHS ENDED MARCH 31, -------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 --------- --------- Healthcare: Rental income.............................................................................. $ 43,712 $ 43,656 Interest income............................................................................ 34,202 38,579 Rental property operating costs............................................................ (2,254) (1,265) General and administrative expenses........................................................ (4,918) (4,384) --------- --------- Healthcare Contribution.................................................................... 70,742 76,586 --------- --------- Lodging: Room revenue............................................................................... 139,051 Guest services and other................................................................... 9,483 Operating expenses......................................................................... (66,609) General and administrative expenses (1).................................................... (4,381) Rental property operating costs............................................................ (6,653) --------- Lodging Contribution....................................................................... 70,891 --------- Combined Contribution...................................................................... 141,633 76,586 --------- --------- Reconciliation to Combined Consolidated Financial Statements: Interest expense........................................................................... 66,657 25,417 Depreciation and amortization.............................................................. 33,859 10,458 Amortization of goodwill................................................................... 5,308 1,576 Gain on sale of assets..................................................................... (12,271) Income from unconsolidated joint venture................................................... (111) Other income............................................................................... (856) (26,000) Other expenses............................................................................. 34,887 21,541 --------- --------- 127,584 32,881 --------- --------- Income from continuing operations before benefit for income taxes.......................... 14,049 43,705 Income tax benefit......................................................................... (826) --------- --------- Income from continuing operations.......................................................... 14,875 43,705 Discontinued operations: Income from discontinued operations...................................................... 7,916 Gain (loss adjustment) on disposal of discontinued operations............................ 4,869 --------- --------- Net income................................................................................. 19,744 51,621 Preferred stock dividends.................................................................. (3,938) --------- --------- Net income available to Paired Common shareholders....................................... $ 15,806 $ 51,621 --------- --------- --------- ---------
- ------------------------ (1) Includes $267,000 of general and administrative expenses allocated to Operating related to maintaining the paired share structure. 21 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 14. SUBSEQUENT EVENTS On April 1, 1999, the Companies settled the FEIT with MLI with a payment totaling approximately $89,840,000. MLI returned approximately 6,865,000 paired common shares representing all of the remaining outstanding paired common shares under the FEIT on that date. On April 8, 1999, Realty repaid $250,000,000 of its Tranche B term loan and cancelled a $250,000,000 swap contract. Both were scheduled to mature in July 1999. On April 14, 1999, the Board of Directors of Realty declared a dividend of $0.46 per share of common stock payable on May 14, 1999 to shareholders of record on April 30, 1999. This dividend relates to the quarter ended March 31, 1999. On May 10, 1999, the Meditrust Companies entered into a separation agreement with Abraham D. Gosman, former Director and Chairman of the Companies and Chief Executive Officer and Treasurer of Meditrust Operating Company. Under the terms of the separation agreement, Mr. Gosman will receive severance payments totaling $25,000,000 in cash and the continuation of certain life insurance benefits. The Meditrust Companies established a Special Committee to evaluate the applicability of Mr. Gosman's employment contract and whether such severance or other payments were appropriate. Based on the results of the evaluation and recommendation of the Special Committee, the Boards of Directors concluded that the separation agreement was in the long-term best interest of the shareholders of the Companies and approved the separation agreement. 22 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CERTAIN MATTERS DISCUSSED HEREIN CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THE MEDITRUST COMPANIES (THE "COMPANIES"), CONSISTING OF MEDITRUST CORPORATION ("REALTY") AND MEDITRUST OPERATING COMPANY ("OPERATING"), INTEND SUCH FORWARD-LOOKING STATEMENTS TO BE COVERED BY THE SAFE HARBOR PROVISIONS FOR FORWARD-LOOKING STATEMENTS, AND ARE INCLUDING THIS STATEMENT FOR PURPOSES OF COMPLYING WITH THESE SAFE HARBOR PROVISIONS. ALTHOUGH THE COMPANIES BELIEVE THE FORWARD-LOOKING STATEMENTS ARE BASED ON REASONABLE ASSUMPTIONS, THE COMPANIES CAN GIVE NO ASSURANCE THAT THEIR EXPECTATIONS WILL BE ATTAINED. ACTUAL RESULTS AND TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN OR CONTEMPLATED BY THE FORWARD-LOOKING STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC AND REAL ESTATE CONDITIONS, THE CONDITIONS OF THE CAPITAL MARKETS AT THE TIME OF THE PROPOSED SPIN-OFF OF THE HEALTHCARE DIVISION, THE IDENTIFICATION OF SATISFACTORY PROSPECTIVE BUYERS FOR THE NON-STRATEGIC ASSETS AND THE AVAILABILITY OF FINANCING FOR SUCH PROSPECTIVE BUYERS, THE AVAILABILITY OF EQUITY AND DEBT FINANCING FOR THE COMPANIES' CAPITAL INVESTMENT PROGRAM, INTEREST RATES, COMPETITION FOR HOTEL SERVICES IN A GIVEN MARKET, THE ENACTMENT OF LEGISLATION IMPACTING THE COMPANIES' STATUS AS A PAIRED SHARE REAL ESTATE INVESTMENT TRUST ("REIT") OR REALTY'S STATUS AS A REIT, THE FURTHER IMPLEMENTATION OF REGULATIONS GOVERNING PAYMENTS TO THE OPERATORS OF REALTY'S HEALTHCARE FACILITIES, UNANTICIPATED DELAYS OR EXPENSES ON THE PART OF THE COMPANIES AND THEIR SUPPLIERS IN ACHIEVING YEAR 2000 COMPLIANCE AND OTHER RISKS DETAILED FROM TIME TO TIME IN THE FILINGS OF REALTY AND OPERATING WITH THE SECURITIES AND EXCHANGE COMMISSION ("SEC"), INCLUDING, WITHOUT LIMITATION, JOINT QUARTERLY REPORTS ON FORM 10-Q, JOINT CURRENT REPORTS ON FORM 8-K AND 8-K/A, AND JOINT ANNUAL REPORTS ON FORM 10-K AND 10-K/A. OVERVIEW The basis of presentation includes Management's Discussion and Analysis of Financial Condition and Results of Operations for the combined and separate SEC registrants. Management of the Companies believes that combined presentation is most beneficial to the reader. On November 5, 1997, Meditrust, a Massachusetts Business Trust ("Meditrust's Predecessor") merged with Santa Anita Realty Enterprises, Inc., with Santa Anita Realty Enterprises, Inc. as the surviving corporation, and Meditrust Acquisition Company merged with Santa Anita Operating Company, with Santa Anita Operating Company as the surviving corporation (hereafter referred to as the "Santa Anita Merger" or "Santa Anita Mergers"). Upon completion of the Santa Anita Mergers, Santa Anita Realty Enterprises, Inc. changed its corporate name to "Meditrust Corporation" and Santa Anita Operating Company changed its corporate name to "Meditrust Operating Company." The Santa Anita Mergers were accounted for as reverse acquisitions whereby Meditrust's Predecessor and Meditrust Acquisition Company were treated as the acquirers for accounting purposes. Accordingly, the financial history is that of Meditrust's Predecessor and Meditrust Acquisition Company prior to the Santa Anita Mergers. After completing the Santa Anita Merger, the Companies began pursuing a strategy of diversifying into additional new businesses. Implementation of this strategy included the evaluation of numerous potential acquisition targets. On January 3, and January 11, 1998, Realty entered into definitive merger agreements to acquire La Quinta Inns, Inc. and its wholly owned subsidiaries and its unincorporated partnership and joint venture (collectively "La Quinta" and "La Quinta Merger") and Cobblestone Holdings, Inc. and its wholly owned subsidiary (collectively "Cobblestone" and "Cobblestone Merger"), respectively. In February 1998, legislation was proposed which limited the ability of the Companies to 23 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES OVERVIEW (CONTINUED) utilize the paired share structure. Accordingly, the Companies ceased any further evaluation of potential merger candidates and began a process of evaluating its healthcare portfolio. The Companies consummated the Cobblestone Merger and the La Quinta Merger on May 29, 1998 and July 17, 1998, respectively. On July 22, 1998, the President of the United States signed into law the Internal Revenue Service Restructuring and Reform Act of 1998 (the "Reform Act"), which limits the Companies' ability to continue to grow through use of the paired share structure. While the Companies' use of the paired share structure in connection with the Cobblestone Merger and the La Quinta Merger was "grandfathered" under the Reform Act, the ability to continue to use the paired share structure to acquire additional real estate and operating businesses conducted with the real estate assets (including the golf and lodging industries) was substantially limited. In addition, during the summer of 1998, the debt and equity capital markets available to REITs deteriorated, thus limiting the Companies' access to cost-efficient capital. The Companies began an analysis of the impact of the Reform Act, the Companies' limited ability to access the capital markets, and the operating strategy of the Companies' existing businesses. This analysis included advice from outside professional advisors and presentations by management on the different alternatives available to the Companies. The analysis culminated in the development of a comprehensive restructuring plan (the "Plan") designed to strengthen the Companies' financial position and clarify its investment and operating strategy by focusing on the healthcare and lodging business segments. The Plan was announced on November 12, 1998 and included the following components: - Pursue the separation of the Companies' primary businesses, healthcare and lodging, by creating two separately traded publicly listed REITs. The Companies intend to spin off the healthcare financing business into a stand-alone REIT; - Continue to operate the Companies' healthcare and lodging businesses using the existing paired share REIT structure until the healthcare spin-off takes place; - Sell more than $1 billion of non-strategic assets, including the portfolio of golf-related real estate and operating properties ("Cobblestone Golf Group"), the Santa Anita Racetrack and approximately $550 million of non-strategic healthcare properties; - Use the proceeds from these asset sales to achieve significant near-term debt reduction; - Settle the Companies' forward equity issuance transaction ("FEIT") with Merrill Lynch; - Reduce capital investments to reflect the current operating condition in each industry; - Reset Realty's annual dividend to $1.84 per common share, an amount that Realty deemed sustainable and comparable to its peer groups. Following the announcement of the Plan, the Companies classified the golf and horseracing activities as discontinued operations for financial reporting purposes. Accordingly, management's discussion and analysis of financial condition and results of operations is focused on the Companies' primary businesses, healthcare and lodging. The joint annual report on Form 10-K, filed for the year ended December 31, 1998, summarized progress in implementing, and in some cases completing, significant components of the Plan during 24 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES OVERVIEW (CONTINUED) 1998 and in early 1999. This joint quarterly report on Form 10-Q provides an update since that document was filed. THE MEDITRUST COMPANIES--COMBINED RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999 VS THREE MONTHS ENDED MARCH 31, 1998 Revenue for the three months ended March 31, 1999, was $227,304,000 compared to $108,235,000 for the three months ended March 31, 1998, an increase of $119,069,000. Revenue growth was primarily attributable to the addition of hotel operating revenues of $148,534,000, which was partially offset by a net decrease to rental and interest income of $4,321,000. The decrease resulted from mortgage repayments received over the last year net of the effect of increased mortgage investments made during the same period. Other non-recurring income for the three months ended March 31, 1999 was $856,000, which arose from lease breakage fees received from the sale of healthcare-owned properties. Other non-recurring income for the three months ended March 31, 1998 was $26,000,000, which arose from prepayment fees collected from a significant mortgage repayment. There are no comparative hotel operating revenues for the three months ended March 31, 1998 as the La Quinta Merger was not consummated until July 17, 1998, however, certain factors can be compared to the predecessor entity. Hotel operating revenues generally are measured as a function of the average daily rate ("ADR") and occupancy. The ADR increased to $61.73 in 1999 from $60.92 in 1998, an increase of $0.81 or 1.3%. Occupancy percentage increased .5 percentage points to 67.1% in 1999 from 66.6% in 1998. Revenue per available room ("RevPAR"), which is the product of occupancy percentage and ADR, increased 2.2% over 1998. For the three months ended March 31, 1999, total recurring operating expenses were $84,815,000 compared to $5,649,000 for the three months ended March 31, 1998, an increase of $79,166,000. This increase was primarily attributable to the addition of hotel expenses which include operating expenses of $66,609,000, general and administrative expenses of $4,381,000 which includes $4,114,000 in overhead for the lodging segment and $267,000 for expenses of the paired share structure and rental property operating expenses relating to the hotels of $6,653,000. Hotel operating and general and administrative expenses include costs associated with the operation such as salaries, wages, utilities, repair and maintenance, credit card discounts and room supplies as well as corporate expenses, such as the costs of general management, office rent, training and field supervision of hotel managers and other marketing and administrative expenses. Rental property operating costs attributed to the lodging segment principally consist of property taxes on hotel facilities. For the three months ended March 31, 1999, rental property operating expenses attributable to the healthcare business were $2,254,000 compared to $1,265,000 for the three months ended March 31, 1998, an increase of $989,000. The increase was primarily a result of expenses associated with medical office buildings purchased over the last twelve months. Rental property operating expenses attributed to the healthcare business principally consist of expenses for the management and operation of medical office buildings. General and administrative expenses related to healthcare increased by $534,000 primarily due to increases in state franchise taxes resulting from acquisitions made over the last twelve months. The Companies consider contribution from each primary business in evaluating performance. Contribution includes revenue from each business, excluding non-recurring or unusual income, less operating expenses, rental property operating expenses and general and administrative expenses. The combined contribution of the healthcare and lodging businesses was $141,633,000 for the three months 25 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES THREE MONTHS ENDED MARCH 31, 1999 VS THREE MONTHS ENDED MARCH 31, 1998 (CONTINUED) ended March 31, 1999, of which $70,742,000 related to healthcare and $70,891,000 related to lodging. The contribution of the healthcare business decreased $5,844,000 from $76,586,000 for the comparative three months ended March 31, 1998. The decrease was primarily a result of the impact on revenue of mortgage repayments made over the last year and increases to state franchise taxes related to mergers completed in the last year. The lodging contribution was $70,891,000 or 47.7% of lodging revenues during the three months ended March 31, 1999, compared to 46.2% for the same period in 1998. This improvement is reflective of a greater number of Inn & Suites hotels which generally operate at higher margins than La Quinta Inns and a continuing focus on cost controls and reduced corporate overhead. Interest expense increased by $41,240,000 due to increases in the borrowing rate and in debt outstanding as a result of a new bank facility added in 1998, the acquisitions of La Quinta and Cobblestone, net of amounts repaid from various asset sales made over the past year. Depreciation and amortization increased by $27,133,000 which was primarily a result of increased real estate investments and amortization of goodwill from the La Quinta acquisition completed on July 17, 1998. ASSET SALES During the three months ended March 31, 1999, Realty realized gains on the sale of healthcare real estate assets of $12,271,000. Sales of healthcare properties were completed pursuant to the Plan and included one rehabilitation facility, one long-term care facility, and 15 assisted living facilities. Realty also sold a hotel and land held for development on which there was no gain or loss realized. OTHER EXPENSES During the first quarter of 1999, the Companies recorded approximately $34,887,000 in other expenses. On May 10, 1999, the Meditrust Companies entered into a separation agreement with Abraham D. Gosman, former Director and Chairman of the Companies and Chief Executive Officer and Treasurer of Meditrust Operating Company. Under the terms of the separation agreement, Mr. Gosman will receive severance payments totaling $25,000,000 in cash and the continuation of certain life insurance benefits. The Meditrust Companies established a Special Committee of The Boards of Directors of Meditrust Corporation and Meditrust Operating Company (the "Special Committee") to evaluate the applicability of Mr. Gosman's employment contract and whether such severance or other payments were appropriate. Based on the results of the evaluation and recommendation of the Special Committee, the Boards of Directors concluded that the separation agreement was in the long-term best interest of the shareholders of the Companies and approved the separation agreement. The Companies incurred approximately $5,889,000 of non-recurring costs associated with the development and implementation of the Plan. These costs primarily relate to the early repayment and modification of certain debt and professional and other advisory fees. Also, in conjunction with the implementation of the Plan, which included a change in the focus of the lodging division to internal growth, La Quinta management performed a review of the front desk system under development for its lodging facilities, and made a decision to abandon the project. The decision was based primarily on management's intent to integreate the front desk system with new revenue, management software, availability of more suitable and flexible externally developed software and a shift 26 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES THREE MONTHS ENDED MARCH 31, 1999 VS THREE MONTHS ENDED MARCH 31, 1998 (CONTINUED) in information systems philosophy toward implementation of externally developed software and outsourcing of related support services. A charge of approximately $3,998,000 to write-off certain internal and external software development costs related to the project was recorded in the first quarter of 1999. DISCONTINUED OPERATIONS As part of the Plan, the Companies sold the Santa Anita Racetrack during the fourth quarter of 1998 and sold the Cobblestone Golf Group during the first quarter of 1999. The Companies have reflected the financial results for 1999 and 1998 of Santa Anita and Cobblestone as discontinued operations. During the first quarter of 1999, the Companies adjusted the provision for loss on disposal of the Cobblestone Golf Group by recording a gain of approximately $2,944,000 which includes an estimate of a working capital adjustment to the final selling price. In addition, during the first quarter the Companies recorded $1,875,000 as an adjustment to the estimated selling price of the Santa Anita Racetrack. The Companies anticipate the final adjustments for both of these transactions will be finalized during 1999. NET INCOME The resulting net income available for common shareholders, after deducting preferred share dividends, for the three months ended March 31, 1999, was $15,806,000 compared to net income of $51,621,000 for the three months ended March 31, 1998. The net income per paired common share (diluted) for the three months ended March 31, 1999 was $0.11 compared to net income per paired common share (diluted) of $0.56 for the three months ended March 31, 1998. The per paired common share amount decreased primarily due to other expenses and the issuance of additional paired common shares to consummate the Cobblestone Merger and the La Quinta Merger, of 8,177,000 and 43,280,000, respectively. THE MEDITRUST COMPANIES--COMBINED LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS FROM OPERATING ACTIVITIES The principal source of cash to be used to fund the Companies' future operating expenses, interest expense, recurring capital expenditures and distribution payments will be cash flow provided by operating activities. The Companies anticipate that cash flow provided by operating activities will provide the necessary funds on a short and long-term basis to meet operating cash requirements including all distributions to shareholders. CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES On July 17, 1998, Realty entered into a credit agreement (the "Credit Agreement") which provided Realty with up to $2,250,000,000 in credit facilities, replacing Realty's then existing $365,000,000 revolving credit facilities. The Credit Agreement provided for borrowings in four separate tranches (each a "Tranche"): Tranche A, a $1,000,000,000 revolving loan, amounts of which if repaid may be reborrowed, which matures July 17, 2001; Tranche B, a term loan in the amount of $500,000,000, amounts of which if repaid may not be reborrowed, which matures July 17, 1999 with a $250,000,000 mandatory principal payment on April 17, 1999; Tranche C, a term loan in the amount of $250,000,000, amounts of which if repaid may not be reborrowed, which matures July 17, 1999 with a six month extension option which management intends to exercise for a fee of 12.5 basis points; and Tranche D, a term loan in the amount of $500,000,000, amounts of which if repaid may not be reborrowed, which matures July 17, 2001. 27 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES THE MEDITRUST COMPANIES--COMBINED LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) On November 23, 1998, Realty amended its Credit Agreement to provide for Realty's cash repayment of a portion of its FEIT, the amendment of certain financial covenants to accommodate asset sales, to exclude the impact of non-recurring charges in certain covenant calculations, and to provide for future operating flexibility. The amendment also provided for an increase to the LIBOR pricing of the credit facility by approximately 125 basis points, and the pledge of stock of the Companies' subsidiaries. This pledge of subsidiary stock also extended on a pro rata basis to entitled bondholders. Realty also agreed to a 25 basis point increase to the LIBOR pricing in the event that an equity offering of at least $100,000,000 had not been completed by February 1, 1999. On February 1, 1999 this increase went into effect. On January 8, 1999, Realty repaid $250,000,000 of its Tranche B term loan that was scheduled to mature on April 17, 1999. On March 10, 1999, Realty reached a second agreement with its bank group to further amend the Credit Agreement. The second amendment, which is effective upon the successful completion of the sale of Cobblestone Golf Group, provides for a portion of the sale proceeds to be applied to the FEIT. The second amendment also provides for, among other things, upon the sale of Cobblestone Golf Group, elimination of limitations on certain healthcare investments and lowering the commitment on the revolving tranche to $850,000,000. On March 10, 1999, the Companies entered into an agreement with Merrill Lynch International, a UK-based broker/dealer subsidiary of Merrill Lynch & Co., Inc. (collectively with its agent and successor in interest, "MLI") and certain of its affiliates to use the proceeds from the sale of the Cobblestone Golf Group in excess of $300,000,000 to repurchase all or a portion of the remaining paired common shares, outstanding under the FEIT. MLI agreed not to sell any of the remaining paired common shares outstanding under the FEIT until March 31, 1999, while the Companies completed the sale of Cobblestone Golf Group. On March 31, 1999, the Companies completed the sale of Cobblestone Golf Group and on April 1, 1999, the Companies settled the FEIT by paying MLI $89,840,000 for the repurchase of 6,865,000 paired common shares. As of March 31, 1999, approximately $2,488,000 in charges related to the Plan remained unpaid. Payments made during the quarter included professional and advisory fees and severance paid to former employees. As of March 31, 1999, the Companies' gross real estate investments totaled approximately $5,280,995,000 consisting of 219 long-term care facilities, 142 retirement and assisted living facilities, 34 medical office buildings, one acute care hospital campus, seven other healthcare facilities and 293 hotel facilities in service with 9 more under construction. At March 31, 1999, Realty was committed to provide additional financing of approximately $97,000,000 relating to four long-term care facilities, 9 assisted living facilities and 9 hotel facilities currently under construction as well as additions to existing facilities in the portfolio. The Companies had shareholders' equity of $2,890,828,000 and debt constituted 48% of the Companies' total capitalization as of March 31, 1999. On April 8, 1999, Realty repaid $250,000,000 of its Tranche B term loan and cancelled a $250,000,000 Swap Contract. Both were scheduled to mature on July 17, 1999. On April 14, 1999, the Board of Directors of Realty declared a dividend of $0.46 per share of common stock payable on May 14, 1999 to shareholders of record on April 30, 1999. This dividend relates to the quarter ended March 31, 1999. 28 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES THE MEDITRUST COMPANIES--COMBINED LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Of the $850,000,000 revolving tranche commitment, $242,000,000 was available at May 5, 1999, at Realty's option of the base rate (9.75%) or LIBOR plus 2.875% (7.8125% at May 5, 1999). The Companies have an effective shelf registration statement on file with the SEC under which the Companies may issue $1,825,000,000 of securities including shares, preferred stock, debt, series common stock, convertible debt and warrants to purchase shares, preferred shares, debt, series common stock and convertible debt. The Companies believe that their various sources of capital are adequate to finance their operations as well as their existing commitments, including the acquisition and/or mortgage financing of certain healthcare facilities, the completion of the La Quinta Inn & Suites currently under development and repayment of the debt maturing in 1999. COMBINED FUNDS FROM OPERATIONS Combined Funds from Operations of the Companies was $73,946,000 and $59,085,000 for the three months ended March 31, 1999 and 1998, respectively. Management considers Funds from Operations to be a key external measurement of REIT performance. Funds from Operations represents net income or loss available to common shareholders (computed in accordance with generally accepted accounting principles), excluding real estate related depreciation, amortization of goodwill and certain intangible assets, gains and losses from the sale of assets and non-recurring income and expenses. For 1999 and 1998, non-recurring income primarily consists of gains attributable to the prepayment of loans and lease breakage fees. Non-recurring expenses include charges related to a separation agreement, comprehensive restructuring costs, write-off of other capitalized costs related to terminated projects, asset impairments and provisions on other assets and receivables unrelated to primary businesses. Funds from Operations should not be considered an alternative to net income or other measurements under generally accepted accounting principles as an indicator of operating performance or to cash flows from operating, investing, or financing activities as a measure of liquidity. Funds from Operations does not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness. The following reconciliation of net income and loss available to common shareholders to Funds from Operations illustrates the difference between the two measures of operating performance for the three months ended March 31, 1999 and 1998. Certain reconciling items include amounts reclassified from income from operations or gain on disposal of discontinued operations and, accordingly, do not necessarily agree to revenue and expense captions in the Companies' financial statements.
THREE MONTHS ENDED MARCH 31, -------------------- (IN THOUSANDS) 1999 1998 --------- --------- Net income available to common shareholders................................................ $ 15,806 $ 51,621 Depreciation of real estate and intangible amortization.................................. 38,273 11,923 Gains on sales of assets................................................................. (14,594) Other income............................................................................. (856) (26,000) Other expenses........................................................................... 35,317 21,541 --------- --------- Funds from Operations...................................................................... $ 73,946 $ 59,085 --------- --------- --------- --------- Weighted average paired common shares outstanding: Basic...................................................................................... 147,983 91,428 Diluted.................................................................................... 148,472 91,907
29 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES REALTY--RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999 VS. THREE MONTHS ENDED MARCH 31, 1998 Revenue for the three months ended March 31, 1999 was $153,676,000 compared to $108,379,000 for the three months ended March 31, 1998, an increase of $45,297,000. Revenue growth was primarily attributable to the addition of rent and royalty income of $71,868,000 from Operating, related to hotel facilities acquired in the La Quinta Merger and the addition of revenues of $3,210,000 from hotels operated by Realty. These increases were partially offset by a net decrease to rental and interest income of $4,637,000. The decrease resulted primarily from mortgage repayments received over the last year net of the affect of increased mortgage investments made during the same period. Other non-recurring income for the three months ended March 31, 1999 was $856,000, which arose from lease breakage fees received from the sale of healthcare-owned properties. Other non-recurring income for the three months ended March 31, 1998 was $26,000,000, which arose from prepayment fees collected from a significant mortgage repayment. For the three months ended March 31, 1999, total recurring expenses increased by $76,158,000. Interest expense increased $41,130,000 due to increases in debt outstanding resulting from additional real estate investments made over the past year and the acquisitions of La Quinta and Cobblestone. Depreciation and amortization increased by $25,312,000 which was primarily a result of increased real estate investments and amortization of goodwill from the La Quinta Merger completed on July 17, 1998. General and administrative expenses increased by $1,124,000 primarily due to a higher level of operating costs associated with the management and activity of the portfolio and as a result of the La Quinta Merger. Rental and hotel property operating expenses increased by $8,592,000 primarily due to property taxes incurred at hotel facilities, expenses related to the operation of two hotels and management and operation of medical office buildings that were purchased in 1998. ASSET SALES During the three months ended March 31, 1999, Realty realized gains on the sale of healthcare real estate assets of $12,271,000. Sales of healthcare properties were completed pursuant to the Plan and included one rehabilitation facility, one long-term care facility, and 15 assisted living facilities. Realty also sold a hotel and land held for development on which there was no gain or loss realized. OTHER EXPENSES During the three months ended March 31, 1999, other non-recurring expenses of $4,389,000 were incurred which related to the Plan. Proceeds of asset sales completed in December 1998 were used to repay debt prior to maturity and de-lever the balance sheet. As a result, approximately $3,907,000 of capitalized debt costs and $482,000 of breakage fees associated with swap contracts on repaid debt and other items were charged off. DISCONTINUED OPERATIONS Pursuant to the Plan, Realty has classified golf and horseracing activities as discontinued operations for financial reporting purposes. Accordingly, Realty has presented as discontinued operations approximately $16,094,000 of gains on disposal of the golf and horseracing segments during the three months ended March 31, 1999. Realty has recorded a gain of $9,439,000 related to the sale of the Cobblestone Golf Group, which was sold on March 31, 1999. The horseracing segment was sold on December 10, 1998. During the first quarter of 1999, a gain of $6,655,000 was recorded which related to 30 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES THREE MONTHS ENDED MARCH 31, 1999 VS. THREE MONTHS ENDED MARCH 31, 1998 (CONTINUED) an adjustment of the selling price between Realty and Operating. For the three months ended March 31, 1998, Realty has presented income from discontinued operations of $7,062,000, which was related to the horseracing segment. NET INCOME The resulting net income available for common shareholders, after deducting preferred share dividends, for the three months ended March 31, 1999, was $55,247,000 compared to net income of $51,702,000 for the three months ended March 31, 1998. The net income per common share (diluted) for the three months ended March 31, 1999 was $0.37 compared to net income per common share (diluted) of $0.55 for the three months ended March 31, 1998. The per common share amount decreased primarily due to the issuance of additional common shares to consummate the Cobblestone Merger and the La Quinta Merger, of 8,177,000 and 43,280,000, respectively. REALTY--LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS FROM OPERATING ACTIVITIES The principal source of cash to be used to fund Realty's future operating expenses, interest expense, recurring capital expenditures and distribution payments will be cash flow provided by operating activities. Realty anticipates that cash flow provided by operating activities will provide the necessary funds on a short and long-term basis to meet operating cash requirements including all distributions to shareholders. CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES Realty provides funding for new investments and costs associated with the restructuring through a combination of long-term and short-term financing including, both debt and equity, as well as the sale of assets. Realty obtains long-term financing through the issuance of shares, long-term unsecured notes, convertible debentures and the assumption of mortgage notes. Realty obtains short-term financing through the use of bank lines of credit, which are replaced with long-term financing as appropriate. From time to time, Realty may utilize interest rate caps or swaps to attempt to hedge interest rate volatility. It is Realty's objective to match mortgage and lease terms with the terms of its borrowings. Realty attempts to maintain an appropriate spread between its borrowing costs and the rate of return on its investments. When development loans convert to sale/leaseback transactions or permanent mortgage loans, the base rent or interest rate, as appropriate, is fixed at the time of such conversion. There is, however, no assurance that Realty will satisfactorily achieve, if at all, the objectives set forth in this paragraph. On July 17, 1998, Realty entered into a Credit Agreement which provided Realty with up to $2,250,000,000 in credit facilities, replacing Realty's then existing $365,000,000 revolving credit facilities. The Credit Agreement provided for borrowings in four separate Tranches: Tranche A, a $1,000,000,000 revolving loan, amounts of which if repaid may be reborrowed, which matures July 17, 2001; Tranche B, a term loan in the amount of $500,000,000, amounts of which if repaid may not be reborrowed, which matures July 17, 1999 with a $250,000,000 mandatory principal payment on April 17, 1999; Tranche C, a term loan in the amount of $250,000,000, amounts of which if repaid may not be reborrowed, which matures July 17, 1999 with a six month extension option which management intends to exercise for a fee of 12.5 basis points; and Tranche D, a term loan in the amount of $500,000,000, amounts of which if repaid may not be reborrowed, which matures July 17, 2001. 31 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES REALTY--LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) On November 23, 1998, Realty amended its Credit Agreement to provide for Realty's cash repayment of a portion of its FEIT, the amendment of certain financial covenants to accommodate asset sales, to exclude the impact of non-recurring charges in certain covenant calculations, and to provide for future operating flexibility. The amendment also provided for an increase to the LIBOR pricing of the credit facility by approximately 125 basis points, and the pledge of stock of the Companies' subsidiaries. This pledge of subsidiary stock also extended on a pro rata basis to entitled bondholders. Realty also agreed to a 25 basis point increase to the LIBOR pricing in the event that an equity offering of at least $100,000,000 had not been completed by February 1, 1999. On February 1, 1999 this increase went into effect. On January 8, 1999, Realty repaid $250,000,000 of its Tranche B term loan that was scheduled to mature on April 17, 1999. On March 10, 1999, Realty reached a second agreement with its bank group to further amend the Credit Agreement. The second amendment, which is effective upon the successful completion of the sale of Cobblestone Golf Group, provides for a portion of the sale proceeds to be applied to the FEIT. The second amendment also provides for, among other things, upon the sale of Cobblestone Golf Group, elimination of limitations on certain healthcare investments and lowering the commitment on the revolving tranche to $850,000,000. On March 10, 1999, the Companies entered into an agreement with MLI and certain of its affiliates to use the proceeds from the sale of the Cobblestone Golf Group in excess of $300,000,000 to repurchase all or a portion of the remaining paired common shares, outstanding under the FEIT. MLI agreed not to sell any shares of the remaining paired common shares until March 31, 1999, while the Companies completed the sale of Cobblestone Golf Group. On March 31, 1999, the Companies completed the sale of Cobblestone Golf Group and on April 1, 1999, the Companies settled the FEIT by paying MLI $89,840,000 for the repurchase of 6,865,000 paired common shares. As of March 31, 1999, approximately $907,000 in charges related to the Plan remained unpaid. Payments made during the quarter included professional and advisory fees and severance paid to former employees. As of March 31, 1999, Realty's gross real estate investments totaled approximately $5,260,981,000 consisting of 219 long-term care facilities, 142 retirement and assisted living facilities, 34 medical office buildings, one acute care hospital campus, seven other healthcare facilities and 291 hotel facilities in service with 9 more under construction. At March 31, 1999, Realty was committed to provide additional financing of approximately $97,000,000 relating to four long-term care facilities, 9 assisted living facilities and 9 hotel facilities currently under construction as well as additions to existing facilities in the portfolio. Realty had shareholders' equity of $2,852,825,000 and debt constituted 49% of Realty's total capitalization as of March 31, 1999. On April 1, 1999, the Companies fully settled, in cash, the FEIT. On April 8, 1999, Realty repaid $250,000,000 of its Tranche B term loan and cancelled a $250,000,000 swap contract. Both were scheduled to mature on July 17, 1999. On April 14, 1999, the Board of Directors of Realty declared a dividend of $0.46 per share of common stock payable on May 14, 1999 to shareholders of record on April 30, 1999. This dividend relates to the quarter ended March 31, 1999. 32 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES REALTY--LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Of the $850,000,000 revolving tranche commitment, $242,000,000 was available at May 5, 1999, at Realty's option of the base rate (9.75%) or LIBOR plus 2.875% (7.8125% at May 5, 1999). The Companies have an effective shelf registration statement on file with the SEC under which the Companies may issue $1,825,000,000 of securities including shares, preferred stock, debt, series common stock, convertible debt and warrants to purchase shares, preferred shares, debt, series common stock and convertible debt. Realty believes that various sources of capital are adequate to finance operations as well as existing commitments, including the acquisition and/or mortgage financing of certain healthcare facilities, the completion of the La Quinta Inn & Suites currently under development and repayment of the debt maturing in 1999. OPERATING--RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999 VS. THREE MONTHS ENDED MARCH 31, 1998 Operating has derived its revenue primarily from hotel operations since the consummation of the La Quinta Merger on July 17, 1998. Hotel revenues for the three months ended March 31, 1999 were $145,324,000. Approximately $139,051,000 or 96% of hotel revenues were derived from room rentals. Hotel operating revenues generally are measured as a function of the ADR and occupancy percentage. The ADR for the three months ended March 31,1999 was $61.73 compared to ADR for the three months ended March 31,1998 of $60.92, an increase of $.81 or 1.3%. Occupancy percentage increased to 67.1% from 66.6%, an increase of .5 percentage points. RevPar, which is a product of the occupancy percentage and ADR, increased 2.2% in the three months ended March 31,1999 over the three months ended March 31,1998. Other sources of hotel revenues during the three months ended March 31,1999 include guest services revenue of approximately $3,465,000 derived from charges to guests for long distance service, fax use and laundry service and approximately $2,172,000 related to meeting and banquet rentals, restaurant rental and management services, which were earned during the three months ended March 31, 1999. Commission revenue of approximately $636,000 was earned on phone, movie and vending services. Interest and other income was $172,000 for the three months ended March 31, 1999 compared to $67,000 for the same period in 1998. For the three months ended March 31, 1998, Operating derived its revenue from horseracing which is now classified as discontinued operations. For the three months ended March 31,1999, total recurring expenses were $144,040,000 compared to $1,002,000 for the same period in 1998. Expenses for the three months ended March 31, 1999 were primarily attributable to the addition of hotel operating expenses, interest, rent and royalties paid to Realty. For the three months ended March 31, 1998, Operating expenses were related to horseracing, which is now classified as discontinued operations. Hotel operating costs consist of operating expenses, overhead and general and administrative expenses of Operating. For the three months ended March 31, 1999, total hotel operating costs were $70,040,000, including $4,114,000 of overhead expenses and general and administrative expenses of $267,000. Salaries, wages and related costs, represent approximately 40.8% of total hotel operating costs. Other major categories of lodging operating expense include utilities, supplies, advertising and administrative costs. General and administrative expenses related to Operating for the three months ended March 31, 1998 were $590,000. Interest, royalty and rent expenses due to Realty of $71,868,000 as well as $110,000 of interest due to third parties were incurred 33 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES THREE MONTHS ENDED MARCH 31, 1999 VS. THREE MONTHS ENDED MARCH 31, 1998 (CONTINUED) during the three months ended March 31,1999 compared to $211,000 for the same period in 1998. Depreciation and amortization expense for the three months ended March 31, 1999 were $2,022,000 compared to $201,000 for the same period in 1998. The increase was primarily related to depreciation of furniture and fixtures and other intangible assets acquired in the La Quinta Merger. At May 1,1999, La Quinta operated 297 hotels (including 232 inns and 65 Inn & Suites) with approximately 38,000 rooms, compared to 280 hotels (including 233 inns and 47 Inn & Suites) with approximately 36,000 rooms at the merger date of July 17, 1998. La Quinta's unit growth program is based primarily on the construction of new Inn & Suites hotels. La Quinta anticipates opening all 5 of its Inns & Suites under construction by the end of the second quarter of 1999. OTHER EXPENSES During the first quarter of 1999, Operating recorded approximately $30,498,000 in other expenses. On May 10, 1999, the Meditrust Companies entered into a separation agreement with Abraham D. Gosman, former Director and Chairman of the Companies and Chief Executive Officer and Treasurer of Meditrust Operating Company. Under the terms of the separation agreement, Mr. Gosman will receive severance payments totaling $25,000,000 in cash and the continuation of certain life insurance benefits. The Meditrust Companies established a Special Committee to evaluate the applicability of Mr. Gosman's employment contract and whether such severance or other payments were appropriate. Based on the results of the evaluation and recommendation of the Special Committee, the Boards of Directors concluded that the separation agreement was in the long-term best interest of the shareholders of the Companies and approved the separation agreement. In conjunction with the implementation of the Plan, which included a change in the focus of the lodging division to internal growth, La Quinta management performed a review of the front desk system under development for its lodging facilities, and made a decision to abandon the project. The decision was based primarily on management's intent to integrate the front desk system with new revenue management software, availability of more suitable and flexible externally developed software and a shift in information systems philosophy toward implementation of externally developed software and outsourcing of related support services. A charge of approximately $3,998,000 to write-off certain internal and external software development costs related to the project was recorded in the first quarter of 1999. Operating also incurred approximately $1,500,000 of non-recurring costs associated with professional advisory fees. DISCONTINUED OPERATIONS Pursuant to the Plan, Operating has classified golf and horseracing activities as discontinued operations for financial reporting purposes. Accordingly, Operating has presented as discontinued operations approximately $11,225,000 of losses on disposal from the golf and horseracing segments during the three months ended March 31, 1999. Operating has recorded a loss of $6,445,000 related to the sale of the Cobblestone Golf Group, which was sold on March 31, 1999. The loss includes an estimate of working capital balances at the sale date which will be adjusted when a final accounting is complete. The horseracing segment was sold on December 10, 1998. During the three months ended March 31, 1999, a loss of $6,655,000 was recorded which related to an adjustment of the selling price between Realty and Operating. This loss was partially offset by an estimated gain of $1,875,000 arising from an adjustment relating to working capital balances at the sale date which are being finalized. Operating anticipates final adjustments on the disposal of the golf and horseracing segments to be completed during 1999. For the three months ended March 31, 1998, Realty has presented income from discontinued operations of $854,000, which was related to the horseracing segment. 34 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES THREE MONTHS ENDED MARCH 31, 1999 VS. THREE MONTHS ENDED MARCH 31, 1998 (CONTINUED) NET LOSS The resulting net loss available for common shareholders for the three months ended March 31, 1999, was $39,441,000 compared to $81,000 for the three months ended March 31, 1998. The net loss per common share for the three months ended March 31, 1999 was $0.27 compared to $0.00 for the three months ended March 31, 1998. The per common share amount decreased primarily due to the loss on disposal of assets of discontinued operations, other expenses and the issuance of additional common shares to consummate the Cobblestone Merger and the La Quinta Merger, of 8,177,000 and 43,280,000, respectively. OPERATING--LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS FROM OPERATING ACTIVITIES The principal source of cash to be used to fund Operating's future operating expenses and recurring capital expenditures will be cash flow provided by operating activities. Operating anticipates that cash flow provided by operating activities will provide the necessary funds on a short and long-term basis to meet operating cash requirements. CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES Operating provides funding for costs associated with the restructuring through a combination of long-term and short-term financing including, both debt and equity, as well as the sale of assets. Operating obtains long-term financing through the issuance of common shares and unsecured notes. Operating obtains short-term financing through borrowings from Realty. There is, however, no assurance that the Companies will satisfactorily achieve, if at all, the objectives set forth in this paragraph. On July 17, 1998, Realty entered into a Credit Agreement which provided Realty with up to $2,250,000,000 in credit facilities, replacing Realty's then existing $365,000,000 revolving credit facilities. The Credit Agreement provided for borrowings in four separate Tranches: Tranche A, a $1,000,000,000 revolving loan, amounts of which if repaid may be reborrowed, which matures July 17, 2001; Tranche B, a term loan in the amount of $500,000,000, amounts of which if repaid may not be reborrowed, which matures July 17, 1999 with a $250,000,000 mandatory principal payment on April 17, 1999; Tranche C, a term loan in the amount of $250,000,000, amounts of which if repaid may not be reborrowed, which matures July 17, 1999 with a six month extension option which management intends to exercise for a fee of 12.5 basis points; and Tranche D, a term loan in the amount of $500,000,000, amounts of which if repaid may not be reborrowed, which matures July 17, 2001. On November 23, 1998, Realty amended its Credit Agreement to provide for Realty's cash repayment of a portion of its FEIT, the amendment of certain financial covenants to accommodate asset sales, to exclude the impact of non-recurring charges in certain covenant calculations, and to provide for future operating flexibility. The amendment also provided for an increase to the LIBOR pricing of the credit facility by approximately 125 basis points, and the pledge of stock of the Companies' subsidiaries. This pledge of subsidiary stock also extended on a pro rata basis to entitled bondholders. Realty also agreed to a 25 basis point increase to the LIBOR pricing in the event that an equity offering of at least $100,000,000 had not been completed by February 1, 1999. On February 1, 1999 this increase went into effect. 35 THREE MONTHS ENDED MARCH 31, 1999 VS. THREE MONTHS ENDED MARCH 31, 1998 (CONTINUED) On March 10, 1999, Realty reached a second agreement with its bank group to further amend the Credit Agreement. The second amendment, which is effective upon the successful completion of the sale of Cobblestone Golf Group, provides for a portion of the sale proceeds to be applied to the FEIT. The second amendment also provides for, among other things, upon the sale of Cobblestone Golf Group, elimination of limitations on certain healthcare investments and lowering the commitment on the revolving tranche to $850,000,000. On March 10, 1999, the Companies entered into an agreement with MLI and certain of its affiliates to use the proceeds from the sale of the Cobblestone Golf Group in excess of $300,000,000 to repurchase all or a portion of the remaining paired common shares outstanding under the FEIT. MLI agreed not to sell any shares of the remaining paired common shares until March 31, 1999, while the Companies completed the sale of Cobblestone Golf Group. On March 31, 1999, the Companies completed the sale of Cobblestone Golf Group and on April 1, 1999, the Companies settled the FEIT by paying MLI $89,840,000 for the repurchase of 6,865,000 paired common shares. As of March 31, 1999, approximately $1,581,000 in charges related to the Plan remained unpaid. Payments made during the quarter included professional and advisory fees and severance paid to former employees. Operating had shareholders' equity of $35,961,000 as of March 31, 1999. The Companies have an effective shelf registration statement on file with the SEC under which the Companies may issue $1,825,000,000 of securities including shares, preferred stock, debt, series common stock, convertible debt and warrants to purchase shares, preferred shares, debt, series common stock and convertible debt. Operating believes that various sources of capital available over the next twelve months are adequate to finance operations as well as pending acquisitions. Over the next twelve months, as Operating identifies appropriate operating or investment opportunities, Operating may raise additional capital through the sale of shares, series common stock or preferred stock, or through the issuance of long-term debt. YEAR 2000 The statements in the following section include "Year 2000 readiness disclosure" within the meaning of the Year 2000 Information and Readiness Disclosure Act of 1998. This "Year 2000 problem" is due to the fact that many existing computer programs and embedded chip technology systems were developed using only the last two digits to indicate a year. Thus, such systems may not have the capability of recognizing a year that begins with "20" as opposed to "19." As a consequence, these systems could fail altogether, or produce erroneous results. THE COMPANIES' STATE OF READINESS. The Companies have developed a five-phase plan to address their Year 2000 issues (their "Year 2000 Plan"). The five phases are: (i) Awareness, (ii) Assessment, (iii) Remediation, (iv) Testing and (v) Implementation. AWARENESS. The Companies have implemented a program to insure the relevant employees are aware of the Year 2000 issue and have collected information from such employees regarding systems that might be affected. Management has assembled a Year 2000 Steering Committee to determine and assess the risks of the Year 2000 issue, plan and implement necessary upgrades or changes to make the Companies Year 2000 compliant or institute mitigating actions to minimize those risks and oversee the Companies' progress with respect to the implementation of their Year 2000 Plan. 36 YEAR 2000 (CONTINUED) ASSESSMENT. The Companies have substantially completed an assessment of their internally and externally developed computer information systems. Operating is in the process of obtaining written verification from vendors to the effect that externally developed computer information systems acquired from such vendors correctly distinguish dates before the Year 2000. Operating expects to obtain such verifications, or a commitment from the relevant vendors to provide a solution, by no later than the second quarter of 1999. In addition, the Companies have engaged outside consultants to review the plan and assessment. Realty is in the process of obtaining written verification from its externally developed general ledger information system and payroll service provider to ensure that the system correctly distinguishes dates before the Year 2000. The Companies are currently evaluating and assessing their other electronic systems that include embedded technology, such as telecommunications, security, HVAC, elevator, fire and safety systems, and expect that the assessment will be completed by the second quarter of 1999. The Companies are aware that such systems contain embedded chips that are often difficult to identify and test and may require complete replacement because they cannot be repaired. Failure of the Companies to identify or remediate any embedded chips (either on an individual or aggregate basis) on which significant business operations depend, such as phone systems, could have a material adverse impact on the Companies' business, financial condition and results of operations. To the extent such issues impact property level systems the Companies may be required to fund capital expenditures for upgraded equipment and software if necessary. In addition to the Companies' systems and those of its vendors and suppliers, there exist others that could have a material impact on the Companies' businesses if not Year 2000 compliant. Such systems could affect airline operations and other segments of the lodging and travel industries. These systems are outside of the Companies' control and their compliance is not verifiable by the Companies. The Companies' primary financial service providers are its primary bank, credit card and payroll processors each of which will be required to provide written verification to the Companies that they will be Year 2000 compliant. For the foregoing reasons, the Companies do not believe that there is a significant risk related to the failure of vendors or third-party service providers to prepare for the Year 2000; however, the costs and timing of third-party Year 2000 compliance is not within the Companies' control and no assurances can be given with respect to the cost or timing of such efforts or the potential effects of any failure to comply. REMEDIATION. Operating's primary uses of software systems are the hotel reservation and front desk system, accounting, payroll and human resources software. Upgrades to the hotel reservation system to address some Year 2000 compliance issues were installed and implemented during the fourth quarter of 1997 through the second quarter of 1998. Testing of various airline interfaces with the hotel reservation system was completed by December 1998. Operating plans to implement a new hotel front desk system by the end of 1999, for which it has assurance that it is Year 2000 compliant. Operating has engaged outside consultants to assist in this process with respect to certain Year 2000 compliance efforts. Operating has implemented Year 2000 compliant upgrades to the existing accounting, payroll and human resource systems. TESTING. To attempt to confirm that their computer systems are Year 2000 compliant, the Companies expect to perform limited testing of their computer information systems and their other computer systems that do not relate to information technology but include embedded technology; however, unless Year 2000 issues arise in the course of their limited testing, the Companies will rely on the written verification received from each vendor of their computer systems that the relevant system is Year 2000 compliant. Nevertheless, there can be no assurance that the computer systems on which the Companies' business relies will correctly distinguish dates before the Year 2000 from dates in and after the Year 37 YEAR 2000 (CONTINUED) 2000. Any such failures could have a material adverse effect on the Companies' business, financial condition and results of operations. The Companies expect that their testing will be complete by the end of the third quarter of 1999. IMPLEMENTATION. The Companies have begun implementation of Year 2000 compliant software and software upgrades and expect to have them completed by December, 1999. COSTS TO ADDRESS THE COMPANIES' YEAR 2000 ISSUES. Based on current information from their review to date, the Companies budgeted $1,250,000 for the cost of repairing, updating and replacing their standard computer information systems. The Companies anticipate that the primary cost of Year 2000 compliance will be the cost of consultants and payroll and related expenses. The Companies currently expect that the installation of above mentioned upgrades and software will cost approximately $1,150,000, and as of April 30, 1999, the Companies have spent approximately $600,000 in connection therewith. In addition, the Companies expect that they will spend approximately $300,000 to address other Year 2000 related issues, including upgrades of certain systems with embedded technology. Because the Companies' Year 2000 assessment is ongoing and additional funds may be required as a result of future findings, the Companies are not currently able to estimate the final aggregate cost of addressing the Year 2000 issue. While these efforts will involve additional costs, the Companies believe, based on available information, that these costs will not have a material adverse effect on their business, financial condition or results of operations. The Companies expect to fund the costs of addressing the Year 2000 issue from cash flows resulting from operations. While the Companies believe that they will be Year 2000 compliant by December 31, 1999, if these efforts are not completed on time, or if the costs associated with updating or replacing the Companies' computer systems exceed the Companies' estimates, the Year 2000 issue could have a material adverse effect on the Companies' business, financial condition and results of operations. RISKS PRESENTED BY YEAR 2000 ISSUES. The Companies are still in the process of evaluating potential disruptions or complications that might result from Year 2000 related problems; however, at this time the Companies have not identified any specific business functions that will suffer material disruption as a result of Year 2000 related events. It is possible, however, that the Companies may identify business functions in the future that are specifically at risk of Year 2000 disruption. The absence of any such determination at this point represents only the Companies' current status of evaluating potential Year 2000 related problems and facts presently known to the Companies, and should not be construed to mean that there is no risk of Year 2000 related disruption. Moreover, due to the unique and pervasive nature of the Year 2000 issue, it is impracticable to anticipate each of the wide variety of Year 2000 events, particularly outside of the Companies, that might arise in a worst case scenario which might have a material adverse impact on the Companies' business, financial condition and results of operations. THE COMPANIES' CONTINGENCY PLANS. The Companies intend to develop contingency plans for significant business risks that might result from Year 2000 related events. Because the Companies have not identified any specific business function that will be materially at risk of significant Year 2000 related disruptions, and because a full assessment of the Companies risk from potential Year 2000 failures is still in process, the Companies have not yet developed detailed contingency plans specific to Year 2000 problems. Development of these contingency plans is currently scheduled to occur by the second quarter of 1999 and as otherwise appropriate. As a part of their contingency planning, the Companies are analyzing the most reasonably likely worst-case scenario that could result from Year 2000-related failures. Failures by third parties to achieve Year 2000 compliance might result in short-term disruptions in travel patterns, and potential temporary disruptions in the supply of utility, telecommunications and 38 YEAR 2000 (CONTINUED) financial services, most likely regional or local in scope. These events could cause temporary disruptions in the operations of hotel properties, and/or lead travelers to postpone travel, or to cancel travel plans, thereby affecting lodging patterns and occupancy. The preceding "Year 2000 readiness disclosure" contains various forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent the Companies' beliefs or expectations regarding future events. All forward-looking statements involve a number of risks and uncertainties that could cause the actual results to differ materially from the projected results. Factors that may cause these differences include, but are not limited to, the availability of qualified personnel and other information technology resources; the ability to identify and remediate all date sensitive lines of computer code or to replace embedded computer chips in affected systems or equipment; and the actions of governmental agencies or other third parties with respect to Year 2000 problems. SEASONALITY The lodging industry is seasonal in nature. Generally, hotel revenues are greater in the second and third quarters than in the first and fourth quarters. This seasonality can be expected to cause quarterly fluctuations in revenue, profit margins and net earnings. In addition, opening of new construction hotels and/or timing of hotel acquisitions may cause variation of revenue from quarter to quarter. 39 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES PART II: OTHER INFORMATION ITEM 5. OTHER INFORMATION On May 10, 1999, The Meditrust Companies entered into a separation agreement with Abraham D. Gosman, former Director and Chairman of the Companies and Chief Executive Officer and Treasurer of Operating Company. Under the terms of the agreement, Mr. Gosman will receive a payment of $25 million in cash and the continuation of certain life insurance benefits. The full text of the separation agreement can be found in the Joint Current Report on Form 8-K of the Companies, event date May 10, 1999. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
EXHIBIT NO. DESCRIPTION - ----------- --------------------------------------------------------------------------------------------------------- 3.1 Restated Certificate of Incorporation of Meditrust Corporation (incorporated by reference to Exhibit 3.2 to Joint Registration Statement on Form S-4 of Meditrust Corporation and Meditrust Operating Company (File Nos. 333-47737 and 333-47737-01)); 3.2 Amended and Restated By-laws of Meditrust Corporation (incorporated by reference to Exhibit 3.5 to Joint Registration Statement on Form S-4 of Meditrust Corporation and Meditrust Operating Company (File Nos. 333-47737 and 333-47737-01)); 3.3 Restated Certificate of Incorporation of Meditrust Operating Company filed with the Secretary of State of Delaware on March 2, 1998 (incorporated by reference to Exhibit 3.4 to Joint Registration Statement on Form S-4 of Meditrust Corporation and Meditrust Operating Company (File Nos. 33-47737 and 333-47737-01)); 3.4 Amended and Restated By-laws of Meditrust Operating Company (incorporated by reference to Exhibit 3.6 to Joint Registration Statement on Form S-4 of Meditrust Corporation and Meditrust Operating company (File Nos. 333-47737 and 333-47737-01)); 3.5 Certificate of Designation for the 9% Series A Cumulative Redeemable Preferred Stock of Meditrust Corporation filed with the Secretary of State of Delaware on June 12, 1998 (incorporated by reference to Joint Current Report on Form 8-K of the Companies, event date June 10, 1998); 3.6 Certificate of Amendment of Restated Certificate of Incorporation of Meditrust Corporation filed with the Secretary of State of Delaware on July 17, 1998 (incorporated by reference to exhibit 3.8 to the Joint Quarterly Report on Form 10-Q for the quarter ended June 30, 1998); 3.7 Certificate of Amendment of Restated Certificate of Incorporation of Meditrust Operating Company filed with the Secretary of State of Delaware on July 17, 1998 (incorporated by reference to exhibit 3.9 to the Joint Quarterly Report on Form 10-Q for the quarter ended June 30, 1998);
40 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
EXHIBIT NO. DESCRIPTION - ----------- --------------------------------------------------------------------------------------------------------- 4.1 Certificate of Designation for the 9% Series A Cumulative Redeemable Preferred Stock of Meditrust Corporation filed with the Secretary of State of Delaware on June 12, 1998 (incorporated by reference to Joint Current Report on Form 8-K of the Companies, event date June 10,1998); 10.1 Employment Agreement dated as of January 1, 1999 by and between Meditrust Corporation and David F. Benson (filed herewith); 10.2 Employment Agreement dated as of January 1, 1999 by and between Meditrust Corporation and Michael S. Benjamin (filed herewith); 10.3 Employment Agreement dated as of January 1, 1999 by and between Meditrust Corporation and Michael F. Bushee (filed herewith); 10.4 Employment Agreement dated as of January 1, 1999 by and between Meditrust Corporation and Laurie T. Gerber (filed herewith); 10.5 Amendment Agreement to Purchase Agreement dated as of February 26, 1999 among Meditrust Corporation, Meditrust Operating Company, Merrill Lynch International and Merrill Lynch, Pierce, Fenner & Smith (filed herewith); 10.6 Stock Purchase Agreement dated as of February 10, 1999 between The Meditrust Companies and Golf Acquisitions L.L.C. (incorporated by reference to Exhibit 10.1 to the Joint Current Report on Form 8-K of the Companies, event date March 31, 1999); 10.7 Separation Agreement dated as of May 10, 1999 by and among Meditrust Corporation, Meditrust Operating Company, Abraham D. Gosman and other parties thereto (incorporated by reference to the Joint Current Report on Form 8-K of the Companies, event date May 10, 1999); 27 Financial Data Schedule; 99.1 Second Amendment to Credit Agreement dated as of March 10, 1999 by and among Meditrust Corporation, Morgan Guaranty Trust Company of New York, Bankers Trust Company and the other Banks set forth therein (filed herewith). (b) Reports on Form 8-K. During the quarter ended March 31, 1999, the Companies filed the following Current Reports on Form 8-K: 1. Joint Current Report on Form 8-K, event date March 31, 1999, which contains a Stock Purchase Agreement dated as of February 10, 1999, between the Meditrust Companies and Golf Acquisitions L.L.C. and a press release announcing the completion of the sale of Cobblestone to Golf Acquisitions L.L.C.
41 MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. MEDITRUST CORPORATION May 14, 1999 /s/ Laurie T. Gerber ------------------------------------------- Laurie T. Gerber Chief Financial Officer MEDITRUST OPERATING COMPANY May 14, 1999 /s/ William C. Baker ------------------------------------------- William C. Baker Interim President and Interim Treasurer
42 EX-10.1 2 EXHIBIT 10.1 Exhibit 10.1 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this 1st day of January, 1999 by and between Meditrust Corporation, a Delaware corporation (the "Employer"), and David F. Benson (the "Employee"). WHEREAS, the Employee is currently employed by the Employer as its President and Chief Executive Officer; and WHEREAS, the Employer and the Employee wish to extend such employment for a four (4) year term on the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual promises hereinafter contained, the parties hereto hereby agree as follows: 1. DUTIES. During the term of this Agreement, the Employee agrees to be employed by and to serve the Employer as its President and Chief Executive Officer, and the Employer agrees to employ and retain the Employee in such capacity. The Employee also shall serve the Employer in such capacity or capacities, and with such other duties consistent with such position, as shall be designated by the Board of Directors of the Employer from time to time. The Employee shall devote such of his business time, energy and skill to the affairs of the Employer as shall be necessary to perform the duties of such position and, in any event, not less of his business time, energy and skill than he has previously devoted to the Employer, and he shall not assume an executive, management or board position in any other business without the express permission of the Board of Directors; provided that the Employee may serve in any capacity with charitable or not-for-profit enterprises so long as there is no material interference with the Employee's duties to the Employer. The Employee shall report only to the Employer's Board of Directors and at all times during the term of this Agreement shall have powers and duties commensurate with his position as President and Chief Executive Officer of the Employer. Without the Employee's consent, the Employer may not materially reduce the Employee's duties or responsibilities hereunder or assign duties or responsibilities that are inconsistent with the Employee's position as President and Chief Executive Officer of the Employer. Notwithstanding the foregoing, in connection with a corporate restructuring of the Employer, if the Employee continues to be President and Chief Executive Officer of the publicly-traded healthcare company resulting from a Permitted Spin-Off (as defined below), such change, in and of itself, shall not be deemed to be a material reduction in the Employee's duties and responsibilities for purposes of the preceding sentence. 2. TERMS OF EMPLOYMENT. 2.1 DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: (1) "Termination For Cause" shall mean termination by the Employer of the Employee's employment by reason of (i) the Employee's fraud upon, deliberate injury or attempted injury to, or dishonesty towards the Employer that causes material and demonstrable injury to the Employer, (ii) the Employee's intentional and material breach of the provisions of Section 5 of this Agreement, (iii) the Employee's intentional and material breach of, or material failure to perform under, this Agreement (other than the provisions of Section 5 hereof) that is not cured by the Employee within 30 days after written notice from the Board of Directors specifying the breach and requesting a cure, or (iv) the conviction of any felony involving a crime of moral turpitude. (2) "Termination Other Than For Cause" shall mean termination by the Employer of the Employee's employment other than a Termination For Cause, a Termination Upon Death or Disability, or a Termination Upon a Change in Control. (3) "Termination for Good Reason" shall mean termination of employment by the Employee (i) after a material reduction by the Employer, without the Employee's consent, in the Employee's duties and responsibilities, (ii) if the Employee is not the President and Chief Executive Officer of Meditrust Corporation prior to the Permitted Spin-Off and the Spin-Off Entity after the Permitted Spin-Off, (iii) after any reduction by the Employer of the Employee's Base Salary and benefits (provided that, in the case of across-the-board benefit reductions similarly affecting all management personnel, the Employer will continue to provide Employee with a benefit package substantially equivalent to the benefits provided at the time of such reduction, provided that the Employer shall not be required to expend more than 150% of the Employer's cost therefor in fiscal year 1999), (iv) the relocation of the Employer's offices at which the Employee is principally employed to a location which is more than 35 miles from the current location of the Employer's office or the requirement that the Employee be based (1) anywhere other than the Employer's principal offices, as the same may be relocated within 35 miles as provided above or (2) more than 35 miles from the Employer's current offices, except for required travel on the Employer's business to an extent substantially consistent with the Employee's present business travel obligations, (v) a material breach of this Agreement by the Employer that is not rectified within 30 days of notification of the Board of Directors by the Employee of such breach, (vi) the failure of the Employer to obtain an agreement from any successor or assign of the Employer, to assume and agree to perform this Agreement, as contemplated by Section 7.15, or (vii) the Employer's failure to extend this Agreement pursuant to Section 2.2 hereof on each anniversary date. Notwithstanding the foregoing, in connection with a Permitted Spin-Off, if the Employee continues to be President and Chief Executive Officer of the Spin-Off Entity, such change in title and position shall not be deemed to be a material reduction in the Employee's duties and responsibilities for purposes of clause (i) above. (4) "Termination Upon a Change in Control" shall mean termination of the Employee's employment with the Employer for any reason or for no reason within two (2) years following a Change in Control either by the Employee or by the Employer. 2 (5) "Termination Upon Death or Disability" shall mean termination by the Employer by reason of the Employee's death or disability as described in Section 2.3 hereof. (6) "Permitted Spin-Off" shall mean a corporate restructuring of the Meditrust Companies pursuant to which all of the stock of any existing or newly-created subsidiary of the Meditrust Companies (or either of them) which owns (or acquires by purchase, dividend, investment or otherwise) all of the healthcare assets and investments of the Meditrust Companies (or the stock of subsidiaries which own such assets and investments) existing immediately prior thereto is "spun-off" ratably to the shareholders of the Meditrust Companies at the time of such spin-off. (7) "Spin-Off Entity" shall mean any Person resulting from a Permitted Spin-Off. (8) "Change in Control" shall mean (a) an acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the combined voting power of the then outstanding voting securities of the Employer entitled to vote generally in the election of directors of the Employer (the "Outstanding Voting Securities") or 20% or more of the combined market value of the equity securities of the Employer (the "Equity Value"); PROVIDED, HOWEVER, that any acquisition directly from or by the Employer or any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Employer or an affiliated company or any acquisition by a company pursuant to a transaction which complies with clauses (i), (ii) and (iii) of (c) below shall be excluded from this clause (a); or (b) individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") of the Employer, cease for any reason to constitute at least 60% of the Board of Directors of the Employer; PROVIDED, HOWEVER, that any individual becoming a director whose election, or nomination for election by the Employer's stockholders, was approved by a vote of at least 60% of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Employer; or (c) consummation of a reorganization, merger or consolidation of the Employer (a "Business Combination"), unless, in each case, following such Business Combination, (i) all or substantially all the individuals and entities who were the beneficial owners, respectively, of the outstanding Equity Value and Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the combined market value of the equity securities and more than 60% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such Business Combination (including, without limitation, a 3 corporation which as a result of such transaction owns the Employer or all or substantially all of the Employer's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Equity Value and Outstanding Voting Securities, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Employer or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of the combined voting power of the then outstanding voting securities or 20% or more of the combined market value of the equity securities of the corporation resulting from such business combination except to the extent that such ownership existed prior to the Business Combination and (iii) at least 60% of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or the action of the Board, providing for such Business Combination, (d) the sale or other disposition of more than 50% of the healthcare assets of the Employer, or (e) a complete liquidation or dissolution of the Employer or approval thereof by the stockholders of the Employer. For purposes of this definition, "Employer" shall mean either (x) Meditrust Corporation or Meditrust Operating Company ("Meditrust" and together with the Employer, "The Meditrust Companies") or (y) any subsidiary of Meditrust Corporation, the assets of which are substantially all of the healthcare assets and investments of Meditrust Corporation (or the stock of subsidiaries, the assets of which are substantially all of the healthcare assets and investments of Meditrust Corporation). Notwithstanding the foregoing, any corporate restructuring directly related to a Permitted Spin-Off, including any related change to the Board of Directors shall not be deemed to be a Change in Control; provided, however, that this exclusion shall not apply to any simultaneous or subsequent sale of, or Business Combination, or other events described in clauses (a) through (e) of this Section 2.1(h) involving such Spin-Off Entity. 2.2 TERM. The term of employment of the Employee by the Employer shall commence on the date and year first above written (the "Effective Date") and shall continue through the fourth (4th) anniversary of the Effective Date; provided, however the term of this Agreement shall automatically be extended for one additional year on each anniversary date of the Effective Date unless, not later than 90 days prior to such date, either party shall have given notice to the other that it or he does not wish to extend this Agreement; provided, further, that if a Change in Control (as defined in Section 2.1(f)) occurs during the original or extended term of this Agreement, the term of this Agreement shall continue in effect for a period of not less than two (2) years beyond the month in which the Change in Control occurred. 2.3 TERMINATION. Notwithstanding any provision of this Employment Agreement, the employment of the Employee pursuant to this Agreement may be terminated by the Employer upon (a) at least 15 days' prior written notification to the Employee in the event of a Termination For Cause, (b) upon at least 60 days' prior written notice to the Employee in the event of a Termination Other Than For Cause or a Termination Upon a Change in Control, (c) upon written notification to the Employee if the Employee, in the 4 reasonable judgment of the Board of Directors of the Employer, has failed to perform his duties under this Agreement because of illness or physical or mental incapacity, and such illness or incapacity continues for a period of more than four (4) consecutive months, or (d) in the event of the Employee's death, in which case the Employee's employment shall be deemed to have terminated as of the last day of the month during which his death occurs. The Employee may terminate his employment under this Agreement upon at least 60 days' prior written notice to the Employer; provided, however, that in the event of a Change in Control, the notice requirement is shortened to ten (10) days. 2.4 PAYMENTS UPON TERMINATION. Upon any termination of the Employee's employment by the Employer hereunder, the Employer shall promptly pay to the Employee, or in the case of his death, to his estate or such beneficiaries as the Employee may from time to time designate, all accrued salary, any benefits under any plans of the Employer in which the Employee is a participant to the full extent of the Employee's rights under such plans, accrued vacation pay and any appropriate business expense incurred by the Employee in connection with his duties hereunder, all to the date of termination. The Employee, or his estate or beneficiaries in the case of his death, shall not be entitled to any other compensation or reimbursement of any kind, including, without limitation, severance compensation, except as provided in Section 4 hereof. Unless otherwise provided in writing or as provided in Section 4 hereof, upon termination of employment, all options held by the Employee that are not then currently exercisable and all Performance Units shall immediately lapse and have no force or effect, and all then non-vested Performance Shares held by the Employee shall be forfeited and returned to the Employer. 3. SALARY AND BENEFITS. 3.1 BASE SALARY. As payment for the services to be rendered by the Employee as provided in Section 1, and subject to the terms and conditions of Section 2, the Employer agrees to pay to the Employee at the rate of $500,000 per annum (the "Base Salary"). The Base Salary shall be payable in equal bi-monthly (twice a month) installments. Unless otherwise determined by the Board of Directors, the Employee shall not be entitled to any compensation in addition to that set forth in this Section 3 for serving as an officer of the Employer. All services which the Employee may render to the Employer in any capacity shall be deemed to be services required by this Agreement and as consideration for the compensation herein provided. 3.2 BONUS. The Employee's bonus opportunity for each fiscal year shall be equal to 75% to 100% ("Maximum Bonus") of Base Salary paid during such fiscal year. The amount of bonus payments shall be determined at the sole discretion of the Compensation Committee or pursuant to criteria to be established from time to time. 3.3 EMPLOYEE BENEFITS. The Employee shall be eligible to participate in such of the Employer's benefits and deferred compensation plans as are now generally available or later made generally available to executive officers of the Employer, including, 5 but not limited to, the 401(k) plan, non-qualified deferred compensation plan, if any, medical insurance plan, dental insurance plan, life insurance plan, and disability insurance plan. The Employee shall also be provided with an automobile allowance that is not less than the amount currently paid, including reimbursement for gasoline, insurance, maintenance and repairs. 3.4 REIMBURSEMENT FOR EXPENSES. The Employer shall reimburse the Employee for reasonable and properly documented out-of-pocket expenses incurred by the Employee in connection with his duties under this Agreement. 3.5 PERFORMANCE SHARES. The Employer has previously awarded the Employee 125,000 performance shares in accordance with the terms described in Exhibit A hereto and the Employer's 1995 Share Award Plan (the "Performance Shares"). 3.6 STOCK OPTIONS. In connection with the negotiation and execution hereof, on December 10, 1998, the Employer issued to the Employee pursuant to the 1995 Share Award Plan ("Plan") an option to purchase 250,000 paired shares ("Paired Shares") of The Meditrust Companies, at $13.4375 per Paired Share (the "Option"). The Option shall vest and become exercisable in accordance with the Plan in 25% increments on each anniversary date of the date of grant, so that the Option is fully vested and exercisable on the fourth (4th) anniversary date of the date of grant. Further, on December 10, 1998, the Employer issued to the Employee pursuant to the 1995 Share Award Plan an option to purchase 125,000 Paired Shares, at $13.4375 per Paired Share (the "Performance Option"). The Performance Option shall vest and become fully exercisable in accordance with the Plan on December 10, 2004; provided, however, that if prior to December 10, 2004 the 20-day average trading price of a Paired Share (the "20-Day Average") attains $23.00, 33 1/3% of the Performance Option shall vest and become exercisable in accordance with the Plan; and if prior to December 10, 2004, the 20-Day Average attains $26.00, 66 2/3% of the Performance Option shall vest and become exercisable in accordance with the Plan, and if prior to December 10, 2004, the 20-Day Average attains $29.00, the remainder of the Performance Option shall vest and become fully exercisable in accordance with the Plan. For this purpose, the price of the Paired Shares shall be determined by reference to the quoted closing price per Paired Share on the New York Stock Exchange. 3.7 PERFORMANCE UNITS. The Employer has issued to the Employee 125,000 performance units ("Performance Units") in the Long Term Bonus Program. Such Performance Units shall become payable only pursuant to the provisions of Section 4.1, 4.2 or 4.3. 3.8 STOCK OWNERSHIP LEVELS. It is the expectation of the parties that upon the fourth anniversary of the Effective Date, the Employee shall own equity in the Employer (which shall include the Performance Shares) with a value equal to four (4) times his Base Salary. In the event the Employee does not attain such level of equity ownership by such date, the Employee shall not be eligible to receive any further equity grants from the Employer until such time when the Employee attains the desired equity ownership level. 6 4. SEVERANCE COMPENSATION. 4.1 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION OTHER THAN FOR CAUSE OR TERMINATION FOR GOOD REASON. In the event the Employee's employment is terminated in a Termination Other Than For Cause or in a Termination for Good Reason, subject to the signing by the Employee of a general release of employment-related claims (other than continuing rights under this Agreement) in a form and manner reasonably satisfactory to the Employer, (i) all unvested Performance Shares held by the Employee shall become immediately vested in full, (ii) all Performance Units issued to the Employee pursuant to Section 3.7 hereof shall become immediately vested in full with the value of each Unit deemed to be $25; provided that payment with respect to the Performance Units shall be made in cash no earlier than January 1, 2002, (iii) any unvested options to purchase shares of The Meditrust Companies held by the Employee shall become immediately vested and exercisable in full in accordance with the Plan and (iv) the Employee shall be paid a lump sum within 30 days of such termination equal to the sum of his Base Salary and the average of the bonuses received by the Employee under Section 3.2 for the three (3) immediately preceding fiscal years (or for such shorter period that the Employee was eligible for a bonus), multiplied by the greater of (a) three (3) or (b) the number of full and fractional years remaining in the original term or extended term of this Agreement (the "Unexpired Term"). The Employee shall continue to enjoy the benefits under the medical and dental insurance plans and the non-qualified retirement plan, if any, for the greater of three (3) years or the Unexpired Term. He shall also be provided with an automobile allowance for the greater of three (3) years or the Unexpired Term at a level which is not less than the level provided to the Employee immediately prior to such termination. Notwithstanding the foregoing, in the event a Change in Control occurs within nine (9) months after a termination under this Section 4.1, the Employee's employment shall be deemed to have been terminated in a Termination Upon a Change in Control and the benefits inuring to the Employee shall be recalculated and paid or delivered to the Employee as though Section 4.3 applied at the time of such termination. 4.2 SEVERANCE COMPENSATION UPON DEATH OR DISABILITY. In the event the Employee's employment is terminated in a Termination Upon Death or Disability, and in the case of Termination Upon Disability, subject to the signing by the Employee (in the case of Disability) of a general release of employment-related claims (other than continuing rights under this Agreement) in a form and manner reasonably satisfactory to the Employer, (i) all unvested Performance Shares held by the Employee shall become immediately vested in full, (ii) all Performance Units issued to the Employee pursuant to Section 3.7 hereof shall become immediately vested in full with the value of each Unit deemed to be $25; provided that payment with respect to the Performance Units shall be made in cash no earlier than April 1, 2002, (iii) any unvested options to purchase shares of The Meditrust Companies held by the Employee shall become immediately vested and exercisable in full in accordance with the Plan and (iv) the Employee or his estate shall be paid a lump sum within 30 days of such termination equal to the sum of his Base Salary and the average of the bonuses received by the Employee under Section 3.2 for the three (3) immediately preceding fiscal years (or for such 7 shorter period that the Employee was eligible for a bonus), multiplied by the greater of three (3) or the Unexpired Term. The Employee (or dependents, in the case of the Employee's death) shall continue to enjoy the benefits under the medical and dental insurance plans for the greater of three (3) years or the Unexpired Term. In the case of disability, the Employee shall also be provided with an automobile allowance for the greater of three (3) years of the Unexpired Term at a level which is not less than the level provided to the Employee immediately prior to such termination. 4.3 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION UPON A CHANGE IN CONTROL. Upon a Change in Control, (i) all unvested Performance Shares held by the Employee shall become immediately vested in full, (ii) all Performance Units issued to the Employee pursuant to Section 3.7 hereof shall become immediately vested in full with the value of each Unit deemed to be $50, (iii) any unvested options to purchase shares of The Meditrust Companies held by the Employee shall become immediately vested and exercisable in accordance with the Plan in full. In the event the Employee's employment is terminated in a Termination Upon a Change in Control, subject to the signing by the Employee of a general release of employment-related claims (other than continuing rights under this Agreement) in a form and manner reasonably satisfactory to the Employer, the Employee shall be paid a lump sum in cash within 30 days of such termination in an amount equal to the full value of his Performance Units and an amount equal to the greater of three (3) or the Unexpired Term times the sum of (A) his Base Salary and (B) Maximum Bonus for the year of termination. The Employee shall continue to enjoy the benefits under the medical and dental insurance plan and the non-qualified retirement plan, if any, for the greater of three (3) years or the Unexpired Term and any and all debts of the Employee to the Employer will be forgiven by the Employer. The Employee shall also be provided with an automobile allowance for the greater of three (3) years or the Unexpired Term at a level which is not less than the level provided to the Employee immediately prior to such termination. In addition, the Employee shall be entitled to an additional payment for taxes imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), in accordance with the terms of Schedule 1 attached hereto. 5. NON-COMPETITION AND NON-DISCLOSURE. 5.1 NON-COMPETITION. (a) During the term hereof, without approval by the Board, the Employee will not, directly or indirectly, (i) engage or become interested, directly or indirectly, as owner, employee, director, partner, consultant, through stock ownership (except ownership of not more than one percent (1%) of any class of securities of a corporation which is publicly traded), investment of capital, lending of money or property, rendering of services, or otherwise, either alone or in association with others, in any business which competes directly or indirectly with the business of the Employer, (ii) induce or attempt to induce any customer of the Employer to reduce such customer's business with the Employer, or (iii) solicit any of the Employer's employees to leave the employ of the Employer or employ any of such Employees, except for the Employee's administrative assistant. 8 (b) For a period of two (2) years after any termination of employment, the Employee will not, directly or indirectly, (i) engage or become interested, directly or indirectly, as owner, employee, director, partner, consultant, through stock ownership (except ownership of not more than five percent (5%) of any class of securities of a corporation which is publicly traded), investment of capital, lending of money or property, rendering of services, or otherwise, either alone or in association with others, in any healthcare real estate investment trust financing business which competes directly and materially with the business of the Employer or (ii) solicit any of the Employer's employees to leave the employ of the Employer or employ any of such employees, except for the Employee's administrative assistant. The Employee recognizes and acknowledges that his obligations under this Section 5.1(b) are limited to the geographic areas in which the Employer is doing business at the time of the expiration or termination of this Agreement. (c) As used in Sections 5.1, 5.2, 7.2, and 7.3, the term "Employer" shall mean Meditrust Corporation or its subsidiaries and affiliates. The restrictions on the Employee set forth in this Section 5.1 shall not apply in the case of a Termination Upon a Change in Control. 5.2 NON-DISCLOSURE. The Employee agrees that all confidential and proprietary information relating to the business of the Employer shall be kept and treated as confidential both during and after the term of this Agreement, except as may be permitted in writing by the Employer's Board of Directors or if such information is within the public domain or comes within the public domain without any breach of this Agreement. 6. INSURANCE. The Employer may, at its expense, procure and maintain life insurance on the life of the Employee. The beneficiary of such policy shall be the Employer. The Employee shall cooperate with the Employer as is reasonably necessary to procure such insurance. 7. MISCELLANEOUS. 7.1 ARBITRATION; DISPUTE RESOLUTION. 9 (1) ARBITRATION PROCEDURE. Any disagreement, dispute, controversy or claim arising out of or relating to this Agreement or the interpretation of this Agreement or any arrangements relating to this Agreement or contemplated in this Agreement or the breach, termination or invalidity thereof shall be settled by final and binding arbitration in Boston, Massachusetts in accordance with the Employment Dispute Resolution Rules (the "Arbitration Rules") of the American Arbitration Association (the "AAA"); PROVIDED, that nothing contained herein shall be deemed to prohibit either party to apply to a court of competent jurisdiction for temporary or preliminary equitable relief. The arbitral tribunal shall consist of one arbitrator. In making any decision, the arbitrator shall apply and follow the substantive law of Massachusetts without reference to the conflicts of law provisions thereof. The parties to the arbitration jointly shall directly appoint such arbitrator within 30 days of the initiation of arbitration. If the parties shall fail to appoint such arbitrator as provided above, such arbitrator shall be appointed by the AAA as provided in the Arbitration Rules. The Employee and the Employer agree that the decision of the arbitrator shall be final, the arbitral award may be enforced against the parties to the arbitration proceeding or their assets wherever they may be found and that a judgment upon the arbitral award may be entered in any court having jurisdiction thereof. The Employer shall pay all fees and expenses of the Arbitrator regardless of the result and shall provide all witnesses and evidence reasonably required by the Employee to present his case. The Employer shall pay to the Employee all reasonable arbitration expenses and legal fees incurred by the Employee as a result of a termination of the Employee's employment in seeking to obtain or enforce any right or benefit provided by this Agreement (whether or not the Employee is successful in obtaining or enforcing such right or benefit). Such payments shall be made within five (5) days after the Employee's request for payment accompanied with such evidence of fees and expenses incurred as the Employer reasonably may require. (2) COMPENSATION DURING DISPUTE. The Employee's compensation during any disagreement, dispute, controversy or claim arising out of or relating to this Agreement or the interpretation of this Agreement shall be as follows: If there is a termination by the Employer followed by a dispute as to whether the Employee is entitled to the payments and other benefits provided under this Agreement, then, during the period of that dispute the Employer shall pay the Employee 50% of the amount specified in Section 4.1 hereof, and the Employer shall provide the Employee with the benefits provided in Section 4.1 hereof, if, but only if, the Employee agrees in writing that if the dispute is resolved against the Employee, the Employee shall promptly refund to the Employer all payments received under Section 4.1 of this Agreement plus interest at the rate provided in Section 1274(d) of the Code, compounded quarterly. If the dispute is resolved in the Employee's favor, promptly after resolution of the dispute, the Employer shall pay to the Employee the sum that was withheld during the period of the dispute plus interest at the rate provided in Section 1274(d) of the Code, compounded quarterly. 7.2 LITIGATION AND REGULATORY COOPERATION. During and after the Employee's employment, the Employee shall reasonably cooperate with the Employer in the 10 defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Employer which relate to events or occurrences that transpired while the Employee was employed by the Employer; provided, however, that such cooperation shall not materially and adversely affect the Employee or expose the Employee to an increased probability of civil or criminal litigation. The Employee's cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Employer at mutually convenient times. During and after the Employee's employment, the Employee also shall cooperate fully with the Employer in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while the Employee was employed by the Employer. The Employer shall also provide the Employee with compensation on an hourly basis calculated at his final base compensation rate for requested litigation and regulatory cooperation that occurs after his termination of employment, and reimburse the Employee for all costs and expenses incurred in connection with his performance under this Section 7.2, including, but not limited to, reasonable attorneys' fees and costs. 7.3 NONDISPARAGEMENT. During and after the Employee's employment, the Employee agrees that he shall not take any action or make any statement, written or oral, which disparages or criticizes the Employer or The Meditrust Companies, or their respective officers, directors, agents, or management and business practices, or which disrupts or impairs the normal operations of the Employer or The Meditrust Companies. During and after the Employee's employment, the Employer agrees that it shall not take any action or make any statement, written or oral, which disparages or criticizes Employee or Employee's management and business practices and that it shall instruct its officers, directors and agents not to take any action or make any statement, written or oral, which disparages or criticizes the Employee or the Employee's management and business practices. 7.4 NO MITIGATION. The Employer agrees that, if the Employee's employment by the Employer is terminated during the term of this Agreement, the Employee is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Employee by the Employer pursuant to Sections 3 and 4 hereof. Further, the amount of any payment provided for in this Agreement shall not be reduced by any compensation earned by the Employee as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Employee to the Employer, or otherwise. 7.5 AUTHORITY; NO RESTRICTIONS. Each party represents and warrants that it has full power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby and this Agreement is the legal, valid and binding obligation of the party, enforceable against the party in accordance with its terms. No consent, approval or agreement of any person, party, court, government or entity is required to be obtained by either party in connection with the execution and delivery of this Agreement. Each party is not subject to any agreement, restriction, lien, encumbrance or right, title or interest in anyone 11 limiting in any way the scope of this Agreement or in any way inconsistent herewith, and each party will not hereafter grant anyone the same. 7.6 EFFECT OF EXPIRATION OR TERMINATION. Upon the expiration or other termination of this Agreement, all obligations of the parties shall forthwith terminate, except for any obligation to pay any fixed sum of money or provide any benefits which may have accrued and be due and payable hereunder at the time of such expiration or other termination and except that the provisions of Section 5 and Sections 7.1, 7.2 and 7.3 shall continue in effect in accordance with their terms, such Sections containing independent agreements and obligations. 7.7 EQUITABLE RELIEF. The obligations of the Employee under Section 5 hereunder are special, unique and extraordinary, and any breach by the Employee thereof shall be deemed material and to cause irreparable injury not properly compensated by damages in an action at law. Notwithstanding Section 7.1, the Employer's rights and remedies hereunder shall therefore be enforceable both at law and in equity, by injunction and otherwise; and the rights and remedies of the Employer hereunder with respect thereto shall be cumulative and not alternative and shall not be exhausted by any one or more uses thereof. 7.8 CONSENT TO JURISDICTION. To the extent that any court action is permitted consistent with or to enforce Sections 5, 7.1, 7.2 and 7.7 of this Agreement, the parties hereby consent to the jurisdiction of the Courts of the Commonwealth of Massachusetts and the United States District Court for the District of Massachusetts. Accordingly, with respect to any such court action, the Employee (a) submits to the personal jurisdiction and venue of such courts; (b) consents to service of process; and (c) waives any other requirement (whether imposed by statute, rule of court or otherwise) with respect to personal jurisdiction, venue or service of process. 7.9 WAIVER. The waiver of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof. 7.10 ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise provided herein, this Agreement represents the entire understanding among the parties with respect to the subject matter hereof, and this Agreement supersedes any and all prior understandings, agreements, plans and negotiations, whether written or oral, with respect to the subject matter hereof. All modifications to the Agreement must be in writing and signed by the party against whom enforcement of such modification is sought. 7.11 NOTICES. All notices and other communications under this Agreement shall be in writing and shall be deemed duly given (a) when delivered, or (b) two (2) days after being mailed by first class mail, certified or registered with return receipt requested, or (c) one (1) day after being mailed through an overnight delivery service, or (d) upon confirmation of transmission via facsimile, to the following addresses: 12 If to the Employer: Meditrust Corporation 197 First Avenue Needham, MA 02494 Attn: General Counsel If to the Employee: David F. Benson 24 Middleton Road Boxford, MA 01921 Any party may change such party's address for notices by notice duly given pursuant to this Section 7.11. 7.12 HEADINGS. The Section headings herein are intended for reference and shall not by themselves determine the construction or interpretation of this Agreement. 7.13 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, applied without regard to conflict of law principles. 7.14 SEVERABILITY. Should a court or other body of competent jurisdiction determine that any provision of this Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, and all other provisions of this Agreement shall be deemed valid and enforceable to the extent possible. 7.15 SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by the Employee without the prior written consent of the Employer, and may be assigned by the Employer and shall be binding upon, and inure to the benefit of, the Employer's successors and assigns. The Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer to assume expressly and agree to perform this Agreement in the same manner and to the extent that the Employer would be required to perform it if no such succession had taken place. As used in this Agreement, "Employer" shall mean the Employer as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 7.16 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement. 7.17 WITHHOLDINGS. All compensation and benefits to the Employee hereunder shall be reduced by all federal, state, local and other withholdings and similar taxes and payments required by applicable law. The Employee agrees to pay all federal, state and local taxes owed by him in connection with this Agreement. 13 7.18 SUBSTITUTION OF EMPLOYER. Upon a Permitted Spin-Off, the Spin-Off Entity shall be deemed to be the Employer for all purposes of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the day and year first above written. MEDITRUST CORPORATION SEAL By ---------------------------------------------- Name: Michael S. Benjamin Title: Senior Vice President and General Counsel ------------------------------------------------- David F. Benson 14 Exhibit A THE PERFORMANCE SHARES 100% of the Performance Shares described in Section 3.5 shall be deemed issued as of February 27, 1998 upon payment by the Employee of the par value thereof to The Meditrust Companies. Subject to the terms of the Agreement, the Performance Shares shall vest on the earliest of (a) eight (8) years after the date of issuance, (b) on March 31 of the year following the first fiscal year after issuance in which the Performance Goal is achieved or (c) as the Board of Directors may determine. The Performance Goal for all outstanding grants of Performance Shares shall be deemed achieved in any fiscal year commencing with the year 2000 that meets both criteria specified below:
Fiscal FFO Cumulative FFO per Share Year Per Share Since January 1, 1998 ---- --------- --------------------- 2000 $2.92 $ 8.28 2001 3.10 11.38 2002 3.28 14.66 2003 3.48 18.14 2004 3.69 21.83
For purposes of the foregoing calculation, "FFO" shall mean funds from operations as reported by The Meditrust Companies. The above Performance Goals may be adjusted by the Board of Directors of the Employer to reflect changes in accounting rules or changes in corporate structure. Subject to the terms of the Agreement, upon termination of the Employee's employment by The Meditrust Companies for any reason, all right, title and interest in any unvested Performance Shares shall be transferred to The Meditrust Companies in exchange for the par value of such Performance Shares, and the Employee shall not receive any unissued Performance Shares. The Employee shall receive all voting rights and dividends paid with respect to unvested Performance Shares from the date of issuance so long as the Employee is an employee of The Meditrust Companies or any subsidiary thereof. Schedule 1 EXCISE TAX GROSS-UP The determination of any additional payment payable pursuant to Section 4.3 of the Agreement shall be made in accordance with the following provisions: (a) Notwithstanding anything in the Agreement to the contrary, in the event of the determination (as hereinafter provided) that any required payment by the Employer to or for benefit of the Employee (whether paid or payable pursuant to the terms of the Agreement or otherwise pursuant to, or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, stock appreciation right, or similar right, or the lapse or termination of any restriction on the vesting or exercisability of any of the foregoing including without limitation the acceleration of the vesting or lapse of deferral periods under any equity or incentive compensation program (individually and collectively, "Payment")) would be subject to the excise tax imposed by Section 4999 of the Code or any successor provision thereto (the "Excise Tax"), the Employee shall be entitled to receive an additional payment or payments (individually or collectively, "Tax Assistance Payment"), which shall include an amount such that, after the Employee pays (1) all Federal, state and local income and employment taxes upon the Tax Assistance Payment and (2) any Excise Tax imposed upon the Tax Assistance Payment, the Employee retains so much of the Tax Assistance Payment as is equal to the Excise Tax imposed on the Payment. (b) Subject to the provisions hereinafter concerning the provision of notice of a claim by the Internal Revenue Service, all determinations required to be made under these provisions, including whether an Excise Tax is payable by the Employee, the amount of such Excise Tax and whether the Employer is required to pay the Employee a Tax Assistance Payment and the amount of such Tax Assistance Payment, if any, shall be made by PriceWaterhouseCoopers or such other nationally recognized accounting firm retained by the Employer and reasonably acceptable to the Employee ("Accounting Firm"). The Employer shall direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Employee and the Employer within 15 days after the payment or provision of any benefit that could give rise to an Excise Tax and any such other time or times as the Employee or the Employer may request. For purposes of this Paragraph (b), the Employee shall be deemed to pay Federal income taxes at the highest marginal rate of Federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in the state and locality of the Employee's residence on the Change in Control, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. If the Accounting Firm determines that any Excise Tax is payable by the Employee, the Employer shall pay the required Tax Assistance Payment to the Employee within ten (10) business days after the Employer receives such determination and calculations with respect to any Payment to the Employee. Any determination by the Accounting Firm shall be binding upon the Employer and the Employee. (c) Any federal tax returns the Employee files shall be prepared and filed on a basis consistent with the determination of the Accounting Firm with respect to the Excise Tax payable by the Employee. If the Accounting Firm determines that the Employee is required to pay no Excise Tax, it shall (at the same time it makes such determination) furnish the Employee and the Employer an opinion that the Employee has substantial authority not to report any Excise Tax on the Employee's federal income tax return. However, in view of the uncertainty concerning application of Section 4999 of the Code (or any successor provision thereto) at the time of any determination made hereunder by the Accounting Firm, it is possible that a Tax Assistance Payment that should have been made by the Employer will not have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event the Employer exhausts or fails to pursue its remedies pursuant to the provisions concerning notice of a claim by the Internal Revenue Service, and the Employee thereafter is required to make a payment of any Excise Tax, the Employee shall direct the Accounting Firm to determine the amount of the Underpayment and to submit its determination and detailed supporting calculations as promptly as possible both to the Employee and to the Employer, which shall pay the amount of such Underpayment to the Employee or for the Employee's benefit within ten (10) business days following the Employer's receipt of such determination and calculations. (d) Each of the Employee and the Employer shall provide the Accounting Firm access to and copies of any books, records and documents in the Employee's or its possession, as the case may be, reasonably requested by the Accounting Firm, and shall otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determination and calculations required or contemplated hereunder. (e) The Employer shall bear the fees and expenses of the Accounting Firm for services hereunder. If, for any reason, the Employee initially pays such fees and expenses, the Employer shall reimburse the Employee the full amount of the same within ten (10) business days following receipt from the Employee of a statement and reasonable evidence of the Employee's payment thereof. (f) The Employee shall notify the Employer in writing of any claim by the Internal Revenue Service that, if successful, would require the Employer to pay a Tax Assistance Payment. The Employee shall give such notification as promptly as practicable, but in no event later than the tenth (10th) business day next following the Employee's receipt of such claim, and the Employee further shall apprise the Employer of the nature of such claim and the date on which it is required to be paid (in each case, to the extent known to the Employee). The Employee shall not pay or otherwise satisfy such claim prior to the earlier of (a) the expiration of the 30-calendar-day period next following the date on which the Employee give notice to the Employer or (b) the date any payment of the amount with respect to such claim is due. If the Employer notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall: 2 (i) provide the Employer any written records or documents in the Employee's possession relating to such claim and reasonably requested by the Employer; (ii) take such action in connection with contesting such claim as the Employer reasonably shall request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Employer; (iii) cooperate with the Employer in good faith in order effectively to contest such claim; and (iv) permit the Employer to participate in any proceedings relating to such claim, provided, however, that the Employer directly shall bear and pay all costs and expenses (including without limitation, interest and penalties) incurred in connection with such contest and shall indemnify the Employee and hold the Employee harmless, on an after-tax basis, from and against any and all Excise Tax or income tax (including without limitation, interest and penalties with respect thereto), imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing, the Employer shall control all proceedings taken in connection with the contest of any claim contemplated by these provisions and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that the Employee may participate therein at the Employee's own cost and expense) and may, at its option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Employer shall determine; provided, however, that if the Employer directs the Employee to pay the tax claimed and to sue for a refund, the Employer shall advance the amount of such payment to the Employee, and pay on a current basis all costs of litigation, including without limitation attorneys' fees, on an interest-free basis and shall agree to and shall indemnify the Employee and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax, including without limitation, interest and penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the Employee's taxable year with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Employer's control of any such contested claim shall be limited to issues with respect to which a Tax Assistance Payment would be payable hereunder, and the Employee shall be entitled to settle or to contest, as the case may be, any other issue(s) raised by the Internal Revenue Service or any other taxing authority. (e) If, after the Employee receives an amount advanced by the Employer pursuant to provisions of the last full paragraph, the Employee receives any refund with respect to such claim, the Employee shall (subject to the Employer's complying with any applicable provisions of the same paragraph) promptly pay to the Employer the amount of such 3 refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the Employee receives such an amount advanced by the Employer, a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Employer does not notify the Employee in writing of its intent to contest such denial or refund prior to expiration of 30 calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid, and the amount of such advance shall offset, to the extent thereof, the amount of the Tax Assistance Payment the Employer is required to pay the Employee hereunder. 4 EX-10.2 3 EXHIBIT 10.2 Exhibit 10.2 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this 1st day of January, 1999 by and between Meditrust Corporation, a Delaware corporation (the "Employer"), and Michael S. Benjamin (the "Employee"). WHEREAS, the Employee is currently employed by the Employer as its Senior Vice President and General Counsel; and WHEREAS, the Employer and the Employee wish to extend such employment for a three (3) year term on the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual promises hereinafter contained, the parties hereto hereby agree as follows: 1. DUTIES. During the term of this Agreement, the Employee agrees to be employed by and to serve the Employer as its Senior Vice President and General Counsel, and the Employer agrees to employ and retain the Employee in such capacity. The Employee also shall serve the Employer in such capacity or capacities, and with such other duties consistent with such position, as shall be designated by the President from time to time. The Employee shall devote such of his business time, energy and skill to the affairs of the Employer as shall be necessary to perform the duties of such position and, in any event, not less of his business time, energy and skill than he has previously devoted to the Employer, and he shall not assume an executive, management or board position in any other business without the express permission of the Board of Directors; provided that the Employee may serve in any capacity with charitable or not-for-profit enterprises so long as there is no material interference with the Employee's duties to the Employer. The Employee shall report to the President and at all times during the term of this Agreement shall have powers and duties commensurate with his position as Senior Vice President and General Counsel of the Employer. Without the Employee's consent, the Employer may not materially reduce the Employee's duties or responsibilities hereunder or assign duties or responsibilities that are inconsistent with the Employee's position as Senior Vice President and General Counsel of the Employer. Notwithstanding the foregoing, in connection with a corporate restructuring of the Employer, if the Employee continues to be Senior Vice President and General Counsel of the publicly-traded healthcare company resulting from a Permitted Spin-Off (as defined below), such change, in and of itself, shall not be deemed to be a material reduction in the Employee's duties and responsibilities for purposes of the preceding sentence. 2. TERMS OF EMPLOYMENT. 2.1 DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: (1) "Termination For Cause" shall mean termination by the Employer of the Employee's employment by reason of (i) the Employee's fraud upon, deliberate injury or attempted injury to, or dishonesty towards the Employer that causes material and demonstrable injury to the Employer, (ii) the Employee's intentional and material breach of the provisions of Section 5 of this Agreement, (iii) the Employee's intentional and material breach of, or material failure to perform under, this Agreement (other than the provisions of Section 5 hereof) that is not cured by the Employee within 30 days after written notice from the Board of Directors specifying the breach and requesting a cure, or (iv) the conviction of any felony involving a crime of moral turpitude. (2) "Termination Other Than For Cause" shall mean termination by the Employer of the Employee's employment other than a Termination For Cause, a Termination Upon Death or Disability, or a Termination Upon a Change in Control. (3) "Termination for Good Reason" shall mean termination of employment by the Employee (i) after a material reduction by the Employer, without the Employee's consent, in the Employee's duties and responsibilities, (ii) if the Employee is not the Senior Vice President and General Counsel of Meditrust Corporation prior to the Permitted Spin-Off and the Spin-Off Entity after the Permitted Spin-Off, (iii) after any reduction by Employer of the Employee's Base Salary and benefits (provided that, in the case of across-the-board benefit reductions similarly affecting all management personnel, the Employer will continue to provide Employee with a benefit package substantially equivalent to the benefits provided at the time of such reduction, provided that the Employer shall not be required to expend more than 150% of the Employer's cost therefor in fiscal year 1999), (iv) the relocation of the Employer's offices at which the Employee is principally employed to a location which is more than 35 miles from the current location of the Employer's office or the requirement that the Employee be based (1) anywhere other than the Employer's principal offices, as the same may be relocated within 35 miles as provided above, or (2) more than 35 miles from the Employer's current offices, except for required travel on the Employer's business to an extent substantially consistent with the Employee's present business travel obligations, (v) a material breach of this Agreement by the Employer that is not rectified within 30 days of notification to the President of the Employer by the Employee of such breach, (vi) the failure of the Employer to obtain an agreement from any successor or assign of the Employer, to assume and agree to perform this Agreement, as contemplated by Section 7.15, or (vii) the Employer's failure to extend this Agreement pursuant to Section 2.2 hereof on each anniversary date. Notwithstanding the foregoing, in connection with a Permitted Spin-Off, if the Employee continues to be Senior Vice President and General Counsel of the Spin-Off Entity, such change in title and position shall not be deemed to be a material reduction in the Employee's duties and responsibilities for purposes of clause (i) above. (4) "Termination Upon a Change in Control" shall mean termination of the Employee's employment with the Employer within two (2) years following a Change in Control either by the Employer as a Termination Other Than For Cause or by the Employee as a Termination for Good Reason. 2 (5) "Termination Upon Death or Disability" shall mean termination by the Employer by reason of the Employee's death or disability as described in Section 2.3 hereof. (6) "Permitted Spin-Off" shall mean a corporate restructuring of the Meditrust Companies pursuant to which all of the stock of any existing or newly-created subsidiary of the Meditrust Companies (or either of them) which owns (or acquires by purchase, dividend, investment or otherwise) all of the healthcare assets and investments of the Meditrust Companies (or the stock of subsidiaries which own such assets and investments) existing immediately prior thereto is "spun-off" ratably to the shareholders of the Meditrust Companies at the time of such spin-off. (7) "Spin-Off Entity" shall mean any Person resulting from a Permitted Spin-Off. (8) "Change in Control" shall mean (a) an acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the combined voting power of the then outstanding voting securities of the Employer entitled to vote generally in the election of directors of the Employer (the "Outstanding Voting Securities") or 20% or more of the combined market value of the equity securities of the Employer (the "Equity Value"); PROVIDED, HOWEVER, that any acquisition directly from or by the Employer or any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Employer or an affiliated company or any acquisition by a company pursuant to a transaction which complies with clauses (i), (ii) and (iii) of (c) below shall be excluded from this clause (a); or (b) individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") of the Employer, cease for any reason to constitute at least 60% of the Board of Directors of the Employer; PROVIDED, HOWEVER, that any individual becoming a director whose election, or nomination for election by the Employer's stockholders, was approved by a vote of at least 60% of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Employer; or (c) consummation of a reorganization, merger or consolidation of the Employer (a "Business Combination"), unless, in each case, following such Business Combination, (i) all or substantially all the individuals and entities who were the beneficial owners, respectively, of the outstanding Equity Value and Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the combined market value of the equity securities and more than 60% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such Business Combination (including, without limitation, a 3 corporation which as a result of such transaction owns the Employer or all or substantially all of the Employer's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Equity Value and Outstanding Voting Securities, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Employer or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of the combined voting power of the then outstanding voting securities or 20% or more of the combined market value of the equity securities of the corporation resulting from such business combination except to the extent that such ownership existed prior to the Business Combination and (iii) at least 60% of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or the action of the Board, providing for such Business Combination, (d) the sale or other disposition of more than 50% of the healthcare assets of the Employer, or (e) a complete liquidation or dissolution of the Employer or approval thereof by the stockholders of the Employer. For purposes of this definition, "Employer" shall mean either (x) Meditrust Corporation or Meditrust Operating Company ("Meditrust" and together with the Employer, "The Meditrust Companies") or (y) any subsidiary of Meditrust Corporation, the assets of which are substantially all of the healthcare assets and investments of Meditrust Corporation (or the stock of subsidiaries, the assets of which are substantially all of the healthcare assets and investments of Meditrust Corporation). Notwithstanding the foregoing, any corporate restructuring directly related to a Permitted Spin-Off, including any related change to the Board of Directors shall not be deemed to be a Change in Control; provided, however, that this exclusion shall not apply to any simultaneous or subsequent sale of, or Business Combination, or other events described in clauses (a) through (e) of this Section 2.1(h) involving such Spin-Off Entity. 2.2 TERM. The term of employment of the Employee by the Employer shall commence on the date and year first above written (the "Effective Date") and shall continue through the third (3rd) anniversary of the Effective Date; provided, however the term of this Agreement shall automatically be extended for one additional year on each anniversary date of the Effective Date unless, not later than 90 days prior to such date, either party shall have given notice to the other that it or he does not wish to extend this Agreement; provided, further, that if a Change in Control (as defined in Section 2.1(f)) occurs during the original or extended term of this Agreement, the term of this Agreement shall continue in effect for a period of not less than two (2) years beyond the month in which the Change in Control occurred. 2.3 TERMINATION. Notwithstanding any provision of this Employment Agreement, the employment of the Employee pursuant to this Agreement may be terminated by the Employer upon (a) at least 15 days' prior written notification to the Employee in the event of a Termination For Cause, (b) upon at least 60 days' prior written notice to the Employee in the event of a Termination Other Than For Cause or a Termination Upon a Change in Control, (c) upon written notification to the Employee if the Employee, in the 4 reasonable judgment of the Board of Directors of the Employer, has failed to perform his duties under this Agreement because of illness or physical or mental incapacity, and such illness or incapacity continues for a period of more than four (4) consecutive months, or (d) in the event of the Employee's death, in which case the Employee's employment shall be deemed to have terminated as of the last day of the month during which his death occurs. The Employee may terminate his employment under this Agreement upon at least 60 days' prior written notice to the Employer; provided, however, that in the event of a Change in Control, the notice requirement is shortened to ten (10) days. 2.4 PAYMENTS UPON TERMINATION. Upon any termination of the Employee's employment by the Employer hereunder, the Employer shall promptly pay to the Employee, or in the case of his death, to his estate or such beneficiaries as the Employee may from time to time designate, all accrued salary, any benefits under any plans of the Employer in which the Employee is a participant to the full extent of the Employee's rights under such plans, accrued vacation pay and any appropriate business expense incurred by the Employee in connection with his duties hereunder, all to the date of termination. The Employee, or his estate or beneficiaries in the case of his death, shall not be entitled to any other compensation or reimbursement of any kind, including, without limitation, severance compensation, except as provided in Section 4 hereof. Unless otherwise provided in writing or as provided in Section 4 hereof, upon termination of employment, all options held by the Employee that are not then currently exercisable and all Performance Units shall immediately lapse and have no force or effect, and all then non-vested Performance Shares held by the Employee shall be forfeited and returned to the Employer. 3. SALARY AND BENEFITS. 3.1 BASE SALARY. As payment for the services to be rendered by the Employee as provided in Section 1, and subject to the terms and conditions of Section 2, the Employer agrees to pay to the Employee at the rate of $300,000 per annum (the "Base Salary"). The Base Salary shall be payable in equal bi-monthly (twice a month) installments. Unless otherwise determined by the Board of Directors, the Employee shall not be entitled to any compensation in addition to that set forth in this Section 3 for serving as an officer of the Employer. All services which the Employee may render to the Employer in any capacity shall be deemed to be services required by this Agreement and as consideration for the compensation herein provided. 3.2 BONUS. The Employee's bonus opportunity for each fiscal year shall be equal to 40% to 80% ("Maximum Bonus") of Base Salary paid during such fiscal year. The amount of bonus payments shall be determined at the sole discretion of the Compensation Committee or pursuant to criteria to be established from time to time. 3.3 EMPLOYEE BENEFITS. The Employee shall be eligible to participate in such of the Employer's benefits and deferred compensation plans as are now generally available or later made generally available to executive officers of the Employer, including, 5 but not limited to, the 401(k) plan, non-qualified deferred compensation plan, if any, medical insurance plan, dental insurance plan, life insurance plan, and disability insurance plan. The Employee shall also be provided with an automobile allowance that is not less than the amount currently paid, including reimbursement for gasoline, insurance, maintenance and repairs. 3.4 REIMBURSEMENT FOR EXPENSES. The Employer shall reimburse the Employee for reasonable and properly documented out-of-pocket expenses incurred by the Employee in connection with his duties under this Agreement. 3.5 PERFORMANCE SHARES. The Employer has previously awarded the Employee 50,000 performance shares in accordance with the terms described in Exhibit A hereto and the Employer's 1995 Share Award Plan (the "Performance Shares"). 3.6 STOCK OPTIONS. In connection with the negotiation and execution hereof, on December 10, 1998, the Employer issued to the Employee pursuant to the 1995 Share Award Plan ("Plan") an option to purchase 100,000 paired shares ("Paired Shares") of The Meditrust Companies, at $13.4375 per Paired Share (the "Option"). The Option shall vest and become exercisable in accordance with the Plan in 25% increments on each anniversary date of the date of grant, so that the Option is fully vested and exercisable on the fourth (4th) anniversary date of the date of grant. Further, on December 10, 1998, the Employer issued to the Employee pursuant to the 1995 Share Award Plan an option to purchase 50,000 Paired Shares, at $13.4375 per Paired Share (the "Performance Option"). The Performance Option shall vest and become fully exercisable in accordance with the Plan on December 10, 2004; provided, however, that if prior to December 10, 2004 the 20-day average trading price of a Paired Share (the "20-Day Average") attains $23.00, 33 1/3% of the Performance Option shall vest and become exercisable in accordance with the Plan; and if prior to December 10, 2004, the 20-Day Average attains $26.00, 66 2/3% of the Performance Option shall vest and become exercisable in accordance with the Plan, and if prior to December 10, 2004, the 20-Day Average attains $29.00, the remainder of the Performance Option shall vest and become fully exercisable in accordance with the Plan. For this purpose, the price of the Paired Shares shall be determined by reference to the quoted closing price per Paired Share on the New York Stock Exchange. 3.7 PERFORMANCE UNITS. The Employer has issued to the Employee 50,000 performance units ("Performance Units") in the Long Term Bonus Program. Such Performance Units shall become payable only pursuant to the provisions of Section 4.1, 4.2 or 4.3. 3.8 STOCK OWNERSHIP LEVELS. It is the expectation of the parties that upon the fourth anniversary of the Effective Date, the Employee shall own equity in the Employer (which shall include the Performance Shares) with a value equal to two (2) times his Base Salary. In the event the Employee does not attain such level of equity ownership by such date, the Employee shall not be eligible to receive any further equity grants from the Employer until such time when the Employee attains the desired equity ownership level. 6 4. SEVERANCE COMPENSATION. 4.1 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION OTHER THAN FOR CAUSE OR TERMINATION FOR GOOD REASON. In the event the Employee's employment is terminated in a Termination Other Than For Cause or in a Termination for Good Reason, subject to the signing by the Employee of a general release of employment-related claims (other than continuing rights under this Agreement) in a form and manner reasonably satisfactory to the Employer, (i) all unvested Performance Shares held by the Employee shall become immediately vested in full, (ii) all Performance Units issued to the Employee pursuant to Section 3.7 hereof shall become immediately vested in full with the value of each Unit deemed to be $25; provided that payment with respect to the Performance Units shall be made in cash no earlier than January 1, 2002, (iii) any unvested options to purchase shares of The Meditrust Companies held by the Employee shall become immediately vested and exercisable in full in accordance with the Plan and (iv) the Employee shall be paid a lump sum within 30 days of such termination equal to the sum of his Base Salary and the average of the bonuses received by the Employee under Section 3.2 for the three (3) immediately preceding fiscal years (or for such shorter period that the Employee was eligible for a bonus), multiplied by the greater of (a) two (2) or (b) the number of full and fractional years remaining in the original term or extended term of this Agreement (the "Unexpired Term"). The Employee shall continue to enjoy the benefits under the medical and dental insurance plans and the non-qualified retirement plan, if any, for the greater of two (2) years or the Unexpired Term. He shall also be provided with an automobile allowance for the greater of two (2) years or the Unexpired Term at a level which is not less than the level provided to the Employee immediately prior to such termination. Notwithstanding the foregoing, in the event a Change in Control occurs within nine (9) months after a termination under this Section 4.1, the Employee's employment shall be deemed to have been terminated in a Termination Upon a Change in Control and the benefits inuring to the Employee shall be recalculated and paid or delivered to the Employee as though Section 4.3 applied at the time of such termination. 4.2 SEVERANCE COMPENSATION UPON DEATH OR DISABILITY. In the event the Employee's employment is terminated in a Termination Upon Death or Disability, and in the case of Termination Upon Disability, subject to the signing by the Employee (in the case of Disability) of a general release of employment-related claims (other than continuing rights under this Agreement) in a form and manner reasonably satisfactory to the Employer, (i) all unvested Performance Shares held by the Employee shall become immediately vested in full, (ii) all Performance Units issued to the Employee pursuant to Section 3.7 hereof shall become immediately vested in full with the value of each Unit deemed to be $25; provided that payment with respect to the Performance Units shall be made in cash no earlier than April 1, 2002, (iii) any unvested options to purchase shares of The Meditrust Companies held by the Employee shall become immediately vested and exercisable in full in accordance with the Plan and (iv) the Employee or his estate shall be paid a lump sum within 30 days of such termination equal to the sum of his Base Salary and the average of the bonuses received by the Employee under Section 3.2 for the three (3) immediately preceding fiscal years (or for such 7 shorter period that the Employee was eligible for a bonus), multiplied by the greater of two (2) or the Unexpired Term. The Employee (or dependents, in the case of the Employee's death) shall continue to enjoy the benefits under the medical and dental insurance plans for the greater of two (2) years or the Unexpired Term. In the case of disability, Employee shall also be provided with an automobile allowance for the greater of two (2) years or the Unexpired Term at a level which is not less than the level provided to the Employee immediately prior to such termination. 4.3 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION UPON A CHANGE IN CONTROL. (1) Upon a Change in Control, (i) all unvested Performance Shares held by the Employee shall become immediately vested in full, (ii) all Performance Units issued to the Employee pursuant to Section 3.7 hereof shall become immediately vested in full with the value of each Unit deemed to be $50, (iii) any unvested options to purchase shares of The Meditrust Companies held by the Employee shall become immediately vested and exercisable in accordance with the Plan in full. In the event the Employee's employment is terminated in a Termination Upon a Change in Control, subject to the signing by the Employee of a general release of employment-related claims (other than continuing rights under this Agreement) in a form and manner reasonably satisfactory to the Employer, the Employee shall be paid a lump sum in cash within 30 days of such termination in an amount equal to the full value of his Performance Units and an amount equal to the greater of two (2) or the Unexpired Term times the sum of (A) his Base Salary and (B) Maximum Bonus for the year of termination. The Employee shall continue to enjoy the benefits under the medical and dental insurance plan and the non-qualified retirement plan, if any, for the greater of two (2) years or the Unexpired Term and any and all debts of the Employee to the Employer will be forgiven by the Employer. The Employee shall also be provided with an automobile allowance for the greater of two (2) years or the Unexpired Term at a level which is not less than the level provided to the Employee immediately prior to such termination. (2) Notwithstanding the foregoing, in the event of the determination (as hereinafter provided) that any required payment by the Employer to or for the benefit of the Employee (whether paid or payable pursuant to the terms of the Agreement or otherwise pursuant to, or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, stock appreciation right, or similar right, or the lapse or termination of any restriction on the vesting or exercisability of any of the foregoing including without limitation the acceleration of the vesting or lapse of deferral periods under any equity or incentive compensation program (individually and collectively, "Severance Payments")) would be subject to excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any successor provision thereto (the "Excise Tax"), the following provisions shall apply: (i) If the Severance Payments, reduced by the sum of (1) the Excise Tax and (2) the total of the Federal, state, and local income and employment taxes 8 payable by the Employee on the amount of the Severance Payments which are in excess of the Threshold Amount (as defined below), are greater than or equal to the Threshold Amount, the Employee shall be entitled to the full benefits payable under this Agreement. (ii) If the Threshold Amount is less than (a) the Severance Payments, but greater than (b) the Severance Payments reduced by the sum of (1) the Excise Tax and (2) the total of the Federal, state, and local income and employment taxes on the amount of the Severance Payments which are in excess of the Threshold Amount, then the benefits payable under this Agreement shall be reduced (but not below zero (0)) to the extent necessary so that the maximum Severance Payments shall equal the Threshold Amount. To the extent that there is more than one method of reducing the payments to bring them within the Threshold Amount, the Employee shall determine which method shall be followed; provided that if the Employee fails to make such determination within 15 days after the Employer has sent the Employee written notice of the need for such reduction, the Employer may determine the amount of such reduction in its sole discretion. For the purposes of this section, "Threshold Amount" shall mean three (3) times the Employee's "base amount" within the meaning of Section 280G(b)(3) of the Code and the regulations promulgated thereunder less one dollar ($1.00). The determination as to which provisions of this Section 4.3(b) shall apply to the Employee shall be made by PriceWaterhouseCoopers or such other nationally recognized accounting firm retained by the Employer and reasonably acceptable to the Employee (the "Accounting Firm"). The Employer shall direct the Accounting Firm to submit its determination and detailed supporting calculations both to the Employer and the Employee within 15 days after the Change in Control, or at such earlier time as is reasonably requested by the Employer or the Employee. For purposes of this Section 4.3(b), the Employee shall be deemed to pay Federal income taxes at the highest marginal rate of Federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in the state and locality of the Employee's residence on the Change in Control, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. Any determination by the Accounting Firm shall be binding upon the Employer and the Employee. (3) Each of the Employee and the Employer shall provide the Accounting Firm access to and copies of any books, records and documents in the Employee's or its possession, as the case may be, reasonably requested by the Accounting Firm, and shall otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determination and calculations required or contemplated hereunder. (4) The Employer shall bear the fees and expenses of the Accounting Firm for services hereunder. If, for any reason, the Employee initially pays such fees and expenses, the Employer shall reimburse the Employee the full amount of the same within ten 9 (10) business days following receipt from the Employee of a statement and reasonable evidence of the Employee's payment thereof. 5. NON-COMPETITION AND NON-DISCLOSURE. 5.1 NON-COMPETITION. (1) During the term hereof, without approval by the Board, the Employee will not, directly or indirectly, (i) engage or become interested, directly or indirectly, as owner, employee, director, partner, consultant, through stock ownership (except ownership of not more than one percent (1%) of any class of securities of a corporation which is publicly traded), investment of capital, lending of money or property, rendering of services, or otherwise, either alone or in association with others, in any business which competes directly or indirectly with the business of the Employer, (ii) induce or attempt to induce any customer of the Employer to reduce such customer's business with the Employer, or (iii) solicit any of the Employer's employees to leave the employ of the Employer or employ any of such Employees, except for the Employee's administrative assistant. (2) For a period of one (1) year after any termination of employment, the Employee will not, directly or indirectly, (i) engage or become interested, directly or indirectly, as owner, employee, director, partner, consultant, through stock ownership (except ownership of not more than five percent (5%) of any class of securities of a corporation which is publicly traded), investment of capital, lending of money or property, rendering of services, or otherwise, either alone or in association with others, in any healthcare real estate investment trust financing business which competes directly and materially with the business of the Employer or (ii) solicit any of the Employer's employees to leave the employ of the Employer or employ any of such employees, except for the Employee's administrative assistant. The Employee recognizes and acknowledges that his obligations under this Section 5.1(b) are limited to the geographic areas in which the Employer is doing business at the time of the expiration or termination of this Agreement. (3) As used in Sections 5.1, 5.2, 7.2 and 7.3, the term "Employer" shall mean Meditrust Corporation or its subsidiaries and affiliates. The restrictions on the Employee set forth in this Section 5.1 shall not apply in the case of a Termination Upon a Change in Control. 5.2 NON-DISCLOSURE. The Employee agrees that all confidential and proprietary information relating to the business of the Employer shall be kept and treated as confidential both during and after the term of this Agreement, except as may be permitted in writing by the Employer's Board of Directors or if such information is within the public domain or comes within the public domain without any breach of this Agreement. 6. INSURANCE. The Employer may, at its expense, procure and maintain life insurance on the life of the Employee. The beneficiary of such policy shall be the Employer. 10 The Employee shall cooperate with the Employer as is reasonably necessary to procure such insurance. 7. MISCELLANEOUS. 7.1 ARBITRATION; DISPUTE RESOLUTION. (1) ARBITRATION PROCEDURE. Any disagreement, dispute, controversy or claim arising out of or relating to this Agreement or the interpretation of this Agreement or any arrangements relating to this Agreement or contemplated in this Agreement or the breach, termination or invalidity thereof shall be settled by final and binding arbitration in Boston, Massachusetts in accordance with the Employment Dispute Resolution Rules (the "Arbitration Rules") of the American Arbitration Association (the "AAA"); PROVIDED, that nothing contained herein shall be deemed to prohibit either party to apply to a court of competent jurisdiction for temporary or preliminary equitable relief. The arbitral tribunal shall consist of one arbitrator. In making any decision, the arbitrator shall apply and follow the substantive law of Massachusetts without reference to the conflicts of law provisions thereof. The parties to the arbitration jointly shall directly appoint such arbitrator within 30 days of the initiation of arbitration. If the parties shall fail to appoint such arbitrator as provided above, such arbitrator shall be appointed by the AAA as provided in the Arbitration Rules. The Employee and the Employer agree that the decision of the arbitrator shall be final, the arbitral award may be enforced against the parties to the arbitration proceeding or their assets wherever they may be found and that a judgment upon the arbitral award may be entered in any court having jurisdiction thereof. The Employer shall pay all fees and expenses of the Arbitrator regardless of the result and shall provide all witnesses and evidence reasonably required by the Employee to present his case. The Employer shall pay to the Employee all reasonable arbitration expenses and legal fees incurred by the Employee as a result of a termination of the Employee's employment in seeking to obtain or enforce any right or benefit provided by this Agreement (whether or not the Employee is successful in obtaining or enforcing such right or benefit). Such payments shall be made within five (5) days after the Employee's request for payment accompanied with such evidence of fees and expenses incurred as the Employer reasonably may require. (2) COMPENSATION DURING DISPUTE. The Employee's compensation during any disagreement, dispute, controversy or claim arising out of or relating to this Agreement or the interpretation of this Agreement shall be as follows: If there is a termination by the Employer followed by a dispute as to whether the Employee is entitled to the payments and other benefits provided under this Agreement, then, during the period of that dispute the Employer shall pay the Employee 50% of the amount specified in Section 4.1 hereof, and the Employer shall provide the Employee with the benefits provided in Section 4.1 hereof, if, but only if, the Employee agrees in writing that if the dispute is resolved against the Employee, the Employee shall promptly refund to the Employer all payments received under Section 4.1 of this Agreement plus interest at the rate 11 provided in Section 1274(d) of the Code, compounded quarterly. If the dispute is resolved in the Employee's favor, promptly after resolution of the dispute, the Employer shall pay to the Employee the sum that was withheld during the period of the dispute plus interest at the rate provided in Section 1274(d) of the Code, compounded quarterly. 7.2 LITIGATION AND REGULATORY COOPERATION. During and after the Employee's employment, the Employee shall reasonably cooperate with the Employer in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Employer which relate to events or occurrences that transpired while the Employee was employed by the Employer; provided, however, that such cooperation shall not materially and adversely affect the Employee or expose the Employee to an increased probability of civil or criminal litigation. The Employee's cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Employer at mutually convenient times. During and after the Employee's employment, the Employee also shall cooperate fully with the Employer in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while the Employee was employed by the Employer. The Employer shall also provide the Employee with compensation on an hourly basis calculated at his final base compensation rate for requested litigation and regulatory cooperation that occurs after his termination of employment, and reimburse the Employee for all costs and expenses incurred in connection with his performance under this Section 7.2, including, but not limited to, reasonable attorneys' fees and costs. 7.3 NONDISPARAGEMENT. During and after the Employee's employment, the Employee agrees that he shall not take any action or make any statement, written or oral, which disparages or criticizes the Employer or The Meditrust Companies, or their respective officers, directors, agents, or management and business practices, or which disrupts or impairs the normal operations of the Employer or The Meditrust Companies. During and after the Employee's employment, the Employer agrees that it shall not take any action or make any statement, written or oral, which disparages or criticizes Employee or Employee's management and business practices and that it shall instruct its officers, directors and agents not to take any action or make any statement, written or oral, which disparages or criticizes the Employee or the Employee's management and business practices. 7.4 NO MITIGATION. The Employer agrees that, if the Employee's employment by the Employer is terminated during the term of this Agreement, the Employee is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Employee by the Employer pursuant to Sections 3 and 4 hereof. Further, the amount of any payment provided for in this Agreement shall not be reduced by any compensation earned by the Employee as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Employee to the Employer, or otherwise. 12 7.5 AUTHORITY; NO RESTRICTIONS. Each party represents and warrants that it has full power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby and this Agreement is the legal, valid and binding obligation of the party, enforceable against the party in accordance with its terms. No consent, approval or agreement of any person, party, court, government or entity is required to be obtained by either party in connection with the execution and delivery of this Agreement. Each party is not subject to any agreement, restriction, lien, encumbrance or right, title or interest in anyone limiting in any way the scope of this Agreement or in any way inconsistent herewith, and each party will not hereafter grant anyone the same. 7.6 EFFECT OF EXPIRATION OR TERMINATION. Upon the expiration or other termination of this Agreement, all obligations of the parties shall forthwith terminate, except for any obligation to pay any fixed sum of money or provide any benefits which may have accrued and be due and payable hereunder at the time of such expiration or other termination and except that the provisions of Section 5 and Sections 7.1, 7.2 and 7.3 shall continue in effect in accordance with their terms, such Sections containing independent agreements and obligations. 7.7 EQUITABLE RELIEF. The obligations of the Employee under Section 5 hereunder are special, unique and extraordinary, and any breach by the Employee thereof shall be deemed material and to cause irreparable injury not properly compensated by damages in an action at law. Notwithstanding Section 7.1, the Employer's rights and remedies hereunder shall therefore be enforceable both at law and in equity, by injunction and otherwise; and the rights and remedies of the Employer hereunder with respect thereto shall be cumulative and not alternative and shall not be exhausted by any one or more uses thereof. 7.8 CONSENT TO JURISDICTION. To the extent that any court action is permitted consistent with or to enforce Sections 5, 7.1, 7.2 and 7.7 of this Agreement, the parties hereby consent to the jurisdiction of the Courts of the Commonwealth of Massachusetts and the United States District Court for the District of Massachusetts. Accordingly, with respect to any such court action, the Employee (a) submits to the personal jurisdiction and venue of such courts; (b) consents to service of process; and (c) waives any other requirement (whether imposed by statute, rule of court or otherwise) with respect to personal jurisdiction, venue or service of process. 7.9 WAIVER. The waiver of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof . 7.10 ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise provided herein, this Agreement represents the entire understanding among the parties with respect to the subject matter hereof, and this Agreement supersedes any and all prior understandings, agreements, plans and negotiations, whether written or oral, with respect to the subject matter 13 hereof. All modifications to the Agreement must be in writing and signed by the party against whom enforcement of such modification is sought. 7.11 NOTICES. All notices and other communications under this Agreement shall be in writing and shall be deemed duly given (a) when delivered, or (b) two (2) days after being mailed by first class mail, certified or registered with return receipt requested, or (c) one (1) day after being mailed through an overnight delivery service, or (d) upon confirmation of transmission via facsimile, to the following addresses: If to the Employer: Meditrust Corporation 197 First Avenue Needham, MA 02494 Attn: President and Chief Executive Officer If to the Employee: Michael S. Benjamin 25 Old England Road Chestnut Hill, MA 02467 Any party may change such party's address for notices by notice duly given pursuant to this Section 7.11. 7.12 HEADINGS. The Section headings herein are intended for reference and shall not by themselves determine the construction or interpretation of this Agreement. 7.13 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, applied without regard to conflict of law principles. 7.14 SEVERABILITY. Should a court or other body of competent jurisdiction determine that any provision of this Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, and all other provisions of this Agreement shall be deemed valid and enforceable to the extent possible. 7.15 SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by the Employee without the prior written consent of the Employer, and may be assigned by the Employer and shall be binding upon, and inure to the benefit of, the Employer's successors and assigns. The Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer to assume expressly and agree to perform this Agreement in the same manner and to the extent that the Employer would be required to perform it if no such succession had taken place. As used in this Agreement, "Employer" shall mean the Employer as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 14 7.16 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement. 7.17 WITHHOLDINGS. All compensation and benefits to the Employee hereunder shall be reduced by all federal, state, local and other withholdings and similar taxes and payments required by applicable law. The Employee agrees to pay all federal, state and local taxes owed by him in connection with this Agreement. 7.18 SUBSTITUTION OF EMPLOYER. Upon a Permitted Spin-Off, the Spin-Off Entity shall be deemed to be the Employer for all purposes of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the day and year first above written. MEDITRUST CORPORATION SEAL By ------------------------------------------ Name: David F. Benson Title: President and Chief Executive Officer -------------------------------------------- Michael S. Benjamin 15 Exhibit A THE PERFORMANCE SHARES 100% of the Performance Shares described in Section 3.5 shall be deemed issued as of February 27, 1998 upon payment by the Employee of the par value thereof to The Meditrust Companies. Subject to the terms of the Agreement, the Performance Shares shall vest on the earliest of (a) eight (8) years after the date of issuance, (b) on March 31 of the year following the first fiscal year after issuance in which the Performance Goal is achieved or (c) as the Board of Directors may determine. The Performance Goal for all outstanding grants of Performance Shares shall be deemed achieved in any fiscal year commencing with the year 2000 that meets both criteria specified below:
Fiscal FFO Cumulative FFO per Share Year Per Share Since January 1, 1998 ---- --------- --------------------- 2000 $2.92 $ 8.28 2001 3.10 11.38 2002 3.28 14.66 2003 3.48 18.14 2004 3.69 21.83
For purposes of the foregoing calculation, "FFO" shall mean funds from operations as reported by The Meditrust Companies. The above Performance Goals may be adjusted by the Board of Directors of the Employer to reflect changes in accounting rules or changes in corporate structure. Subject to the terms of the Agreement, upon termination of the Employee's employment by The Meditrust Companies for any reason, all right, title and interest in any unvested Performance Shares shall be transferred to The Meditrust Companies in exchange for the par value of such Performance Shares, and the Employee shall not receive any unissued Performance Shares. The Employee shall receive all voting rights and dividends paid with respect to unvested Performance Shares from the date of issuance so long as the Employee is an employee of The Meditrust Companies or any subsidiary thereof. 16 EX-10.3 4 EXHIBIT 10.3 Exhibit 10.3 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this 1st day of January, 1999 by and between Meditrust Corporation, a Delaware corporation (the "Employer"), and Michael F. Bushee (the "Employee"). WHEREAS, the Employee is currently employed by the Employer as its Chief Operating Officer; and WHEREAS, the Employer and the Employee wish to extend such employment for a three (3) year term on the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual promises hereinafter contained, the parties hereto hereby agree as follows: 1. DUTIES. During the term of this Agreement, the Employee agrees to be employed by and to serve the Employer as its Chief Operating Officer, and the Employer agrees to employ and retain the Employee in such capacity. The Employee also shall serve the Employer in such capacity or capacities, and with such other duties consistent with such position, as shall be designated by the President from time to time. The Employee shall devote such of his business time, energy and skill to the affairs of the Employer as shall be necessary to perform the duties of such position and, in any event, not less of his business time, energy and skill than he has previously devoted to the Employer, and he shall not assume an executive, management or board position in any other business without the express permission of the Board of Directors; provided that the Employee may serve in any capacity with charitable or not-for-profit enterprises so long as there is no material interference with the Employee's duties to the Employer. The Employee shall report to the President and at all times during the term of this Agreement shall have powers and duties commensurate with his position as Chief Operating Officer of the Employer. Without the Employee's consent, the Employer may not materially reduce the Employee's duties or responsibilities hereunder or assign duties or responsibilities that are inconsistent with the Employee's position as Chief Operating Officer of the Employer. Notwithstanding the foregoing, in connection with a corporate restructuring of the Employer, if the Employee continues to be Chief Operating Officer of the publicly-traded healthcare company resulting from a Permitted Spin-Off (as defined below), such change, in and of itself, shall not be deemed to be a material reduction in the Employee's duties and responsibilities for purposes of the preceding sentence. 2. TERMS OF EMPLOYMENT. 2.1 DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: (1) "Termination For Cause" shall mean termination by the Employer of the Employee's employment by reason of (i) the Employee's fraud upon, deliberate injury or attempted injury to, or dishonesty towards the Employer that causes material and demonstrable injury to the Employer, (ii) the Employee's intentional and material breach of the provisions of Section 5 of this Agreement, (iii) the Employee's intentional and material breach of, or material failure to perform under, this Agreement (other than the provisions of Section 5 hereof) that is not cured by the Employee within 30 days after written notice from the Board of Directors specifying the breach and requesting a cure, or (iv) the conviction of any felony involving a crime of moral turpitude. (2) "Termination Other Than For Cause" shall mean termination by the Employer of the Employee's employment other than a Termination For Cause, a Termination Upon Death or Disability, or a Termination Upon a Change in Control. (3) "Termination for Good Reason" shall mean termination of employment by the Employee (i) after a material reduction by the Employer, without the Employee's consent, in the Employee's duties and responsibilities, (ii) if the Employee is not the Chief Operating Officer of Meditrust Corporation prior to the Permitted Spin-Off and the Spin-Off Entity after the Permitted Spin-Off, (iii) after any reduction by Employer of the Employee's Base Salary and benefits (provided that, in the case of across-the-board benefit reductions similarly affecting all management personnel, the Employer will continue to provide Employee with a benefit package substantially equivalent to the benefits provided at the time of such reduction, provided that the Employer shall not be required to expend more than 150% of the Employer's cost therefor in fiscal year 1999), (iv) the relocation of the Employer's offices at which the Employee is principally employed to a location which is more than 35 miles from the current location of the Employer's office or the requirement that the Employee be based (1) anywhere other than the Employer's principal offices, as the same may be relocated within 35 miles as provided above, or (2) more than 35 miles from the Employer's current offices, except for required travel on the Employer's business to an extent substantially consistent with the Employee's present business travel obligations, (v) a material breach of this Agreement by the Employer that is not rectified within 30 days of notification to the President of the Employer by the Employee of such breach, (vi) the failure of the Employer to obtain an agreement from any successor or assign of the Employer, to assume and agree to perform this Agreement, as contemplated by Section 7.15, or (vii) the Employer's failure to extend this Agreement pursuant to Section 2.2 hereof on each anniversary date. Notwithstanding the foregoing, in connection with a Permitted Spin-Off, if the Employee continues to be Chief Operating Officer of the Spin-Off Entity, such change in title and position shall not be deemed to be a material reduction in the Employee's duties and responsibilities for purposes of clause (i) above. (4) "Termination Upon a Change in Control" shall mean termination of the Employee's employment with the Employer within two (2) years following a Change in Control either by the Employer as a Termination Other Than For Cause or by the Employee as a Termination for Good Reason. 2 (5) "Termination Upon Death or Disability" shall mean termination by the Employer by reason of the Employee's death or disability as described in Section 2.3 hereof. (6) "Permitted Spin-Off" shall mean a corporate restructuring of the Meditrust Companies pursuant to which all of the stock of any existing or newly-created subsidiary of the Meditrust Companies (or either of them) which owns (or acquires by purchase, dividend, investment or otherwise) all of the healthcare assets and investments of the Meditrust Companies (or the stock of subsidiaries which own such assets and investments) existing immediately prior thereto is "spun-off" ratably to the shareholders of the Meditrust Companies at the time of such spin-off. (7) "Spin-Off Entity" shall mean any Person resulting from a Permitted Spin-Off. (8) "Change in Control" shall mean (a) an acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the combined voting power of the then outstanding voting securities of the Employer entitled to vote generally in the election of directors of the Employer (the "Outstanding Voting Securities") or 20% or more of the combined market value of the equity securities of the Employer (the "Equity Value"); PROVIDED, HOWEVER, that any acquisition directly from or by the Employer or any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Employer or an affiliated company or any acquisition by a company pursuant to a transaction which complies with clauses (i), (ii) and (iii) of (c) below shall be excluded from this clause (a); or (b) individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") of the Employer, cease for any reason to constitute at least 60% of the Board of Directors of the Employer; PROVIDED, HOWEVER, that any individual becoming a director whose election, or nomination for election by the Employer's stockholders, was approved by a vote of at least 60% of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Employer; or (c) consummation of a reorganization, merger or consolidation of the Employer (a "Business Combination"), unless, in each case, following such Business Combination, (i) all or substantially all the individuals and entities who were the beneficial owners, respectively, of the outstanding Equity Value and Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the combined market value of the equity securities and more than 60% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such Business Combination (including, without limitation, a 3 corporation which as a result of such transaction owns the Employer or all or substantially all of the Employer's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Equity Value and Outstanding Voting Securities, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Employer or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of the combined voting power of the then outstanding voting securities or 20% or more of the combined market value of the equity securities of the corporation resulting from such business combination except to the extent that such ownership existed prior to the Business Combination and (iii) at least 60% of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or the action of the Board, providing for such Business Combination, (d) the sale or other disposition of more than 50% of the healthcare assets of the Employer, or (e) a complete liquidation or dissolution of the Employer or approval thereof by the stockholders of the Employer. For purposes of this definition, "Employer" shall mean either (x) Meditrust Corporation or Meditrust Operating Company ("Meditrust" and together with the Employer, "The Meditrust Companies") or (y) any subsidiary of Meditrust Corporation, the assets of which are substantially all of the healthcare assets and investments of Meditrust Corporation (or the stock of subsidiaries, the assets of which are substantially all of the healthcare assets and investments of Meditrust Corporation). Notwithstanding the foregoing, any corporate restructuring directly related to a Permitted Spin-Off, including any related change to the Board of Directors shall not be deemed to be a Change in Control; provided, however, that this exclusion shall not apply to any simultaneous or subsequent sale of, or Business Combination, or other events described in clauses (a) through (e) of this Section 2.1(h) involving such Spin-Off Entity. 2.2 TERM. The term of employment of the Employee by the Employer shall commence on the date and year first above written (the "Effective Date") and shall continue through the third (3rd) anniversary of the Effective Date; provided, however the term of this Agreement shall automatically be extended for one additional year on each anniversary date of the Effective Date unless, not later than 90 days prior to such date, either party shall have given notice to the other that it or he does not wish to extend this Agreement; provided, further, that if a Change in Control (as defined in Section 2.1(f)) occurs during the original or extended term of this Agreement, the term of this Agreement shall continue in effect for a period of not less than two (2) years beyond the month in which the Change in Control occurred. 2.3 TERMINATION. Notwithstanding any provision of this Employment Agreement, the employment of the Employee pursuant to this Agreement may be terminated by the Employer upon (a) at least 15 days' prior written notification to the Employee in the event of a Termination For Cause, (b) upon at least 60 days' prior written notice to the Employee in the event of a Termination Other Than For Cause or a Termination Upon a Change in Control, (c) upon written notification to the Employee if the Employee, in the 4 reasonable judgment of the Board of Directors of the Employer, has failed to perform his duties under this Agreement because of illness or physical or mental incapacity, and such illness or incapacity continues for a period of more than four (4) consecutive months, or (d) in the event of the Employee's death, in which case the Employee's employment shall be deemed to have terminated as of the last day of the month during which his death occurs. The Employee may terminate his employment under this Agreement upon at least 60 days' prior written notice to the Employer; provided, however, that in the event of a Change in Control, the notice requirement is shortened to ten (10) days. 2.4 PAYMENTS UPON TERMINATION. Upon any termination of the Employee's employment by the Employer hereunder, the Employer shall promptly pay to the Employee, or in the case of his death, to his estate or such beneficiaries as the Employee may from time to time designate, all accrued salary, any benefits under any plans of the Employer in which the Employee is a participant to the full extent of the Employee's rights under such plans, accrued vacation pay and any appropriate business expense incurred by the Employee in connection with his duties hereunder, all to the date of termination. The Employee, or his estate or beneficiaries in the case of his death, shall not be entitled to any other compensation or reimbursement of any kind, including, without limitation, severance compensation, except as provided in Section 4 hereof. Unless otherwise provided in writing or as provided in Section 4 hereof, upon termination of employment, all options held by the Employee that are not then currently exercisable and all Performance Units shall immediately lapse and have no force or effect, and all then non-vested Performance Shares held by the Employee shall be forfeited and returned to the Employer. 3. SALARY AND BENEFITS. 3.1 BASE SALARY. As payment for the services to be rendered by the Employee as provided in Section 1, and subject to the terms and conditions of Section 2, the Employer agrees to pay to the Employee at the rate of $300,000 per annum (the "Base Salary"). The Base Salary shall be payable in equal bi-monthly (twice a month) installments. Unless otherwise determined by the Board of Directors, the Employee shall not be entitled to any compensation in addition to that set forth in this Section 3 for serving as an officer of the Employer. All services which the Employee may render to the Employer in any capacity shall be deemed to be services required by this Agreement and as consideration for the compensation herein provided. 3.2 BONUS. The Employee's bonus opportunity for each fiscal year shall be equal to 40% to 80% ("Maximum Bonus") of Base Salary paid during such fiscal year. The amount of bonus payments shall be determined at the sole discretion of the Compensation Committee or pursuant to criteria to be established from time to time. 3.3 EMPLOYEE BENEFITS. The Employee shall be eligible to participate in such of the Employer's benefits and deferred compensation plans as are now generally available or later made generally available to executive officers of the Employer, including, 5 but not limited to, the 401(k) plan, non-qualified deferred compensation plan, if any, medical insurance plan, dental insurance plan, life insurance plan, and disability insurance plan. The Employee shall also be provided with an automobile allowance that is not less than the amount currently paid, including reimbursement for gasoline, insurance, maintenance and repairs. 3.4 REIMBURSEMENT FOR EXPENSES. The Employer shall reimburse the Employee for reasonable and properly documented out-of-pocket expenses incurred by the Employee in connection with his duties under this Agreement. 3.5 PERFORMANCE SHARES. The Employer has previously awarded the Employee 50,000 performance shares in accordance with the terms described in Exhibit A hereto and the Employer's 1995 Share Award Plan (the "Performance Shares"). 3.6 STOCK OPTIONS. In connection with the negotiation and execution hereof, on December 10, 1998, the Employer issued to the Employee pursuant to the 1995 Share Award Plan ("Plan") an option to purchase 100,000 paired shares ("Paired Shares") of The Meditrust Companies, at $13.4375 per Paired Share (the "Option"). The Option shall vest and become exercisable in accordance with the Plan in 25% increments on each anniversary date of the date of grant, so that the Option is fully vested and exercisable on the fourth (4th) anniversary date of the date of grant. Further, on December 10, 1998, the Employer issued to the Employee pursuant to the 1995 Share Award Plan an option to purchase 50,000 Paired Shares, at $13.4375 per Paired Share (the "Performance Option"). The Performance Option shall vest and become fully exercisable in accordance with the Plan on December 10, 2004; provided, however, that if prior to December 10, 2004 the 20-day average trading price of a Paired Share (the "20-Day Average") attains $23.00, 33 1/3% of the Performance Option shall vest and become exercisable in accordance with the Plan; and if prior to December 10, 2004, the 20-Day Average attains $26.00, 66 2/3% of the Performance Option shall vest and become exercisable in accordance with the Plan, and if prior to December 10, 2004, the 20-Day Average attains $29.00, the remainder of the Performance Option shall vest and become fully exercisable in accordance with the Plan. For this purpose, the price of the Paired Shares shall be determined by reference to the quoted closing price per Paired Share on the New York Stock Exchange. 3.7 PERFORMANCE UNITS. The Employer has issued to the Employee 50,000 performance units ("Performance Units") in the Long Term Bonus Program. Such Performance Units shall become payable only pursuant to the provisions of Section 4.1, 4.2 or 4.3. 3.8 STOCK OWNERSHIP LEVELS. It is the expectation of the parties that upon the fourth anniversary of the Effective Date, the Employee shall own equity in the Employer (which shall include the Performance Shares) with a value equal to two (2) times his Base Salary. In the event the Employee does not attain such level of equity ownership by such date, the Employee shall not be eligible to receive any further equity grants from the Employer until such time when the Employee attains the desired equity ownership level. 6 4. SEVERANCE COMPENSATION. 4.1 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION OTHER THAN FOR CAUSE OR TERMINATION FOR GOOD REASON. In the event the Employee's employment is terminated in a Termination Other Than For Cause or in a Termination for Good Reason, subject to the signing by the Employee of a general release of employment-related claims (other than continuing rights under this Agreement) in a form and manner reasonably satisfactory to the Employer, (i) all unvested Performance Shares held by the Employee shall become immediately vested in full, (ii) all Performance Units issued to the Employee pursuant to Section 3.7 hereof shall become immediately vested in full with the value of each Unit deemed to be $25; provided that payment with respect to the Performance Units shall be made in cash no earlier than January 1, 2002, (iii) any unvested options to purchase shares of The Meditrust Companies held by the Employee shall become immediately vested and exercisable in full in accordance with the Plan and (iv) the Employee shall be paid a lump sum within 30 days of such termination equal to the sum of his Base Salary and the average of the bonuses received by the Employee under Section 3.2 for the three (3) immediately preceding fiscal years (or for such shorter period that the Employee was eligible for a bonus), multiplied by the greater of (a) two (2) or (b) the number of full and fractional years remaining in the original term or extended term of this Agreement (the "Unexpired Term"). The Employee shall continue to enjoy the benefits under the medical and dental insurance plans and the non-qualified retirement plan, if any, for the greater of two (2) years or the Unexpired Term. He shall also be provided with an automobile allowance for the greater of two (2) years or the Unexpired Term at a level which is not less than the level provided to the Employee immediately prior to such termination. Notwithstanding the foregoing, in the event a Change in Control occurs within nine (9) months after a termination under this Section 4.1, the Employee's employment shall be deemed to have been terminated in a Termination Upon a Change in Control and the benefits inuring to the Employee shall be recalculated and paid or delivered to the Employee as though Section 4.3 applied at the time of such termination. 4.2 SEVERANCE COMPENSATION UPON DEATH OR DISABILITY. In the event the Employee's employment is terminated in a Termination Upon Death or Disability, and in the case of Termination Upon Disability, subject to the signing by the Employee (in the case of Disability) of a general release of employment-related claims (other than continuing rights under this Agreement) in a form and manner reasonably satisfactory to the Employer, (i) all unvested Performance Shares held by the Employee shall become immediately vested in full, (ii) all Performance Units issued to the Employee pursuant to Section 3.7 hereof shall become immediately vested in full with the value of each Unit deemed to be $25; provided that payment with respect to the Performance Units shall be made in cash no earlier than April 1, 2002, (iii) any unvested options to purchase shares of The Meditrust Companies held by the Employee shall become immediately vested and exercisable in full in accordance with the Plan and (iv) the Employee or his estate shall be paid a lump sum within 30 days of such termination equal to the sum of his Base Salary and the average of the bonuses received by the Employee under Section 3.2 for the three (3) immediately preceding fiscal years (or for such 7 shorter period that the Employee was eligible for a bonus), multiplied by the greater of two (2) or the Unexpired Term. The Employee (or dependents, in the case of the Employee's death) shall continue to enjoy the benefits under the medical and dental insurance plans for the greater of two (2) years or the Unexpired Term. In the case of disability, Employee shall also be provided with an automobile allowance for the greater of two (2) years or the Unexpired Term at a level which is not less than the level provided to the Employee immediately prior to such termination. 4.3 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION UPON A CHANGE IN CONTROL. (1) Upon a Change in Control, (i) all unvested Performance Shares held by the Employee shall become immediately vested in full, (ii) all Performance Units issued to the Employee pursuant to Section 3.7 hereof shall become immediately vested in full with the value of each Unit deemed to be $50, (iii) any unvested options to purchase shares of The Meditrust Companies held by the Employee shall become immediately vested and exercisable in accordance with the Plan in full. In the event the Employee's employment is terminated in a Termination Upon a Change in Control, subject to the signing by the Employee of a general release of employment-related claims (other than continuing rights under this Agreement) in a form and manner reasonably satisfactory to the Employer, the Employee shall be paid a lump sum in cash within 30 days of such termination in an amount equal to the full value of his Performance Units and an amount equal to the greater of two (2) or the Unexpired Term times the sum of (A) his Base Salary and (B) Maximum Bonus for the year of termination. The Employee shall continue to enjoy the benefits under the medical and dental insurance plan and the non-qualified retirement plan, if any, for the greater of two (2) years or the Unexpired Term and any and all debts of the Employee to the Employer will be forgiven by the Employer. The Employee shall also be provided with an automobile allowance for the greater of two (2) years or the Unexpired Term at a level which is not less than the level provided to the Employee immediately prior to such termination. (2) Notwithstanding the foregoing, in the event of the determination (as hereinafter provided) that any required payment by the Employer to or for the benefit of the Employee (whether paid or payable pursuant to the terms of the Agreement or otherwise pursuant to, or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, stock appreciation right, or similar right, or the lapse or termination of any restriction on the vesting or exercisability of any of the foregoing including without limitation the acceleration of the vesting or lapse of deferral periods under any equity or incentive compensation program (individually and collectively, "Severance Payments")) would be subject to excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any successor provision thereto (the "Excise Tax"), the following provisions shall apply: (i) If the Severance Payments, reduced by the sum of (1) the Excise Tax and (2) the total of the Federal, state, and local income and employment taxes 8 payable by the Employee on the amount of the Severance Payments which are in excess of the Threshold Amount (as defined below), are greater than or equal to the Threshold Amount, the Employee shall be entitled to the full benefits payable under this Agreement. (ii) If the Threshold Amount is less than (a) the Severance Payments, but greater than (b) the Severance Payments reduced by the sum of (1) the Excise Tax and (2) the total of the Federal, state, and local income and employment taxes on the amount of the Severance Payments which are in excess of the Threshold Amount, then the benefits payable under this Agreement shall be reduced (but not below zero (0)) to the extent necessary so that the maximum Severance Payments shall equal the Threshold Amount. To the extent that there is more than one method of reducing the payments to bring them within the Threshold Amount, the Employee shall determine which method shall be followed; provided that if the Employee fails to make such determination within 15 days after the Employer has sent the Employee written notice of the need for such reduction, the Employer may determine the amount of such reduction in its sole discretion. For the purposes of this section, "Threshold Amount" shall mean three (3) times the Employee's "base amount" within the meaning of Section 280G(b)(3) of the Code and the regulations promulgated thereunder less one dollar ($1.00). The determination as to which provisions of this Section 4.3(b) shall apply to the Employee shall be made by PriceWaterhouseCoopers or such other nationally recognized accounting firm retained by the Employer and reasonably acceptable to the Employee (the "Accounting Firm"). The Employer shall direct the Accounting Firm to submit its determination and detailed supporting calculations both to the Employer and the Employee within 15 days after the Change in Control, or at such earlier time as is reasonably requested by the Employer or the Employee. For purposes of this Section 4.3(b), the Employee shall be deemed to pay Federal income taxes at the highest marginal rate of Federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in the state and locality of the Employee's residence on the Change in Control, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. Any determination by the Accounting Firm shall be binding upon the Employer and the Employee. (3) Each of the Employee and the Employer shall provide the Accounting Firm access to and copies of any books, records and documents in the Employee's or its possession, as the case may be, reasonably requested by the Accounting Firm, and shall otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determination and calculations required or contemplated hereunder. (4) The Employer shall bear the fees and expenses of the Accounting Firm for services hereunder. If, for any reason, the Employee initially pays such fees and expenses, the Employer shall reimburse the Employee the full amount of the same within ten 9 (10) business days following receipt from the Employee of a statement and reasonable evidence of the Employee's payment thereof. 5. NON-COMPETITION AND NON-DISCLOSURE. 5.1 NON-COMPETITION. (1) During the term hereof, without approval by the Board, the Employee will not, directly or indirectly, (i) engage or become interested, directly or indirectly, as owner, employee, director, partner, consultant, through stock ownership (except ownership of not more than one percent (1%) of any class of securities of a corporation which is publicly traded), investment of capital, lending of money or property, rendering of services, or otherwise, either alone or in association with others, in any business which competes directly or indirectly with the business of the Employer, (ii) induce or attempt to induce any customer of the Employer to reduce such customer's business with the Employer, or (iii) solicit any of the Employer's employees to leave the employ of the Employer or employ any of such Employees, except for the Employee's administrative assistant. (2) For a period of one (1) year after any termination of employment, the Employee will not, directly or indirectly, (i) engage or become interested, directly or indirectly, as owner, employee, director, partner, consultant, through stock ownership (except ownership of not more than five percent (5%) of any class of securities of a corporation which is publicly traded), investment of capital, lending of money or property, rendering of services, or otherwise, either alone or in association with others, in any healthcare real estate investment trust financing business which competes directly and materially with the business of the Employer or (ii) solicit any of the Employer's employees to leave the employ of the Employer or employ any of such employees, except for the Employee's administrative assistant. The Employee recognizes and acknowledges that his obligations under this Section 5.1(b) are limited to the geographic areas in which the Employer is doing business at the time of the expiration or termination of this Agreement. (3) As used in Sections 5.1, 5.2, 7.2 and 7.3, the term "Employer" shall mean Meditrust Corporation or its subsidiaries and affiliates. The restrictions on the Employee set forth in this Section 5.1 shall not apply in the case of a Termination Upon a Change in Control. 5.2 NON-DISCLOSURE. The Employee agrees that all confidential and proprietary information relating to the business of the Employer shall be kept and treated as confidential both during and after the term of this Agreement, except as may be permitted in writing by the Employer's Board of Directors or if such information is within the public domain or comes within the public domain without any breach of this Agreement. 6. INSURANCE. The Employer may, at its expense, procure and maintain life insurance on the life of the Employee. The beneficiary of such policy shall be the Employer. 10 The Employee shall cooperate with the Employer as is reasonably necessary to procure such insurance. 7. MISCELLANEOUS. 7.1 ARBITRATION; DISPUTE RESOLUTION. (1) ARBITRATION PROCEDURE. Any disagreement, dispute, controversy or claim arising out of or relating to this Agreement or the interpretation of this Agreement or any arrangements relating to this Agreement or contemplated in this Agreement or the breach, termination or invalidity thereof shall be settled by final and binding arbitration in Boston, Massachusetts in accordance with the Employment Dispute Resolution Rules (the "Arbitration Rules") of the American Arbitration Association (the "AAA"); PROVIDED, that nothing contained herein shall be deemed to prohibit either party to apply to a court of competent jurisdiction for temporary or preliminary equitable relief. The arbitral tribunal shall consist of one arbitrator. In making any decision, the arbitrator shall apply and follow the substantive law of Massachusetts without reference to the conflicts of law provisions thereof. The parties to the arbitration jointly shall directly appoint such arbitrator within 30 days of the initiation of arbitration. If the parties shall fail to appoint such arbitrator as provided above, such arbitrator shall be appointed by the AAA as provided in the Arbitration Rules. The Employee and the Employer agree that the decision of the arbitrator shall be final, the arbitral award may be enforced against the parties to the arbitration proceeding or their assets wherever they may be found and that a judgment upon the arbitral award may be entered in any court having jurisdiction thereof. The Employer shall pay all fees and expenses of the Arbitrator regardless of the result and shall provide all witnesses and evidence reasonably required by the Employee to present his case. The Employer shall pay to the Employee all reasonable arbitration expenses and legal fees incurred by the Employee as a result of a termination of the Employee's employment in seeking to obtain or enforce any right or benefit provided by this Agreement (whether or not the Employee is successful in obtaining or enforcing such right or benefit). Such payments shall be made within five (5) days after the Employee's request for payment accompanied with such evidence of fees and expenses incurred as the Employer reasonably may require. (2) COMPENSATION DURING DISPUTE. The Employee's compensation during any disagreement, dispute, controversy or claim arising out of or relating to this Agreement or the interpretation of this Agreement shall be as follows: If there is a termination by the Employer followed by a dispute as to whether the Employee is entitled to the payments and other benefits provided under this Agreement, then, during the period of that dispute the Employer shall pay the Employee 50% of the amount specified in Section 4.1 hereof, and the Employer shall provide the Employee with the benefits provided in Section 4.1 hereof, if, but only if, the Employee agrees in writing that if the dispute is resolved against the Employee, the Employee shall promptly refund to the Employer all payments received under Section 4.1 of this Agreement plus interest at the rate 11 provided in Section 1274(d) of the Code, compounded quarterly. If the dispute is resolved in the Employee's favor, promptly after resolution of the dispute, the Employer shall pay to the Employee the sum that was withheld during the period of the dispute plus interest at the rate provided in Section 1274(d) of the Code, compounded quarterly. 7.2 LITIGATION AND REGULATORY COOPERATION. During and after the Employee's employment, the Employee shall reasonably cooperate with the Employer in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Employer which relate to events or occurrences that transpired while the Employee was employed by the Employer; provided, however, that such cooperation shall not materially and adversely affect the Employee or expose the Employee to an increased probability of civil or criminal litigation. The Employee's cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Employer at mutually convenient times. During and after the Employee's employment, the Employee also shall cooperate fully with the Employer in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while the Employee was employed by the Employer. The Employer shall also provide the Employee with compensation on an hourly basis calculated at his final base compensation rate for requested litigation and regulatory cooperation that occurs after his termination of employment, and reimburse the Employee for all costs and expenses incurred in connection with his performance under this Section 7.2, including, but not limited to, reasonable attorneys' fees and costs. 7.3 NONDISPARAGEMENT. During and after the Employee's employment, the Employee agrees that he shall not take any action or make any statement, written or oral, which disparages or criticizes the Employer or The Meditrust Companies, or their respective officers, directors, agents, or management and business practices, or which disrupts or impairs the normal operations of the Employer or The Meditrust Companies. During and after the Employee's employment, the Employer agrees that it shall not take any action or make any statement, written or oral, which disparages or criticizes Employee or Employee's management and business practices and that it shall instruct its officers, directors and agents not to take any action or make any statement, written or oral, which disparages or criticizes the Employee or the Employee's management and business practices. 7.4 NO MITIGATION. The Employer agrees that, if the Employee's employment by the Employer is terminated during the term of this Agreement, the Employee is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Employee by the Employer pursuant to Sections 3 and 4 hereof. Further, the amount of any payment provided for in this Agreement shall not be reduced by any compensation earned by the Employee as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Employee to the Employer, or otherwise. 12 7.5 AUTHORITY; NO RESTRICTIONS. Each party represents and warrants that it has full power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby and this Agreement is the legal, valid and binding obligation of the party, enforceable against the party in accordance with its terms. No consent, approval or agreement of any person, party, court, government or entity is required to be obtained by either party in connection with the execution and delivery of this Agreement. Each party is not subject to any agreement, restriction, lien, encumbrance or right, title or interest in anyone limiting in any way the scope of this Agreement or in any way inconsistent herewith, and each party will not hereafter grant anyone the same. 7.6 EFFECT OF EXPIRATION OR TERMINATION. Upon the expiration or other termination of this Agreement, all obligations of the parties shall forthwith terminate, except for any obligation to pay any fixed sum of money or provide any benefits which may have accrued and be due and payable hereunder at the time of such expiration or other termination and except that the provisions of Section 5 and Sections 7.1, 7.2 and 7.3 shall continue in effect in accordance with their terms, such Sections containing independent agreements and obligations. 7.7 EQUITABLE RELIEF. The obligations of the Employee under Section 5 hereunder are special, unique and extraordinary, and any breach by the Employee thereof shall be deemed material and to cause irreparable injury not properly compensated by damages in an action at law. Notwithstanding Section 7.1, the Employer's rights and remedies hereunder shall therefore be enforceable both at law and in equity, by injunction and otherwise; and the rights and remedies of the Employer hereunder with respect thereto shall be cumulative and not alternative and shall not be exhausted by any one or more uses thereof. 7.8 CONSENT TO JURISDICTION. To the extent that any court action is permitted consistent with or to enforce Sections 5, 7.1, 7.2 and 7.7 of this Agreement, the parties hereby consent to the jurisdiction of the Courts of the Commonwealth of Massachusetts and the United States District Court for the District of Massachusetts. Accordingly, with respect to any such court action, the Employee (a) submits to the personal jurisdiction and venue of such courts; (b) consents to service of process; and (c) waives any other requirement (whether imposed by statute, rule of court or otherwise) with respect to personal jurisdiction, venue or service of process. 7.9 WAIVER. The waiver of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof . 7.10 ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise provided herein, this Agreement represents the entire understanding among the parties with respect to the subject matter hereof, and this Agreement supersedes any and all prior understandings, agreements, plans and negotiations, whether written or oral, with respect to the subject matter 13 hereof. All modifications to the Agreement must be in writing and signed by the party against whom enforcement of such modification is sought. 7.11 NOTICES. All notices and other communications under this Agreement shall be in writing and shall be deemed duly given (a) when delivered, or (b) two (2) days after being mailed by first class mail, certified or registered with return receipt requested, or (c) one (1) day after being mailed through an overnight delivery service, or (d) upon confirmation of transmission via facsimile, to the following addresses: If to the Employer: Meditrust Corporation 197 First Avenue Needham, MA 02494 Attn: General Counsel If to the Employee: Michael F. Bushee 37 Meadow Drive Middleton, MA 01949 Any party may change such party's address for notices by notice duly given pursuant to this Section 7.11. 7.12 HEADINGS. The Section headings herein are intended for reference and shall not by themselves determine the construction or interpretation of this Agreement. 7.13 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, applied without regard to conflict of law principles. 7.14 SEVERABILITY. Should a court or other body of competent jurisdiction determine that any provision of this Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, and all other provisions of this Agreement shall be deemed valid and enforceable to the extent possible. 7.15 SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by the Employee without the prior written consent of the Employer, and may be assigned by the Employer and shall be binding upon, and inure to the benefit of, the Employer's successors and assigns. The Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer to assume expressly and agree to perform this Agreement in the same manner and to the extent that the Employer would be required to perform it if no such succession had taken place. As used in this Agreement, "Employer" shall mean the Employer as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 14 7.16 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement. 7.17 WITHHOLDINGS. All compensation and benefits to the Employee hereunder shall be reduced by all federal, state, local and other withholdings and similar taxes and payments required by applicable law. The Employee agrees to pay all federal, state and local taxes owed by him in connection with this Agreement. 7.18 SUBSTITUTION OF EMPLOYER. Upon a Permitted Spin-Off, the Spin-Off Entity shall be deemed to be the Employer for all purposes of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the day and year first above written. MEDITRUST CORPORATION SEAL By ---------------------------------------------- Name: David F. Benson Title: President and Chief Executive Officer ------------------------------------------------- Michael F. Bushee 15 Exhibit A THE PERFORMANCE SHARES 100% of the Performance Shares described in Section 3.5 shall be deemed issued as of February 27, 1998 upon payment by the Employee of the par value thereof to The Meditrust Companies. Subject to the terms of the Agreement, the Performance Shares shall vest on the earliest of (a) eight (8) years after the date of issuance, (b) on March 31 of the year following the first fiscal year after issuance in which the Performance Goal is achieved or (c) as the Board of Directors may determine. The Performance Goal for all outstanding grants of Performance Shares shall be deemed achieved in any fiscal year commencing with the year 2000 that meets both criteria specified below:
Fiscal FFO Cumulative FFO per Share Year Per Share Since January 1, 1998 ---- --------- --------------------- 2000 $2.92 $ 8.28 2001 3.10 11.38 2002 3.28 14.66 2003 3.48 18.14 2004 3.69 21.83
For purposes of the foregoing calculation, "FFO" shall mean funds from operations as reported by The Meditrust Companies. The above Performance Goals may be adjusted by the Board of Directors of the Employer to reflect changes in accounting rules or changes in corporate structure. Subject to the terms of the Agreement, upon termination of the Employee's employment by The Meditrust Companies for any reason, all right, title and interest in any unvested Performance Shares shall be transferred to The Meditrust Companies in exchange for the par value of such Performance Shares, and the Employee shall not receive any unissued Performance Shares. The Employee shall receive all voting rights and dividends paid with respect to unvested Performance Shares from the date of issuance so long as the Employee is an employee of The Meditrust Companies or any subsidiary thereof. DOCSB\586604.4 16 EX-10.4 5 EXHIBIT 10.4 Exhibit 10.4 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this 1st day of January, 1999 by and between Meditrust Corporation, a Delaware corporation (the "Employer"), and Laurie T. Gerber (the "Employee"). WHEREAS, the Employee is currently employed by the Employer as its Chief Financial Officer; and WHEREAS, the Employer and the Employee wish to extend such employment for a three (3) year term on the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual promises hereinafter contained, the parties hereto hereby agree as follows: 1. DUTIES. During the term of this Agreement, the Employee agrees to be employed by and to serve the Employer as its Chief Financial Officer, and the Employer agrees to employ and retain the Employee in such capacity. The Employee also shall serve the Employer in such capacity or capacities, and with such other duties consistent with such position, as shall be designated by the President from time to time. The Employee shall devote such of her business time, energy and skill to the affairs of the Employer as shall be necessary to perform the duties of such position and, in any event, not less of her business time, energy and skill than she has previously devoted to the Employer, and she shall not assume an executive, management or board position in any other business without the express permission of the Board of Directors; provided that the Employee may serve in any capacity with charitable or not-for-profit enterprises so long as there is no material interference with the Employee's duties to the Employer. The Employee shall report to the President and at all times during the term of this Agreement shall have powers and duties commensurate with her position as Chief Financial Officer of the Employer. Without the Employee's consent, the Employer may not materially reduce the Employee's duties or responsibilities hereunder or assign duties or responsibilities that are inconsistent with the Employee's position as Chief Financial Officer of the Employer. Notwithstanding the foregoing, in connection with a corporate restructuring of the Employer, if the Employee continues to be Chief Financial Officer of the publicly-traded healthcare company resulting from a Permitted Spin-Off (as defined below), such change, in and of itself, shall not be deemed to be a material reduction in the Employee's duties and responsibilities for purposes of the preceding sentence. 2. TERMS OF EMPLOYMENT. 2.1 DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: (1) "Termination For Cause" shall mean termination by the Employer of the Employee's employment by reason of (i) the Employee's fraud upon, deliberate injury or attempted injury to, or dishonesty towards the Employer that causes material and demonstrable injury to the Employer, (ii) the Employee's intentional and material breach of the provisions of Section 5 of this Agreement, (iii) the Employee's intentional and material breach of, or material failure to perform under, this Agreement (other than the provisions of Section 5 hereof) that is not cured by the Employee within 30 days after written notice from the Board of Directors specifying the breach and requesting a cure, or (iv) the conviction of any felony involving a crime of moral turpitude. (2) "Termination Other Than For Cause" shall mean termination by the Employer of the Employee's employment other than a Termination For Cause, a Termination Upon Death or Disability, or a Termination Upon a Change in Control. (3) "Termination for Good Reason" shall mean termination of employment by the Employee (i) after a material reduction by the Employer, without the Employee's consent, in the Employee's duties and responsibilities, (ii) if the Employee is not the Chief Financial Officer of Meditrust Corporation prior to the Permitted Spin-Off and the Spin-Off Entity after the Permitted Spin-Off, (iii) after any reduction by Employer of the Employee's Base Salary and benefits (provided that, in the case of across-the-board benefit reductions similarly affecting all management personnel, the Employer will continue to provide Employee with a benefit package substantially equivalent to the benefits provided at the time of such reduction, provided that the Employer shall not be required to expend more than 150% of the Employer's cost therefor in fiscal year 1999), (iv) the relocation of the Employer's offices at which the Employee is principally employed to a location which is more than 35 miles from the current location of the Employer's office or the requirement that the Employee be based (1) anywhere other than the Employer's principal offices, as the same may be relocated within 35 miles as provided above, or (2) more than 35 miles from the Employer's current offices, except for required travel on the Employer's business to an extent substantially consistent with the Employee's present business travel obligations, (v) a material breach of this Agreement by the Employer that is not rectified within 30 days of notification to the President of the Employer by the Employee of such breach, (vi) the failure of the Employer to obtain an agreement from any successor or assign of the Employer, to assume and agree to perform this Agreement, as contemplated by Section 7.15, or (vii) the Employer's failure to extend this Agreement pursuant to Section 2.2 hereof on each anniversary date. Notwithstanding the foregoing, in connection with a Permitted Spin-Off, if the Employee continues to be Chief Financial Officer of the Spin-Off Entity, such change in title and position shall not be deemed to be a material reduction in the Employee's duties and responsibilities for purposes of clause (i) above. (4) "Termination Upon a Change in Control" shall mean termination of the Employee's employment with the Employer within two (2) years following a Change in Control either by the Employer as a Termination Other Than For Cause or by the Employee as a Termination for Good Reason. 2 (5) "Termination Upon Death or Disability" shall mean termination by the Employer by reason of the Employee's death or disability as described in Section 2.3 hereof. (6) "Permitted Spin-Off" shall mean a corporate restructuring of the Meditrust Companies pursuant to which all of the stock of any existing or newly-created subsidiary of the Meditrust Companies (or either of them) which owns (or acquires by purchase, dividend, investment or otherwise) all of the healthcare assets and investments of the Meditrust Companies (or the stock of subsidiaries which own such assets and investments) existing immediately prior thereto is "spun-off" ratably to the shareholders of the Meditrust Companies at the time of such spin-off. (7) "Spin-Off Entity" shall mean any Person resulting from a Permitted Spin-Off. (8) "Change in Control" shall mean (a) an acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the combined voting power of the then outstanding voting securities of the Employer entitled to vote generally in the election of directors of the Employer (the "Outstanding Voting Securities") or 20% or more of the combined market value of the equity securities of the Employer (the "Equity Value"); PROVIDED, HOWEVER, that any acquisition directly from or by the Employer or any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Employer or an affiliated company or any acquisition by a company pursuant to a transaction which complies with clauses (i), (ii) and (iii) of (c) below shall be excluded from this clause (a); or (b) individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") of the Employer, cease for any reason to constitute at least 60% of the Board of Directors of the Employer; PROVIDED, HOWEVER, that any individual becoming a director whose election, or nomination for election by the Employer's stockholders, was approved by a vote of at least 60% of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Employer; or (c) consummation of a reorganization, merger or consolidation of the Employer (a "Business Combination"), unless, in each case, following such Business Combination, (i) all or substantially all the individuals and entities who were the beneficial owners, respectively, of the outstanding Equity Value and Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the combined market value of the equity securities and more than 60% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such Business Combination (including, without limitation, a 3 corporation which as a result of such transaction owns the Employer or all or substantially all of the Employer's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Equity Value and Outstanding Voting Securities, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Employer or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of the combined voting power of the then outstanding voting securities or 20% or more of the combined market value of the equity securities of the corporation resulting from such business combination except to the extent that such ownership existed prior to the Business Combination and (iii) at least 60% of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or the action of the Board, providing for such Business Combination, (d) the sale or other disposition of more than 50% of the healthcare assets of the Employer, or (e) a complete liquidation or dissolution of the Employer or approval thereof by the stockholders of the Employer. For purposes of this definition, "Employer" shall mean either (x) Meditrust Corporation or Meditrust Operating Company ("Meditrust" and together with the Employer, "The Meditrust Companies") or (y) any subsidiary of Meditrust Corporation, the assets of which are substantially all of the healthcare assets and investments of Meditrust Corporation (or the stock of subsidiaries, the assets of which are substantially all of the healthcare assets and investments of Meditrust Corporation). Notwithstanding the foregoing, any corporate restructuring directly related to a Permitted Spin-Off, including any related change to the Board of Directors shall not be deemed to be a Change in Control; provided, however, that this exclusion shall not apply to any simultaneous or subsequent sale of, or Business Combination, or other events described in clauses (a) through (e) of this Section 2.1(h) involving such Spin-Off Entity. 2.2 TERM. The term of employment of the Employee by the Employer shall commence on the date and year first above written (the "Effective Date") and shall continue through the third (3rd) anniversary of the Effective Date; provided, however the term of this Agreement shall automatically be extended for one additional year on each anniversary date of the Effective Date unless, not later than 90 days prior to such date, either party shall have given notice to the other that it or she does not wish to extend this Agreement; provided, further, that if a Change in Control (as defined in Section 2.1(f)) occurs during the original or extended term of this Agreement, the term of this Agreement shall continue in effect for a period of not less than two (2) years beyond the month in which the Change in Control occurred. 2.3 TERMINATION. Notwithstanding any provision of this Employment Agreement, the employment of the Employee pursuant to this Agreement may be terminated by the Employer upon (a) at least 15 days' prior written notification to the Employee in the event of a Termination For Cause, (b) upon at least 60 days' prior written notice to the Employee in the event of a Termination Other Than For Cause or a Termination Upon a Change in Control, (c) upon written notification to the Employee if the Employee, in the 4 reasonable judgment of the Board of Directors of the Employer, has failed to perform her duties under this Agreement because of illness or physical or mental incapacity, and such illness or incapacity continues for a period of more than four (4) consecutive months, or (d) in the event of the Employee's death, in which case the Employee's employment shall be deemed to have terminated as of the last day of the month during which her death occurs. The Employee may terminate her employment under this Agreement upon at least 60 days' prior written notice to the Employer; provided, however, that in the event of a Change in Control, the notice requirement is shortened to ten (10) days. 2.4 PAYMENTS UPON TERMINATION. Upon any termination of the Employee's employment by the Employer hereunder, the Employer shall promptly pay to the Employee, or in the case of her death, to her estate or such beneficiaries as the Employee may from time to time designate, all accrued salary, any benefits under any plans of the Employer in which the Employee is a participant to the full extent of the Employee's rights under such plans, accrued vacation pay and any appropriate business expense incurred by the Employee in connection with her duties hereunder, all to the date of termination. The Employee, or her estate or beneficiaries in the case of her death, shall not be entitled to any other compensation or reimbursement of any kind, including, without limitation, severance compensation, except as provided in Section 4 hereof. Unless otherwise provided in writing or as provided in Section 4 hereof, upon termination of employment, all options held by the Employee that are not then currently exercisable and all Performance Units shall immediately lapse and have no force or effect, and all then non-vested Performance Shares held by the Employee shall be forfeited and returned to the Employer. 3. SALARY AND BENEFITS. 3.1 BASE SALARY. As payment for the services to be rendered by the Employee as provided in Section 1, and subject to the terms and conditions of Section 2, the Employer agrees to pay to the Employee at the rate of $250,000 per annum (the "Base Salary"). The Base Salary shall be payable in equal bi-monthly (twice a month) installments. Unless otherwise determined by the Board of Directors, the Employee shall not be entitled to any compensation in addition to that set forth in this Section 3 for serving as an officer of the Employer. All services which the Employee may render to the Employer in any capacity shall be deemed to be services required by this Agreement and as consideration for the compensation herein provided. 3.2 BONUS. The Employee's bonus opportunity for each fiscal year shall be equal to 40% to 80% ("Maximum Bonus") of Base Salary paid during such fiscal year. The amount of bonus payments shall be determined at the sole discretion of the Compensation Committee or pursuant to criteria to be established from time to time. 3.3 EMPLOYEE BENEFITS. The Employee shall be eligible to participate in such of the Employer's benefits and deferred compensation plans as are now generally available or later made generally available to executive officers of the Employer, including, 5 but not limited to, the 401(k) plan, non-qualified deferred compensation plan, if any, medical insurance plan, dental insurance plan, life insurance plan, and disability insurance plan. The Employee shall also be provided with an automobile allowance that is not less than the amount currently paid, including reimbursement for gasoline, insurance, maintenance and repairs. 3.4 REIMBURSEMENT FOR EXPENSES. The Employer shall reimburse the Employee for reasonable and properly documented out-of-pocket expenses incurred by the Employee in connection with her duties under this Agreement. 3.5 PERFORMANCE SHARES. The Employer has previously awarded the Employee 50,000 performance shares in accordance with the terms described in Exhibit A hereto and the Employer's 1995 Share Award Plan (the "Performance Shares"). 3.6 STOCK OPTIONS. In connection with the negotiation and execution hereof, on December 10, 1998, the Employer issued to the Employee pursuant to the 1995 Share Award Plan ("Plan") an option to purchase 100,000 paired shares ("Paired Shares") of The Meditrust Companies, at $13.4375 per Paired Share (the "Option"). The Option shall vest and become exercisable in accordance with the Plan in 25% increments on each anniversary date of the date of grant, so that the Option is fully vested and exercisable on the fourth (4th) anniversary date of the date of grant. Further, on December 10, 1998, the Employer issued to the Employee pursuant to the 1995 Share Award Plan an option to purchase 50,000 Paired Shares, at $13.4375 per Paired Share (the "Performance Option"). The Performance Option shall vest and become fully exercisable in accordance with the Plan on December 10, 2004; provided, however, that if prior to December 10, 2004 the 20-day average trading price of a Paired Share (the "20-Day Average") attains $23.00, 33 1/3% of the Performance Option shall vest and become exercisable in accordance with the Plan; and if prior to December 10, 2004, the 20-Day Average attains $26.00, 66 2/3% of the Performance Option shall vest and become exercisable in accordance with the Plan, and if prior to December 10, 2004, the 20-Day Average attains $29.00, the remainder of the Performance Option shall vest and become fully exercisable in accordance with the Plan. For this purpose, the price of the Paired Shares shall be determined by reference to the quoted closing price per Paired Share on the New York Stock Exchange. 3.7 PERFORMANCE UNITS. The Employer has issued to the Employee 50,000 performance units ("Performance Units") in the Long Term Bonus Program. Such Performance Units shall become payable only pursuant to the provisions of Section 4.1, 4.2 or 4.3. 3.8 STOCK OWNERSHIP LEVELS. It is the expectation of the parties that upon the fourth anniversary of the Effective Date, the Employee shall own equity in the Employer (which shall include the Performance Shares) with a value equal to two (2) times her Base Salary. In the event the Employee does not attain such level of equity ownership by such date, the Employee shall not be eligible to receive any further equity grants from the Employer until such time when the Employee attains the desired equity ownership level. 6 4. SEVERANCE COMPENSATION. 4.1 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION OTHER THAN FOR CAUSE OR TERMINATION FOR GOOD REASON. In the event the Employee's employment is terminated in a Termination Other Than For Cause or in a Termination for Good Reason, subject to the signing by the Employee of a general release of employment-related claims (other than continuing rights under this Agreement) in a form and manner reasonably satisfactory to the Employer, (i) all unvested Performance Shares held by the Employee shall become immediately vested in full, (ii) all Performance Units issued to the Employee pursuant to Section 3.7 hereof shall become immediately vested in full with the value of each Unit deemed to be $25; provided that payment with respect to the Performance Units shall be made in cash no earlier than January 1, 2002, (iii) any unvested options to purchase shares of The Meditrust Companies held by the Employee shall become immediately vested and exercisable in full in accordance with the Plan and (iv) the Employee shall be paid a lump sum within 30 days of such termination equal to the sum of her Base Salary and the average of the bonuses received by the Employee under Section 3.2 for the three (3) immediately preceding fiscal years (or for such shorter period that the Employee was eligible for a bonus), multiplied by the greater of (a) two (2) or (b) the number of full and fractional years remaining in the original term or extended term of this Agreement (the "Unexpired Term"). The Employee shall continue to enjoy the benefits under the medical and dental insurance plans and the non-qualified retirement plan, if any, for the greater of two (2) years or the Unexpired Term. She shall also be provided with an automobile allowance for the greater of two (2) years or the Unexpired Term at a level which is not less than the level provided to the Employee immediately prior to such termination. Notwithstanding the foregoing, in the event a Change in Control occurs within nine (9) months after a termination under this Section 4.1, the Employee's employment shall be deemed to have been terminated in a Termination Upon a Change in Control and the benefits inuring to the Employee shall be recalculated and paid or delivered to the Employee as though Section 4.3 applied at the time of such termination. 4.2 SEVERANCE COMPENSATION UPON DEATH OR DISABILITY. In the event the Employee's employment is terminated in a Termination Upon Death or Disability, and in the case of Termination Upon Disability, subject to the signing by the Employee (in the case of Disability) of a general release of employment-related claims (other than continuing rights under this Agreement) in a form and manner reasonably satisfactory to the Employer, (i) all unvested Performance Shares held by the Employee shall become immediately vested in full, (ii) all Performance Units issued to the Employee pursuant to Section 3.7 hereof shall become immediately vested in full with the value of each Unit deemed to be $25; provided that payment with respect to the Performance Units shall be made in cash no earlier than April 1, 2002, (iii) any unvested options to purchase shares of The Meditrust Companies held by the Employee shall become immediately vested and exercisable in full in accordance with the Plan and (iv) the Employee or her estate shall be paid a lump sum within 30 days of such termination equal to the sum of her Base Salary and the average of the bonuses received by the Employee under Section 3.2 for the three (3) immediately preceding fiscal years (or for such 7 shorter period that the Employee was eligible for a bonus), multiplied by the greater of two (2) or the Unexpired Term. The Employee (or dependents, in the case of the Employee's death) shall continue to enjoy the benefits under the medical and dental insurance plans for the greater of two (2) years or the Unexpired Term. In the case of disability, Employee shall also be provided with an automobile allowance for the greater of two (2) years or the Unexpired Term at a level which is not less than the level provided to the Employee immediately prior to such termination. 4.3 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION UPON A CHANGE IN CONTROL. (1) Upon a Change in Control, (i) all unvested Performance Shares held by the Employee shall become immediately vested in full, (ii) all Performance Units issued to the Employee pursuant to Section 3.7 hereof shall become immediately vested in full with the value of each Unit deemed to be $50, (iii) any unvested options to purchase shares of The Meditrust Companies held by the Employee shall become immediately vested and exercisable in accordance with the Plan in full. In the event the Employee's employment is terminated in a Termination Upon a Change in Control, subject to the signing by the Employee of a general release of employment-related claims (other than continuing rights under this Agreement) in a form and manner reasonably satisfactory to the Employer, the Employee shall be paid a lump sum in cash within 30 days of such termination in an amount equal to the full value of her Performance Units and an amount equal to the greater of two (2) or the Unexpired Term times the sum of (A) her Base Salary and (B) Maximum Bonus for the year of termination. The Employee shall continue to enjoy the benefits under the medical and dental insurance plan and the non-qualified retirement plan, if any, for the greater of two (2) years or the Unexpired Term and any and all debts of the Employee to the Employer will be forgiven by the Employer. The Employee shall also be provided with an automobile allowance for the greater of two (2) years or the Unexpired Term at a level which is not less than the level provided to the Employee immediately prior to such termination. (2) Notwithstanding the foregoing, in the event of the determination (as hereinafter provided) that any required payment by the Employer to or for the benefit of the Employee (whether paid or payable pursuant to the terms of the Agreement or otherwise pursuant to, or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, stock appreciation right, or similar right, or the lapse or termination of any restriction on the vesting or exercisability of any of the foregoing including without limitation the acceleration of the vesting or lapse of deferral periods under any equity or incentive compensation program (individually and collectively, "Severance Payments")) would be subject to excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any successor provision thereto (the "Excise Tax"), the following provisions shall apply: (i) If the Severance Payments, reduced by the sum of (1) the Excise Tax and (2) the total of the Federal, state, and local income and employment taxes 8 payable by the Employee on the amount of the Severance Payments which are in excess of the Threshold Amount (as defined below), are greater than or equal to the Threshold Amount, the Employee shall be entitled to the full benefits payable under this Agreement. (ii) If the Threshold Amount is less than (a) the Severance Payments, but greater than (b) the Severance Payments reduced by the sum of (1) the Excise Tax and (2) the total of the Federal, state, and local income and employment taxes on the amount of the Severance Payments which are in excess of the Threshold Amount, then the benefits payable under this Agreement shall be reduced (but not below zero (0)) to the extent necessary so that the maximum Severance Payments shall equal the Threshold Amount. To the extent that there is more than one method of reducing the payments to bring them within the Threshold Amount, the Employee shall determine which method shall be followed; provided that if the Employee fails to make such determination within 15 days after the Employer has sent the Employee written notice of the need for such reduction, the Employer may determine the amount of such reduction in its sole discretion. For the purposes of this section, "Threshold Amount" shall mean three (3) times the Employee's "base amount" within the meaning of Section 280G(b)(3) of the Code and the regulations promulgated thereunder less one dollar ($1.00). The determination as to which provisions of this Section 4.3(b) shall apply to the Employee shall be made by PriceWaterhouseCoopers or such other nationally recognized accounting firm retained by the Employer and reasonably acceptable to the Employee (the "Accounting Firm"). The Employer shall direct the Accounting Firm to submit its determination and detailed supporting calculations both to the Employer and the Employee within 15 days after the Change in Control, or at such earlier time as is reasonably requested by the Employer or the Employee. For purposes of this Section 4.3(b), the Employee shall be deemed to pay Federal income taxes at the highest marginal rate of Federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in the state and locality of the Employee's residence on the Change in Control, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. Any determination by the Accounting Firm shall be binding upon the Employer and the Employee. (3) Each of the Employee and the Employer shall provide the Accounting Firm access to and copies of any books, records and documents in the Employee's or its possession, as the case may be, reasonably requested by the Accounting Firm, and shall otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determination and calculations required or contemplated hereunder. (4) The Employer shall bear the fees and expenses of the Accounting Firm for services hereunder. If, for any reason, the Employee initially pays such fees and expenses, the Employer shall reimburse the Employee the full amount of the same within ten 9 (10) business days following receipt from the Employee of a statement and reasonable evidence of the Employee's payment thereof. 5. NON-COMPETITION AND NON-DISCLOSURE. 5.1 NON-COMPETITION. (1) During the term hereof, without approval by the Board, the Employee will not, directly or indirectly, (i) engage or become interested, directly or indirectly, as owner, employee, director, partner, consultant, through stock ownership (except ownership of not more than one percent (1%) of any class of securities of a corporation which is publicly traded), investment of capital, lending of money or property, rendering of services, or otherwise, either alone or in association with others, in any business which competes directly or indirectly with the business of the Employer, (ii) induce or attempt to induce any customer of the Employer to reduce such customer's business with the Employer, or (iii) solicit any of the Employer's employees to leave the employ of the Employer or employ any of such Employees, except for the Employee's administrative assistant. (2) For a period of one (1) year after any termination of employment, the Employee will not, directly or indirectly, (i) engage or become interested, directly or indirectly, as owner, employee, director, partner, consultant, through stock ownership (except ownership of not more than five percent (5%) of any class of securities of a corporation which is publicly traded), investment of capital, lending of money or property, rendering of services, or otherwise, either alone or in association with others, in any healthcare real estate investment trust financing business which competes directly and materially with the business of the Employer or (ii) solicit any of the Employer's employees to leave the employ of the Employer or employ any of such employees, except for the Employee's administrative assistant. The Employee recognizes and acknowledges that her obligations under this Section 5.1(b) are limited to the geographic areas in which the Employer is doing business at the time of the expiration or termination of this Agreement. (3) As used in Sections 5.1, 5.2, 7.2 and 7.3, the term "Employer" shall mean Meditrust Corporation or its subsidiaries and affiliates. The restrictions on the Employee set forth in this Section 5.1 shall not apply in the case of a Termination Upon a Change in Control. 5.2 NON-DISCLOSURE. The Employee agrees that all confidential and proprietary information relating to the business of the Employer shall be kept and treated as confidential both during and after the term of this Agreement, except as may be permitted in writing by the Employer's Board of Directors or if such information is within the public domain or comes within the public domain without any breach of this Agreement. 6. INSURANCE. The Employer may, at its expense, procure and maintain life insurance on the life of the Employee. The beneficiary of such policy shall be the Employer. 10 The Employee shall cooperate with the Employer as is reasonably necessary to procure such insurance. 7. MISCELLANEOUS. 7.1 ARBITRATION; DISPUTE RESOLUTION. (1) ARBITRATION PROCEDURE. Any disagreement, dispute, controversy or claim arising out of or relating to this Agreement or the interpretation of this Agreement or any arrangements relating to this Agreement or contemplated in this Agreement or the breach, termination or invalidity thereof shall be settled by final and binding arbitration in Boston, Massachusetts in accordance with the Employment Dispute Resolution Rules (the "Arbitration Rules") of the American Arbitration Association (the "AAA"); PROVIDED, that nothing contained herein shall be deemed to prohibit either party to apply to a court of competent jurisdiction for temporary or preliminary equitable relief. The arbitral tribunal shall consist of one arbitrator. In making any decision, the arbitrator shall apply and follow the substantive law of Massachusetts without reference to the conflicts of law provisions thereof. The parties to the arbitration jointly shall directly appoint such arbitrator within 30 days of the initiation of arbitration. If the parties shall fail to appoint such arbitrator as provided above, such arbitrator shall be appointed by the AAA as provided in the Arbitration Rules. The Employee and the Employer agree that the decision of the arbitrator shall be final, the arbitral award may be enforced against the parties to the arbitration proceeding or their assets wherever they may be found and that a judgment upon the arbitral award may be entered in any court having jurisdiction thereof. The Employer shall pay all fees and expenses of the Arbitrator regardless of the result and shall provide all witnesses and evidence reasonably required by the Employee to present her case. The Employer shall pay to the Employee all reasonable arbitration expenses and legal fees incurred by the Employee as a result of a termination of the Employee's employment in seeking to obtain or enforce any right or benefit provided by this Agreement (whether or not the Employee is successful in obtaining or enforcing such right or benefit). Such payments shall be made within five (5) days after the Employee's request for payment accompanied with such evidence of fees and expenses incurred as the Employer reasonably may require. (2) COMPENSATION DURING DISPUTE. The Employee's compensation during any disagreement, dispute, controversy or claim arising out of or relating to this Agreement or the interpretation of this Agreement shall be as follows: If there is a termination by the Employer followed by a dispute as to whether the Employee is entitled to the payments and other benefits provided under this Agreement, then, during the period of that dispute the Employer shall pay the Employee 50% of the amount specified in Section 4.1 hereof, and the Employer shall provide the Employee with the benefits provided in Section 4.1 hereof, if, but only if, the Employee agrees in writing that if the dispute is resolved against the Employee, the Employee shall promptly refund to the Employer all payments received under Section 4.1 of this Agreement plus interest at the rate 11 provided in Section 1274(d) of the Code, compounded quarterly. If the dispute is resolved in the Employee's favor, promptly after resolution of the dispute, the Employer shall pay to the Employee the sum that was withheld during the period of the dispute plus interest at the rate provided in Section 1274(d) of the Code, compounded quarterly. 7.2 LITIGATION AND REGULATORY COOPERATION. During and after the Employee's employment, the Employee shall reasonably cooperate with the Employer in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Employer which relate to events or occurrences that transpired while the Employee was employed by the Employer; provided, however, that such cooperation shall not materially and adversely affect the Employee or expose the Employee to an increased probability of civil or criminal litigation. The Employee's cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Employer at mutually convenient times. During and after the Employee's employment, the Employee also shall cooperate fully with the Employer in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while the Employee was employed by the Employer. The Employer shall also provide the Employee with compensation on an hourly basis calculated at her final base compensation rate for requested litigation and regulatory cooperation that occurs after her termination of employment, and reimburse the Employee for all costs and expenses incurred in connection with her performance under this Section 7.2, including, but not limited to, reasonable attorneys' fees and costs. 7.3 NONDISPARAGEMENT. During and after the Employee's employment, the Employee agrees that she shall not take any action or make any statement, written or oral, which disparages or criticizes the Employer or The Meditrust Companies, or their respective officers, directors, agents, or management and business practices, or which disrupts or impairs the normal operations of the Employer or The Meditrust Companies. During and after the Employee's employment, the Employer agrees that it shall not take any action or make any statement, written or oral, which disparages or criticizes Employee or Employee's management and business practices and that it shall instruct its officers, directors and agents not to take any action or make any statement, written or oral, which disparages or criticizes the Employee or the Employee's management and business practices. 7.4 NO MITIGATION. The Employer agrees that, if the Employee's employment by the Employer is terminated during the term of this Agreement, the Employee is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Employee by the Employer pursuant to Sections 3 and 4 hereof. Further, the amount of any payment provided for in this Agreement shall not be reduced by any compensation earned by the Employee as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Employee to the Employer, or otherwise. 12 7.5 AUTHORITY; NO RESTRICTIONS. Each party represents and warrants that it has full power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby and this Agreement is the legal, valid and binding obligation of the party, enforceable against the party in accordance with its terms. No consent, approval or agreement of any person, party, court, government or entity is required to be obtained by either party in connection with the execution and delivery of this Agreement. Each party is not subject to any agreement, restriction, lien, encumbrance or right, title or interest in anyone limiting in any way the scope of this Agreement or in any way inconsistent herewith, and each party will not hereafter grant anyone the same. 7.6 EFFECT OF EXPIRATION OR TERMINATION. Upon the expiration or other termination of this Agreement, all obligations of the parties shall forthwith terminate, except for any obligation to pay any fixed sum of money or provide any benefits which may have accrued and be due and payable hereunder at the time of such expiration or other termination and except that the provisions of Section 5 and Sections 7.1, 7.2 and 7.3 shall continue in effect in accordance with their terms, such Sections containing independent agreements and obligations. 7.7 EQUITABLE RELIEF. The obligations of the Employee under Section 5 hereunder are special, unique and extraordinary, and any breach by the Employee thereof shall be deemed material and to cause irreparable injury not properly compensated by damages in an action at law. Notwithstanding Section 7.1, the Employer's rights and remedies hereunder shall therefore be enforceable both at law and in equity, by injunction and otherwise; and the rights and remedies of the Employer hereunder with respect thereto shall be cumulative and not alternative and shall not be exhausted by any one or more uses thereof. 7.8 CONSENT TO JURISDICTION. To the extent that any court action is permitted consistent with or to enforce Sections 5, 7.1, 7.2 and 7.7 of this Agreement, the parties hereby consent to the jurisdiction of the Courts of the Commonwealth of Massachusetts and the United States District Court for the District of Massachusetts. Accordingly, with respect to any such court action, the Employee (a) submits to the personal jurisdiction and venue of such courts; (b) consents to service of process; and (c) waives any other requirement (whether imposed by statute, rule of court or otherwise) with respect to personal jurisdiction, venue or service of process. 7.9 WAIVER. The waiver of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof. 7.10 ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise provided herein, this Agreement represents the entire understanding among the parties with respect to the subject matter hereof, and this Agreement supersedes any and all prior understandings, agreements, plans and negotiations, whether written or oral, with respect to the subject matter 13 hereof. All modifications to the Agreement must be in writing and signed by the party against whom enforcement of such modification is sought. 7.11 NOTICES. All notices and other communications under this Agreement shall be in writing and shall be deemed duly given (a) when delivered, or (b) two (2) days after being mailed by first class mail, certified or registered with return receipt requested, or (c) one (1) day after being mailed through an overnight delivery service, or (d) upon confirmation of transmission via facsimile, to the following addresses: If to the Employer: Meditrust Corporation 197 First Avenue Needham, MA 02494 Attn: General Counsel If to the Employee: Laurie T. Gerber 60 Laurel Road Weston, MA 02493 Any party may change such party's address for notices by notice duly given pursuant to this Section 7.11. 7.12 HEADINGS. The Section headings herein are intended for reference and shall not by themselves determine the construction or interpretation of this Agreement. 7.13 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, applied without regard to conflict of law principles. 7.14 SEVERABILITY. Should a court or other body of competent jurisdiction determine that any provision of this Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, and all other provisions of this Agreement shall be deemed valid and enforceable to the extent possible. 7.15 SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by the Employee without the prior written consent of the Employer, and may be assigned by the Employer and shall be binding upon, and inure to the benefit of, the Employer's successors and assigns. The Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer to assume expressly and agree to perform this Agreement in the same manner and to the extent that the Employer would be required to perform it if no such succession had taken place. As used in this Agreement, "Employer" shall mean the Employer as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 14 7.16 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement. 7.17 WITHHOLDINGS. All compensation and benefits to the Employee hereunder shall be reduced by all federal, state, local and other withholdings and similar taxes and payments required by applicable law. The Employee agrees to pay all federal, state and local taxes owed by her in connection with this Agreement. 7.18 SUBSTITUTION OF EMPLOYER. Upon a Permitted Spin-Off, the Spin-Off Entity shall be deemed to be the Employer for all purposes of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the day and year first above written. MEDITRUST CORPORATION SEAL By ---------------------------------------------- Name: David F. Benson Title: President and Chief Executive Officer ------------------------------------------------- Laurie T. Gerber 15 Exhibit A THE PERFORMANCE SHARES 100% of the Performance Shares described in Section 3.5 shall be deemed issued as of February 27, 1998 upon payment by the Employee of the par value thereof to The Meditrust Companies. Subject to the terms of the Agreement, the Performance Shares shall vest on the earliest of (a) eight (8) years after the date of issuance, (b) on March 31 of the year following the first fiscal year after issuance in which the Performance Goal is achieved or (c) as the Board of Directors may determine. The Performance Goal for all outstanding grants of Performance Shares shall be deemed achieved in any fiscal year commencing with the year 2000 that meets both criteria specified below:
Fiscal FFO Cumulative FFO per Share Year Per Share Since January 1, 1998 ---- --------- --------------------- 2000 $2.92 $ 8.28 2001 3.10 11.38 2002 3.28 14.66 2003 3.48 18.14 2004 3.69 21.83
For purposes of the foregoing calculation, "FFO" shall mean funds from operations as reported by The Meditrust Companies. The above Performance Goals may be adjusted by the Board of Directors of the Employer to reflect changes in accounting rules or changes in corporate structure. Subject to the terms of the Agreement, upon termination of the Employee's employment by The Meditrust Companies for any reason, all right, title and interest in any unvested Performance Shares shall be transferred to The Meditrust Companies in exchange for the par value of such Performance Shares, and the Employee shall not receive any unissued Performance Shares. The Employee shall receive all voting rights and dividends paid with respect to unvested Performance Shares from the date of issuance so long as the Employee is an employee of The Meditrust Companies or any subsidiary thereof. 16 EX-10.5 6 EXHIBIT 10.5 Exhibit 10.5 AMENDMENT AGREEMENT AMENDMENT AGREEMENT (the "Agreement") is made as of this 26th day of February, 1999, by and among Meditrust Corporation, a Delaware corporation ("REIT"), Meditrust Operating Company, a Delaware corporation ("OPCO" and, together with REIT, the "Companies" and each a "Company"), Merrill Lynch International ("MLI") and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as agent acting for the account of MLI and as owner of the Purchase Shares (as defined in the Purchase Agreement (as defined herein)) and successor to the rights and obligations of MLI under the Purchase Agreement ("Merrill Lynch" and, together with MLI, the "Merrill Lynch Parties"). Reference is made to the Purchase Agreement dated as of February 26, 1998 by and among the parties hereto (as amended from time to time, the "Purchase Agreement"), the Unsecured Purchase Price Adjustment Mechanism Agreement dated as of February 26, 1998 by and among the parties hereto (the "Unsecured Adjustment Agreement"), and the Amended and Restated Settlement Agreement dated as of November 11, 1998 by and among the parties hereto (the "Settlement Agreement" and, collectively with the Purchase Agreement and the Unsecured Adjustment Agreement, the "Forward Equity Agreements"). NOW, THEREFORE, in consideration of the agreements and covenants set forth herein, the parties hereto hereby covenant and agree as follows: SECTION 1. EXTENSION OF MATURITY. The parties hereto agree that the Maturity Date set forth in Section 1(v) of the Unsecured Adjustment Agreement shall be March 31, 1999. The parties agree that the extension of the Maturity Date is not intended to limit the rights of the Merrill Lynch Parties under Sections 4 and 5 of the Unsecured Adjustment Agreement. SECTION 2. EXTENSION OF STANDSTILL. The parties hereto agree to extend the Standstill (as defined in the Settlement Agreement) until March 31, 1999; provided, that the Standstill shall terminate if (i) the Companies fail to deliver to MLI any Interim Settlement Shares (as defined in the Unsecured Adjustment Agreement), dividends on Interim Settlement Shares (as defined in the Unsecured Adjustment Agreement) and cash required by Section 5 of the Unsecured Adjustment Agreement within one (1) Business Day of any date on which such delivery is required, and (ii) the Companies challenge in any legal proceeding the adequacy of the consideration received by the Companies in connection with their delivery of, or agreement to deliver, the Standstill Consideration (as defined in the Settlement Agreement) under the Settlement Agreement or the Excess Net Cash Proceeds (as defined below) under this Agreement. If the Standstill is terminated pursuant to the proviso of the foregoing sentence each day from and after February 26, 1999 through the termination of this Agreement shall be deemed to be a Black-out Day (as defined in the Unsecured Adjustment Agreement). SECTION 3. COBBLESTONE EXCESS PROCEEDS. In consideration of the extension of the Standstill by the Merrill Lynch Parties, the Companies agree to pay or to otherwise deliver to the Merrill Lynch Parties the amount of the pre-tax cash proceeds (net of reasonable out-of-pocket costs directly attributable to such sale) from the sale of the entities generally known as the Cobblestone Golf Group (the "Cobblestone Sale") in excess of $300 million (the "Excess Net Cash Proceeds") (up to the maximum amount of the then outstanding Reference Amount (as defined in the Unsecured Adjustment Agreement)), which Excess Net Cash Proceeds will, upon delivery to the Merrill Lynch Parties, reduce the Reference Amount in accordance with the provisions of Section 3.3 of the Unsecured Adjustment Agreement. 2 SECTION 4. BLACK-OUT PERIOD. In the event that (a) the Companies have not closed the Cobblestone Sale and paid or otherwise delivered to the Merrill Lynch Parties the Excess Net Cash Proceeds and (b) the Companies have not caused a Resale Registration Statement (as defined in the Purchase Agreement) to be effective, provided the Merrill Lynch Parties with a deliverable Prospectus and Prospectus Supplement and provided the appropriate Resale Closing Documents (as such terms are defined in the Purchase Agreement), in each case on or before March 31, 1999, the Companies shall have the right to pay or otherwise deliver to the Merrill Lynch Parties a Black-out Period Extension Fee (as defined in the Purchase Agreement) of $25 million on or before April 1, 1999 (the "April 1 Extension Fee"), and solely for the purposes of extending the Black-out Period (as defined in the Purchase Agreement) under Section 5.2 of the Purchase Agreement, upon receipt by the Merrill Lynch Parties, such April 1 Extension Fee shall have the effect of a Black-out Period Extension Fee paid or delivered to the Merrill Lynch Parties on March 18, 1999 had the Maturity Date not been extended to March 31, 1999 by Section 1 hereof, and the Black-out Period shall be extended to April 7, 1999. The Companies acknowledge that, in the event that the Companies have not closed the Cobblestone Sale and paid or otherwise delivered to the Merrill Lynch Parties the Excess Net Cash Proceeds on or before March 31, 1999, the continuation of the Black-out Period beyond March 31, 1999 shall entitle the Merrill Lynch Parties to a claim for the April 1 Extension Fee and the continuation of the Black-out Period beyond April 7, 1999 shall entitle the Merrill Lynch Parties to a claim for additional Black-out Period Extension Fees of $25 million for each twenty (20) days thereafter as provided in Section 5.2 of the Purchase Agreement. The April 1 Extension Fee and any subsequent Black-out Period 3 Extension Fees paid or otherwise delivered to the Merrill Lynch Parties shall reduce the Reference Amount (as defined in the Unsecured Adjustment Agreement) in the manner set forth in Section 3.3 of the Unsecured Adjustment Agreement. SECTION 5. EXPENSES. Except as specifically provided herein, the parties shall each pay their respective fees and expenses incurred in connection with the negotiation and execution of this Agreement and the consummation of the transactions contemplated hereby; provided, that the Companies shall reimburse the Merrill Lynch Parties for their reasonable, documented out-of-pocket expenses incurred in connection with the transactions contemplated hereby. Such reimbursable expenses are in addition to the amounts referred to in Section 13.9 of the Settlement Agreement. SECTION 6. PRESS RELEASES. The provisions of the first sentence of Section 10 of the Settlement Agreement shall be applicable to the transactions contemplated by this Agreement. SECTION 7. EFFECT ON OTHER AGREEMENTS; CONFLICTS WITH OTHER AGREEMENTS. In the event of any conflict between the provisions of this Agreement and the Forward Equity Agreements, the terms and provisions of this Agreement shall govern. Except as explicitly amended hereby, all other terms and conditions of the Forward Equity Agreements shall remain in full force and effect. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 4 IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the date first above written. MERRILL LYNCH INTERNATIONAL By:___________________________________ Name: Title: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By:___________________________________ Name: Title: MEDITRUST OPERATING COMPANY By:___________________________________ Name: Title: MEDITRUST CORPORATION By:___________________________________ Name: Title: EX-27.1 7 EXHIBIT 27.1
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet as of March 31, 1999 and the Consolidated Statement of Income for the three months ended March 31, 1999 of Meditrust Corporation and is qualified in its entirety by reference to such financial statements. 0000313749 MEDITRUST CORPORATION 1,000 U.S. DOLLARS 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1 37,300 0 51,218 0 0 0 4,040,323 245,611 5,721,528 0 2,694,742 0 70 3,839,826 (971,000) 5,721,528 0 153,676 0 0 0 0 66,547 43,091 0 43,091 16,094 0 0 59,185 0.37 0.37
EX-27.2 8 EXHIBIT 27.2
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet as of March 31, 1999 and the Consolidated Statement of Operations for the three months ended March 31, 1999 of Meditrust Operating Company and is qualified in its entirety by reference to such financial statements. 0000314661 MEDITRUST OPERATING COMPANY 1,000 U.S. DOLLARS 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1 1,969 0 15,180 0 0 52,646 30,174 1,261 164,698 109,039 0 0 0 121,115 (61,602) 164,698 0 145,496 0 70,040 0 0 110 (29,042) (826) (28,216) (11,225) 0 0 (39,441) (.27) (.27)
EX-99.1 9 EXHIBIT 99.1 Exhibit 99.1 SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is made as of March 10, 1999, by and among MEDITRUST CORPORATION (the "BORROWER"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "ADMINISTRATIVE AGENT"), BANKERS TRUST COMPANY, as Syndication Agent, BANKBOSTON, N.A., as Co-Documentation Agent, FLEET NATIONAL BANK, as Co-Documentation Agent, and the BANKS listed on the signature pages hereof. W I T N E S S E T H: WHEREAS, the Borrower and the Banks have entered into the Credit Agreement, dated as of July 17, 1998, as amended by Amendment to Credit Agreement, dated as of November 23, 1998 (as so amended, the "CREDIT AGREEMENT"); and WHEREAS, the parties desire to modify the Credit Agreement upon the terms and conditions set forth herein. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties do hereby agree as follows: 1. DEFINITIONS. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement. 2. OPTIONAL TERMINATION. For purposes of Section 2.11(g) of the Credit Agreement, this Amendment shall be deemed to constitute the notice from the Borrower to the Administrative Agent and the Banks required by such Section, pursuant to which the Borrower has elected, effective as of the Effective Date, to cancel a portion of the Tranche A Loan Commitments in an amount equal to One Hundred Fifty Million Dollars ($150,000,000) in the aggregate. 3. USE OF PROCEEDS. Section 5.16 of the Credit Agreement is hereby amended by adding after the phrase "(including associated artwork)" the following: "or from the sale of its golf related assets (both real and personal) but only to the extent that the Net Cash Proceeds in connection with any sale of such golf related assets (plus any taxable capital gains actually deducted in calculating the same), shall be in excess of $300,000,000." 4. THE FEITS AGREEMENT. The following is hereby added to the end of Section 5.23: "Notwithstanding the foregoing, the Borrower may enter into an amendment to the Current FEITS Agreement in the form previously delivered by the Borrower to the Administrative Agent, the Syndication Agent and the Co-Documentation Agent." 5. HEALTHCARE INVESTMENTS. Section 5.25 of the Credit Agreement is hereby deleted. 2 6. EFFECTIVE DATE. This Amendment (with the exception of the provisions of Paragraph 4 hereof, which shall become effective upon the satisfaction of clauses (a) through (d) below only) shall become effective when each of the following conditions is satisfied (or waived by the Required Banks) (the date such conditions are satisfied or waived being deemed the "EFFECTIVE DATE"): (a) the Borrower shall have executed and delivered to the Administrative Agent a duly executed original of this Amendment; (b) the Required Banks shall have executed and delivered to the Administrative Agent a duly executed original of this Amendment; (c) MOC shall have executed and delivered to the Administrative Agent a duly executed original of the Confirmation of Guaranty; (d) each of the Guarantors (as defined in the Guaranty) other than the golf related entities shall have executed and delivered to the Administrative Agent a duly executed original of the Confirmation of Guaranty; (e) the Borrower shall have delivered to the Administrative Agent financial projections for 3 the first two fiscal quarters of its fiscal year 1999; (f) the sale of the Borrower's golf related assets (both real and personal) to an unaffiliated third party shall have closed; (g) the Administrative Agent shall have received an opinion of Nutter, McClennen & Fish, LLP and Goodwin, Procter & Hoar LLP, counsel for the Borrower, MOC and the other parties (the "OTHER PARTIES") to the Guaranty (other than the Administrative Agent and the golf related entities), acceptable to the Administrative Agent, the Banks and their counsel; (h) the Administrative Agent shall have received all documents the Administrative Agent may reasonably request relating to the existence of the Borrower, MOC, and the Other Parties, the authority for and the validity of this Amendment, and the other documents executed in connection therewith, and any other matters relevant hereto, all in form and substance reasonably satisfactory to the Administrative Agent. Such documentation shall include, without limitation, the certificate of 4 incorporation and by-laws (or other organizational documents) of the Borrower, MOC, and the Other Parties, as amended, modified or supplemented prior to the Effective Date, each certified to be true, correct and complete by an officer of the Borrower, MOC or the Other Parties, as of a date not more than twenty (20) days prior to the Effective Date, together with a good standing certificate from the Secretary of State (or the equivalent thereof) of the State of Delaware with respect to the Borrower and MOC and from the applicable Secretary of State with respect to each of the Other Parties organized in the United States (except as may be waived by the Administrative Agent), each to be dated not more than twenty (20) days prior to the Effective Date; (i) the Administrative Agent shall have received all certificates, agreements and other documents and papers referred to in this Amendment, unless otherwise specified, in sufficient counterparts, satisfactory in form and substance to the Administrative Agent in its reasonable discretion; 5 (j) the Borrower, MOC and each of the Other Parties shall have taken all actions required to authorize the execution and delivery of this Amendment, the Confirmations of Guaranty and the other documents executed in connection herewith and the performance thereof by the Borrower, MOC and the Other Parties; (k) the Administrative Agent shall have received the reasonable fees and expenses accrued through the Effective Date of Skadden, Arps, Slate, Meagher & Flom LLP; (l) the representations and warranties of the Borrower contained in the Credit Agreement shall be true and correct in all material respects on and as of the Effective Date; and (m) receipt by the Administrative Agent and the Banks of a certificate of an officer of the Borrower certifying that the Borrower is in compliance with all covenants of the Borrower contained in the Credit Agreement, including, without limitation, the requirements of Section 5.8, as of the Effective Date. 7. ENTIRE AGREEMENT. This Amendment constitutes the entire and final agreement among the parties hereto 6 with respect to the subject matter hereof and there are no other agreements, understandings, undertakings, representations or warranties among the parties hereto with respect to the subject matter hereof except as set forth herein. 8. GOVERNING LAW. This Amendment shall be governed by, and construed in accordance with, the law of the State of New York. 9. COUNTERPARTS. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement, and any of the parties hereto may execute this Amendment by signing any such counterpart. 10. HEADINGS, ETC. Section or other headings contained in this Amendment are for reference purposes only and shall not in any way affect the meaning or interpretation of this Amendment. 11. NO FURTHER MODIFICATIONS. Except as modified herein, all of the terms and conditions of the Credit Agreement, as modified hereby shall remain in full force and effect and, as modified hereby, the Borrower confirms and ratifies all of the terms, covenants and conditions of the Credit Agreement in all respects. 7 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first above written. BORROWER: MEDITRUST CORPORATION By: ------------------------------- Name: Michael S. Benjamin Title: Senior Vice President 8 BANKS: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as a Bank and as Administrative Agent By: ------------------------------- Name: Timothy O'Donovan Title: Vice President 9 BANKERS TRUST COMPANY, as a Bank and as Syndication Agent By: ------------------------------- Name: G. Andrew Keith Title: Vice President 10 FLEET NATIONAL BANK, as a Bank and as Co-Documentation Agent By: ------------------------------- Name: Title: 11 BANKBOSTON, N.A., as a Bank and as Co-Documentation Agent By: ------------------------------- Name: Title: 12 NATIONSBANK, N.A., as a Bank By: ------------------------------- Name: Title: 13 VIA BANQUE, as a Bank By: ------------------------------- Name: Title: 14 OAK BROOK BANK, as a Bank By: ------------------------------- Name: Title: 15 PARIBAS CAPITAL FUNDING LLC, as a Bank By: ------------------------------- Name: Title: 16 THE TRAVELERS INSURANCE COMPANY, as a Bank By: ------------------------------- Name: Title: 17 TORONTO DOMINION (TEXAS), INC., as a Bank By: ------------------------------- Name: Title: 18 CANADIAN IMPERIAL BANK OF COMMERCE, as a Bank By: ------------------------------- Name: Title: 19 ML CLO XIX STERLING (CAYMAN) LTD. By: Sterling Asset Manager, LLC, as its Investment Advisor By: ------------------------------- Name: Title: 20 MERRILL LYNCH GLOBAL INVESTMENT SERIES: INCOME STRATEGIES PORTFOLIO By: Merrill Lynch Asset Management LP, as Investment Advisor By: ------------------------------- Name: Title: 21 MERRILL LYNCH PRIME RATE PORTFOLIO By: Merrill Lynch Asset Management LP, as Investment Advisor By: ------------------------------- Name: Title: 22 MERRILL LYNCH DEBT STRATEGIES PORTFOLIO By: Merrill Lynch Asset management LP, as Investment Advisor By: ------------------------------- Name: Title: 23 MERRILL, LYNCH, PIERCE, FENNER & SMITH INC. By: ------------------------------- Name: Title: 24 VAN KAMPEN SENIOR FLOATING RATE FUND By: ------------------------------- Name: Title: 25 VAN KAMPEN SENIOR INCOME TRUST By: ------------------------------- Name: Title: 26 VAN KAMPEN PRIME RATE INCOME TRUST By: ------------------------------- Name: Title: 27 AERIES FINANCE LTD. By: ------------------------------- Name: Title: 28 CERES FINANCE LTD. By: ------------------------------- Name: Title: 29 STRATA FUNDING LTD. By: ------------------------------- Name: Title: 30 MORGAN STANLEY SENIOR FUNDING, INC. By: ------------------------------- Name: Title: 31 BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE INC. By: ------------------------------- Name: Title: By: ------------------------------- Name: Title: 32 BANK ONE, ARIZONA, NA By: ------------------------------- Name: Title: 33 CARAVELLE INVESTMENT FUND, L.L.C. By: ------------------------------ By: ------------------------------- Name: Title: 34 CAPTIVA FINANCE LTD. By: ------------------------------- Name: Title: 35 CAPTIVA II FINANCE LTD. By: ------------------------------- Name: Title: 36 FIRST DOMINION FUNDING I By: ------------------------------- Name: Title: 37 FRANKLIN FLOATING RATE TRUST By: ------------------------------- Name: Title: 38 DRESDNER KLEINWORT BENSON By: ------------------------------- Name: Title: By: ------------------------------- Name: Title: 39 ERSTE BANK NEW YORK BRANCH By: ------------------------------- Name: Title: By: ------------------------------- Name: Title: 40 FIRST UNION NATIONAL BANK By: ------------------------------- Name: Title: 41 KEY CORPORATE CAPITAL INC. By: ------------------------------- Name: Title: 42 KZH III LLC By: ------------------------------- Name: Title: 43 KZH SHOSHONE LLC By: ------------------------------- Name: Title: 44 KZH STERLING LLC By: ------------------------------- Name: Title: 45 KZH HIGHLAND-2 LLC By: ------------------------------- Name: Title: 46 KZH PAMCO LLC By: ------------------------------- Name: Title: 47 LEHMAN SYNDICATED LOAN FUNDING TRUST BY: LEHMAN COMMERCIAL PAPER INC., NOT IN ITS INDIVIDUAL CAPACITY BUT SOLELY AS ASSET MANAGER By: ------------------------------- Name: Title: 48 ML CBO IV (CAYMAN) LTD. By: Highland Capital Management, L.P., as Collateral Manager By: ------------------------------- Name: Title: 49 ML CLO XX PILGRIM AMERICA By: Pilgrim Investments Inc., as its Investment Manager By: ------------------------------- Name: Title: 50 PILGRIM PRIME RATE TRUST By: Pilgrim Investments Inc., as its Investment Manager By: ------------------------------- Name: Title: 51 MOUNTAIN CLO TRUST By: ------------------------------- Name: Title: 52 OXFORD STRATEGIC INCOME FUND By: Eaton Vance Management as Investment Advisor By: ------------------------------- Name: Title: 53 PAM CAPITAL FUNDING L.P. By: Highland Capital Management, as Collateral Agent By: ------------------------------- Name: Title: 54 PAMCO CAYMAN LTD. By: Highland Capital Management, as Collateral Manager By: ------------------------------- Name: Title: 55 SENIOR DEBT PORTFOLIO By: Boston Management and Research as Investment Advisor By: ------------------------------- Name: Title: 56 WAINWRIGHT BANK & TRUST COMPANY By: ------------------------------- Name: Title: 57 ELC CAYMAN LTD. By: ------------------------------- Name: Title: 58 BLACK DIAMOND CLO 1998-1 LTD. By: ------------------------------- Name: Title: 59 OASIS COLLATERALIZED HIGH INCOME PORTFOLIOS-I, LTD. By: ------------------------------- Name: Title: 60 PACIFICA PARTNERS I, L.P. By: ------------------------------- By: ------------------------------- Name: Title: 61 -----END PRIVACY-ENHANCED MESSAGE-----