-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Dh9hLkT/TVKbrNA9i23Rvefaa/1L1faTeX1Ezg6orVqvEXzcMDtzg1HX3bOjM5LM lgtR2Il5izI8BT3lFk1v1A== 0000908737-94-000012.txt : 19940331 0000908737-94-000012.hdr.sgml : 19940331 ACCESSION NUMBER: 0000908737-94-000012 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTH & REHABILITATION PROPERTIES TRUST CENTRAL INDEX KEY: 0000803649 STANDARD INDUSTRIAL CLASSIFICATION: 6798 IRS NUMBER: 046558834 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 33 SEC FILE NUMBER: 033-52875 FILM NUMBER: 94518852 BUSINESS ADDRESS: STREET 1: 400 CENTRE ST CITY: NEWTON STATE: MA ZIP: 02158 BUSINESS PHONE: 6173323990 MAIL ADDRESS: STREET 1: 400 CENTRE STREET CITY: NEWTON STATE: MA ZIP: 02158 S-3 1 FORM S-3
As filed with the Securities and Exchange Commission on March 29, 1994 Registration No. 33- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ____________________ HEALTH AND REHABILITATION PROPERTIES TRUST (Exact name of registrant as specified in its charter) MARYLAND 04-6558834 (State or other jurisdiction (I.R.S. Employer Identification Number) of incorporation or organization) 400 CENTRE STREET, NEWTON, MASSACHUSETTS 02158 (617) 332-3990 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Mark J. Finkelstein 400 Centre Street Newton, Massachusetts 02158 (617) 332-3990 (Name, address, including zip code, and telephone number, including area code, of agent for service) ____________________ Copies to: LENA G. GOLDBERG, ESQ. HOWARD G. GODWIN, JR., ESQ. Sullivan & Worcester Brown & Wood One Post Office Square One World Trade Center Boston, Massachusetts 02109 New York, New York 10048 _________________________
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or reinvestment plans, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE Title of Each Proposed MaximumProposed MaximumAmount of Class of Securities AmountOffering PriceAggregateRegistration to be Registered to Be RegisteredPer Unit(1)Offering Price(1)Fee Common Shares of Beneficial Interest, $.01 par value 11,500,000 $15.625$179,687,500 $61,961
(1) Estimated pursuant to Rule 457(c) solely for purposes of determining the Registration Fee. The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. EXPLANATORY NOTE This Registration Statement contains two forms of prospectus, one to be used in connection with an offering in the United States and Canada (the "U.S. Prospectus") and one to be used in a concurrent offering outside the United States and Canada (the "International Prospectus"). The two prospectuses will be identical in all respects, except for the front cover page, the section entitled "Federal Income Tax and ERISA Considerations", the section entitled "Underwriting" and the outside back cover page. The form of the U.S. Prospectus is included herein and the form of the front cover page, "Federal Income Tax and ERISA Considerations" section, "Underwriting" section and outside back cover page of the International Prospectus are included following the back cover page of the U.S. Prospectus as pages X-1 through X-7. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there by any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS, DATED MARCH 29, 1994 PROSPECTUS 10,000,000 Shares HEALTH AND REHABILITATION PROPERTIES TRUST Common Shares of Beneficial Interest ______________________ Health and Rehabilitation Properties Trust (the "Company" or "HRP") is a real estate investment trust which invests primarily in retirement communities, assisted living centers, nursing homes and other long term care facilities. On March 25, 1994, the last reported sale price for the Shares on the New York Stock Exchange was $15 7/8. Of the 10,000,000 Shares offered by the Company, 8,500,000 Shares are being offered in the United States and Canada by the U.S. Underwriters and 1,500,000 Shares are being offered in a concurrent offering outside the United States and Canada by the International Managers (collectively, the "Offerings"). _________________________ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_________________________________________________________________________________________________________________________________ Price to Underwriting Proceeds to Public Discount(1) Company(2) __________________________________________________________________________________________________________________________________ Per Share. . . . $ $ $ Total(3) . . . . $ $ $ _________________________________________________________________________________________________________________________________
(1) The Company has agreed to indemnify the several U.S. Underwriters against certain liabilities, including certain liabilities under the Securities Act of 1933. See "Underwriting". (2) Before deducting expenses payable by the Company estimated at $586,681. (3) The Company has granted the U.S. Underwriters and the International Managers an option, exercisable by the U.S. Representatives for 30 days from the date of this Prospectus, to purchase up to 1,500,000 additional Shares solely to cover over- allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $__________, $__________ and $__________, respectively. See "Underwriting". The Shares offered hereby are offered by the several U.S. Underwriters, subject to prior sale, when, as and if issued to and accepted by them and subject to approval of certain legal matters by Brown & Wood, counsel for the U.S. Underwriters, and to certain other conditions. The U.S. Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the Shares offered hereby will be made in New York, New York on or about April __, 1994. ________________________ Merrill Lynch & Co. Donaldson, Lufkin & Jenrette Securities Corporation PaineWebber Incorporated Smith Barney Shearson Inc. ________________________ The date of this Prospectus is _____________, 1994 ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") in Washington, D.C., a registration statement on Form S-3 (together with all exhibits, schedules and amendments thereto, the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Common Shares of Beneficial Interest (the "Shares") to be offered by the Company. This Prospectus, which is a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement. For further information concerning the Company and the Shares offered by the Company, reference is made to the Registration Statement. Copies of the Registration Statement may be obtained from the Commission at its principal office in Washington, D.C. upon payment of the prescribed fee. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports and other information with the Commission. Reports, proxy statements and other information filed by the Company with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the Commission: Chicago Regional Office, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661-2511; and New York Regional Office, Seven World Trade Center, New York, New York 10048. Copies of such material can be obtained at prescribed rates from the Public Reference Section of the Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, reports, proxy material and other information concerning the Company may be inspected at the offices of The New York Stock Exchange ("NYSE"), 20 Broad Street, New York, New York 10005. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The following documents, which have been filed with the Commission pursuant to the Exchange Act, are hereby incorporated in this Prospectus and specifically made a part hereof by reference: (i) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, as amended; and (ii) the Company's Registration Statement on Form 8-A dated November 8, 1986, as amended by Form 8 dated July 30, 1991. The consolidated financial statements of Greenery Rehabilitation Group, Inc. ("Greenery") at and for the fiscal year ended September 30, 1993, are incorporated herein by reference from Greenery's Annual Report on Form 10-K for the fiscal year ended September 30, 1993; the consolidated financial statements of Horizon Healthcare Corporation ("Horizon") at and for the periods ended May 31, 1993 and November 30, 1993, are incorporated herein by reference from Horizon's Annual Report on Form 10-K/A - Amendment No. 3 for the fiscal year ended May 31, 1993, dated October 5, 1993, and Quarterly Report on Form 10-Q for the quarter ended November 30, 1993; the consolidated financial statements of GranCare, Inc. ("GranCare") at and for the periods ended December 31, 1992 and September 30, 1993, are incorporated herein by reference from GranCare's Annual Report on Form 10-K for the year ended December 31, 1992 and Quarterly Report on Form 10-Q for the quarter ended September 30, 1993; and the consolidated financial statements of Marriott International, Inc. ("Marriott") at and for the fiscal year ended December 31, 1993 will be incorporated herein by reference from Marriott's Annual Report on Form 10-K to be filed for the year ended December 31, 1993. All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Shares offered by the Company shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the respective dates of filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated herein by reference shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein, or in any other subsequently filed document that also is or is deemed to be incorporated herein by reference, modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom this Prospectus is delivered, upon the written or oral request of such person, a copy of any and all of the information that has been incorporated by reference in this Prospectus (excluding exhibits unless such exhibits are specifically incorporated by reference into the information that this Prospectus incorporates). Requests for such copies should be made to the Company at its principal executive offices, 400 Centre Street, Newton, Massachusetts 02158, Attention: Investor Relations, telephone (617) 332-3990. ------------------------------ IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES OF BENEFICIAL INTEREST OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SUMMARY The following summary is qualified in its entirety by the detailed information and financial statements appearing elsewhere or incorporated by reference in this Prospectus. Unless otherwise noted, all references to, and adjustments based upon, Shares offered hereby include all Shares offered pursuant to the Offerings but exclude the Shares subject to the over-allotment option. Unless otherwise noted, all information presented herein assumes completion of the transaction described in "The Company - -- Recent Developments -- The Marriott Transaction". THE COMPANY The Company is a real estate investment trust ("REIT") which invests primarily in retirement communities, assisted living centers, nursing homes and other long term care facilities. The Company recently agreed to acquire 14 retirement communities (the "Marriott Properties") leased to and operated by a subsidiary of Marriott International, Inc. (including its subsidiaries, "Marriott") for $320 million (the "Marriott Transaction"). The Marriott Properties will be acquired subject to the existing leases which are fully guaranteed by Marriott. The Marriott Properties contain a total of 3,932 residences or beds and are located in seven states. Upon completion of the Marriott Transaction: Marriott will be the Company's largest single tenant and will operate 38% of the Company's investment portfolio of properties; the Company will have gross real estate investments totalling $834 million, in 154 properties, located in 29 states and operated by 37 separate companies; approximately 70% of the Company's total investments will be in properties operated by seven NYSE listed companies; and 97% of the Company's investments will be in retirement communities, assisted living centers, nursing homes and other long term care facilities. HRP LESSEES AND MORTGAGORS [Pie chart-see appendix to electronic format document] Since commencing operations seven years ago in December 1986, the Company has paid 28 consecutive quarterly dividends and has increased its quarterly dividend eight times. The next regular quarterly dividend of $.33 per Share for the period ending March 31, 1994, is expected to be declared in April 1994 and paid in May 1994; purchasers of the Shares offered hereby who hold such Shares as of the record date will receive that dividend. HRP DIVIDEND GROWTH [Dividend chart-see appendix to electronic format document]
THE OFFERINGS Shares to be offered U.S. Offering............................ 8,500,000 International Offering......................... 1,500,000 Total........................................10,000,000 Shares to be outstanding after the Offerings..........54,722,500 Use of Proceeds.......................................To fund the Marriott Transaction or to repay indebtedness and/or for working capital and other general corporate purposes. NYSE symbol...........................................HRP
SUMMARY HISTORICAL AND ADJUSTED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1993 ----------------------------------------------------------------------- AS ADJUSTED(1) 1989 1990 1991 19921993 -------------------------------- OPERATING STATEMENT DATA: Total revenues.....................................$23,233$32,872$43,835$48,735$56,485$95,943 Net income...........................................7,90014,28022,07927,24333,417(2)55,185 (2) Cash flow available for distribution(3)....................................12,56119,46730,05936,85347,57878,041 Dividends(4).........................................13,13718,92727,17933,07944,869--- Per Share: Net income.......................................76.891.011.02.97(2)1.01 (2) Cash flow available for distribution(3)...............................1.201.211.381.381.381.43 Dividends(4)....................................1.141.171.231.261.30--- Average Shares outstanding................10,42516,08821,83426,76034,40754,723
DECEMBER 31 --------------------------------------------------------------------- 19891990 19911992 1993 DECEMBER 31, 1993 AS ADJUSTED(1) BALANCE SHEET DATA: ___________________ Real estate properties, net....................$144,347$188,352$262,557$310,882$349,842$650,348 Real estate mortgages, net...................45,30487,06131,76047,173157,281158,241 Total assets............................................205,638290,099340,718374,468527,662826,826 Total borrowings...................................70,000125,500103,000138,50073,000214,008 Total shareholders' equity....................131,851147,760234,427228,301441,135603,791
- --------------- (1) Adjusted to give effect to the sale of the Shares offered pursuant to the Offerings, the use of proceeds therefrom as set forth in "Use of Proceeds", and the consummation of the Marriott Transaction. See "Unaudited Adjusted Balance Sheet and Unaudited Adjusted Statement of Income". (2) Includes, as an extraordinary item, the write-off of $4.3 million in deferred finance charges (approximately $.13 per Share) resulting from prepayment of debt with proceeds from the Company's Share offerings in 1993. (3) Cash flow available for distribution is income before extraordinary item plus depreciation and amortization and other non-cash items charged to operations. Distributions in excess of net income generally constitute a return of capital for income tax purposes. (4) Amounts represent dividends declared with respect to the periods shown. RECENT DEVELOPMENTS The Marriott Transaction. On March 17, 1994, the Company agreed to acquire 14 retirement communities from affiliates of Host Marriott Corporation ("HMT") for $320 million, subject to adjustment. The Marriott Properties are presently leased to and operated by Marriott and will be acquired by the Company subject to the existing leases. The Marriott Properties are located in the following seven states: Florida - five; Virginia - three; Arizona - two; California - one; Illinois - one; Maryland - one; and Texas - one. The retirement communities offer a continuum of services including independent living residences, assisted living and on-site skilled nursing facilities. The Marriott Properties contain a total of 3,932 residences or beds and are triple net leased to Marriott for initial terms expiring on December 31, 2013, with renewal options extending for an additional 20 years. The leases provide for fixed rent aggregating approximately $28 million per year and additional rentals equal to 4.5% of annual revenues from operations in excess of base amounts determined on a facility by facility basis. All of the leases are subject to cross default provisions. In addition to the 14 retirement communities to be acquired by the Company, the Company and HMT have agreed to negotiate for the possible assumption by the Company of HMT's obligations to invest in additional retirement and skilled nursing facility projects to be operated by Marriott; however, there are presently no agreements or understandings concerning assumption of the obligations relating to any specific projects. Upon completion of the Marriott Transaction, Marriott will become the Company's largest single tenant. Management believes that the Marriott Transaction will materially improve the diversity, security and growth potential of the Company's investment portfolio for the following reasons: - Approximately 38% of the Company's total investments will be in properties leased to Marriott under 20 year triple net, non-cancellable leases; - Marriott has fully guaranteed the leases; - Marriott is a public company with annual revenues of approximately $8 billion, whose senior unsecured debt obligations are rated A- by Standard and Poor's Corporation and Baa-1 by Moody's Investors Service, Inc.; - The Company anticipates that it will receive significant and increasing percentage rents under the leases beginning in 1994 and continuing throughout the lease term; the leases contain no cap or other limitation on the amounts of percentage rents; - Over 85% of Marriott's revenues from the Marriott Properties have been derived from private as opposed to governmental sources making such revenues less susceptible to the uncertainties of governmental funding and cost containment efforts; - The Marriott Properties have attracted strong occupancies and those open more than one year average in excess of 90% occupancy; - Ten of the 14 Marriott Properties have been constructed and opened in the past four years and the Company believes these properties represent state of the art in construction quality; - The Company's investment portfolio will be increased from approximately $514 million to approximately $834 million; - After completion of the Marriott Transaction, approximately 81% of the Company's investments will be in equity ownership of properties and 19% will be in mortgages; - Upon completion of the Marriott Transaction, approximately 70% of the Company's investment portfolio will be in properties leased to or operated by seven NYSE listed companies; the balance of the Company's investment portfolio is leased to or operated by a diverse group of 30 separate private companies. The Marriott Transaction is subject to conditions and contingencies customary in transactions of this type, including health care and other regulatory approvals, and although no assurance can be given that the Marriott Transaction will be consummated, the Company expects the Marriott Transaction to close in June 1994. The Company intends to fund the Marriott Transaction with the net proceeds of the Offerings, available cash, funds available to be drawn under credit facilities, and proceeds of future debt financing. See "Recent Developments - New Revolving Credit Facility". To provide for the contingency that the Marriott Transaction may close prior to completion of the Offerings or the availability of other permanent funding, the Company has had discussions with Merrill Lynch Mortgage Capital, Inc. ("MLMCI") and others to provide an interim credit facility (the "MLMCI Facility") to fund the acquisition of the Marriott Properties. No assurance can be given that these discussions will result in an agreement to provide interim funding or that the required funding will be available in a timely manner to the Company from other sources. New Revolving Credit Facility. In February 1994, the Company closed a new $110 million revolving credit facility from a syndicate of banks (the "New Credit Facility"). The New Credit Facility replaced the Company's $40 million revolving credit facility which was scheduled to mature in January 1995. The New Credit Facility will mature in 1997, unless extended by the parties. Borrowings under the New Credit Facility bear interest, at the Company's option, at prime or a spread over LIBOR. The Company intends to draw on the New Credit Facility to repay the Company's $33 million term loan and is presently discussing with its lenders amendments to the New Credit Facility which would increase the amount available thereunder, to lower the interest rate charged on borrowings and otherwise to change certain terms. No assurance can be given that these discussions will result in any changes in the New Credit Facility. Other Pending Transactions. In the ordinary course of its business, the Company regularly evaluates investment opportunities and enters into contracts to purchase and lease or mortgage finance health care related real estate. Several such possible investments are currently under consideration and at various stages of the contractual process. Similarly, since January 1, 1994, the Company has received principal prepayments of outstanding mortgages totalling approximately $9.6 million and the Company is now engaged in negotiations regarding the sale of two properties subject to leases scheduled to expire during 1994. The Company does not believe that consummation of any one or all of these various pending transactions would have a material impact upon its financial condition or operations. THE COMPANY HRP invests in retirement communities, assisted living centers, nursing homes and other income producing health care related real estate. The Company, a Maryland real estate investment trust, commenced operations in December 1986. The Company's principal executive offices are located at 400 Centre Street, Newton, Massachusetts 02158, and its telephone number is (617) 332-3990. At March 28, 1994, including the Marriott Transaction, the Company had total real estate investments of approximately $834 million in 154 properties ("Properties") located in 29 states operated by 37 separate companies. LOCATION OF HRP PROPERTIES (dollars in thousands) [MAP-see appendix to electronic format document]
No. of Total No. of Total State PropertiesInvestment State PropertiesInvestment Alabama. . 2 $ 3,601 Michigan . . . . 2 $ 9,400 Arizona. . 5 25,377 Missouri . . . . 2 3,178 California 16 80,082 Nebraska . . . . 12 16,925 Colorado . 10 32,990 North Carolina . 9 20,761 Connecticut 9 83,802 Ohio . . . . . . 9 27,259 Florida. . 6 116,560 Pennsylvania . . 2 18,490 Georgia. . 5 8,053 South Carolina . 1 886 Illinois . 2 21,233 South Dakota . . 3 7,589 Indiana. . 7 19,965 Tennessee. . . . 1 1,077 Iowa . . . 10 14,175 Texas. . . . . . 8 21,000 Kansas . . 4 8,521 Virginia . . . . 3 67,336 Kentucky . 2 19,735 Washington . . . 1 5,125 Louisiana. 5 32,403 Wisconsin. . . . 9 33,260 Maryland . 1 46,928 Wyoming. . . . . 3 6,459 Massachusetts 5 82,058 154$834,228
DISTRIBUTIONS The Company has paid 28 consecutive quarterly dividends since its initial public offering in December 1986. Dividends for 1987, 1988, 1989, 1990, 1991, 1992 and 1993 totalled $1.06, $1.12, $1.14, $1.17, $1.23, $1.26 and $1.30, respectively. The next regular quarterly dividend of $.33 per Share for the period ending March 31, 1994 will be declared in April 1994 and paid in May 1994; purchasers of the Shares offered hereby who hold such Shares as of the record date will receive that dividend. The Company intends to continue to declare and pay future dividends on a quarterly basis, but may, from time to time, declare and pay special dividends. There can be no assurance that the Company will be able to increase its quarterly dividend or maintain it at the current level. Payment of dividends by the Company is subject to continued compliance with certain restrictions contained in the Company's loan agreements. In the past, the Company's dividends have been based upon operating cash flow, which has exceeded earnings. Management expects that the Company will continue to pay dividends based upon operating cash flow and that such dividends may exceed earnings. Accordingly, the Company expects a portion of the Company's dividends may be considered a return of capital which may not be subject to income tax until the Shares are sold. See "Federal Income Tax and ERISA Considerations". Information about dividends on a quarterly basis is summarized in the following table:
HRP DIVIDENDS PER SHARE(1) 1987 1988 1989 1990 1991 1992 1993 First Quarter.................$.275(2)$.28$.28$.29$.30 $.31 $.32 Second Quarter................ .26 .28 .28 .29 .31 .31 .32 Third Quarter................. .27 .28 .29 .29 .31 .32 .33 Fourth Quarter................ .28 .28 .29 .30 .31 .32 .33
- --------------- (1) Amounts represent dividends declared with respect to the periods shown. (2) Includes $.025 for the period from December 23, 1986 (commencement of the Company's operations) through December 31, 1986. CAPITALIZATION The capitalization of the Company as of December 31, 1993 and as adjusted to give effect to the consummation of the Marriott Transaction and the completion of the Offerings and the use of the net proceeds therefrom, is as follows (see "Unaudited Adjusted Balance Sheet"):
DECEMBER 31, 1993 ActualAs Adjusted (Dollars in thousands) Borrowings . . . . . . . . . . . . . . . . . $73,000$214,008 Shareholders' equity: Preferred Shares of Beneficial Interest, par value $.01 per Share; 50,000,000 authorized, none issued. --- --- Common Shares of Beneficial Interest, par value $.01 per Share; 100,000,000 Shares authorized; 44,121,000 Shares and 54,722,500 Shares, as adjusted, issued and outstanding441547 Additional paid-in capital. . . . . . .470,572627,889 Cumulative net income . . . . . . . . .118,889124,122 Distributions of cash flow available from operations(148,767)(148,767) Total shareholders' equity. . . . . 441,135 603,791 Total capitalization . . . . . . . . . . . .$514,135$817,799
USE OF PROCEEDS The net proceeds to the Company from the Offerings are estimated to be approximately $___ million ($___ million if the over-allotment option is exercised in full). If the Offerings are completed prior to the closing of the Marriott Transaction, net proceeds of the Offerings will be used to fund the Marriott Transaction. If the Marriott Transaction is consummated prior to completion of the Offerings and the Company utilizes borrowings to fund the Marriott Transaction, net proceeds of the Offerings will be used to repay amounts outstanding under such borrowings, and/or to reduce amounts outstanding under the Company's credit facilities or for working capital and other general corporate purposes. In the event that the Marriott Transaction is not consummated by the Company, net proceeds of the Offerings will be used to reduce amounts outstanding under the New Credit Facility or for working capital or other general corporate purposes. As described in "The Company -- Recent Developments", the Company is presently negotiating the MLMCI Facility. In the event that funds are drawn under the MLMCI Facility, interest on such borrowings is expected to be based on LIBOR plus a premium. Of the amounts outstanding under the New Credit Facility, $40 million was borrowed to repay all amounts outstanding under the Company's prior revolving credit facility and it is expected that $33 million will be borrowed to repay the amounts outstanding under the Company's term loan. Amounts outstanding under the New Credit Facility are due in 1997. The weighted average interest rate on outstanding debt which may be repaid with proceeds of the Offerings will be approximately 5.5%. Pending utilization as set forth above, the proceeds from the Offerings will be invested in short term investments, including repurchase agreements. Such investments may not be investment grade. INVESTMENT AND FINANCING POLICY The population of the United States is aging. According to information from the U.S. Census Bureau, the segment of the U.S. population age 65 and over is increasing and will increase sharply through the year 2020. The Company believes that the demand for services provided at retirement communities, assisted living centers and nursing homes should increase as the population ages. Moreover, during the past ten years the intensity of medical services offered in nursing homes has become an important factor increasing nursing facility revenues and the value of facilities. Recently proposed federal healthcare reform legislation seeks, in part, to control future expenditures for acute care hospitals by providing increased funding for subacute care in nursing homes. For these reasons the Company has focused its investments in retirement communities, assisted living centers and nursing homes. Although the Company has and will in the future invest in other types of health care real estate, the Company expects to continue its focus on retirement communities, assisted living centers and nursing homes. The Company considers equity offerings when, in the Company's judgment, doing so will improve the Company's capital structure, while not materially adversely affecting the market value of its Shares or impeding the Company's ability to increase regularly its per Share dividend rate. In addition to the use of equity, the Company utilizes short term and long term borrowings to finance investments and to pay operating expenses. When variable rate debt is utilized the Company regularly purchases interest rate futures contracts to hedge against changes in interest rates. At March 28, 1994, the Company had outstanding term and revolving debt totalling $73 million. After this offering and assuming the use of proceeds from this offering and additional debt to fund the consummation of the Marriott Transaction, the Company's total debt outstanding will be approximately $214 million. The Company's borrowing guidelines established in the New Credit Facility and by its Board of Trustees prohibit the Company from maintaining a debt to equity ratio of greater than 1 to 1, except in certain limited circumstances. As of March 28, 1994, the Company's debt to equity ratio was .16 to 1. After this offering and assuming the use of proceeds described herein and consummation of the Marriott Transaction, the Company's debt to equity ratio on a pro forma basis will be approximately .35 to 1. The present debt to equity limitations may be changed in the future. There can be no assurance that equity or debt capital will be available in the future on reasonable terms to fund the Company's operations or growth. HRP CAPITAL STRUCTURE BEFORE SALE OF SHARES AFTER SALE OF SHARES AND MARRIOTT TRANSACTION AND MARRIOTT TRANSACTION [PIE CHARTS-see appendix to electronic format document.] SELECTED FINANCIAL DATA Set forth below are selected financial data for the Company for the periods and dates indicated which have been derived from audited and unaudited financial statements. This data should be read in conjunction with, and is qualified in its entirety by reference to, the financial statements and accompanying notes incorporated by reference in this Prospectus and with Management's Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report on Form 10-K for the Company incorporated by reference in this Prospectus. Amounts are in thousands, except per Share information.
YEAR ENDED DECEMBER 31, 1989 1990 1991 1992 1993 OPERATING STATEMENT DATA: Total revenues................................$23,233$32,872$43,835$48,735$56,485 Income before extraordinary item..............7,90014,28022,07927,24337,738 Net income....................................7,90014,28022,07927,24333,417 (1) Cash flow available for distribution(2).......12,56119,46730,05936,85347,578 Dividends(3)..................................13,13718,92727,17933,07944,869 Per Share: Income before extraordinary item..........$ .76$ .89 $ 1.01$ 1.02$ 1.10 Net income.................................76.891.011.02.97 (1) Cash flow available for distribution(2)...1.201.211.381.381.38 Dividends(3)..............................1.141.171.231.261.30 Average Shares outstanding....................10,42516,08821,83426,76034,407 DECEMBER 31, 1989 1990 1991 1992 1993 BALANCE SHEET DATA: Real estate properties, net.........$144,347$188,352$262,557$310,882$349,842 Real estate mortgages, net..........45,30487,06131,76047,173157,281 Total assets........................205,638290,099340,718374,468527,662 Total borrowings....................70,000125,500103,000138,50073,000 Total shareholders' equity..........131,851147,760234,427228,301441,135
1993 FIRST SECONDTHIRD FOURTH QUARTER QUARTERQUARTERQUARTER SUPPLEMENTAL DATA: Total revenues...........................$12,650$13,763$14,727$15,345 Income before extraordinary item.........8,4099,5369,73910,054 Net income(1)............................5,0179,5369,7399,125 Cash flow available for distribution(2)..10,73711,89512,18712,759 Dividends(3).............................10,80411,23611,23911,590 Per Share: Income before extraordinary item.....$.27$.27$.28$.28 Net income(1).........................16.27.28.26 Cash flow available for distribution(2).....................34.34.35.36 Dividends(3)..........................32.32.33.33 Average Shares outstanding...............31,73135,11435,12135,610
- --------------- (1) Includes, as an extraordinary item, the write-off of $4.3 million in deferred finance charges (approximately $.13 per Share) resulting from prepayment of debt with proceeds from the Share offerings in 1993. (2) Cash flow available for distribution is income before extraordinary item plus depreciation and amortization and other non-cash items charged to operations. Distributions in excess of net income generally constitute a return of capital for income tax purposes. (3) Amounts represent dividends declared with respect to the periods shown. PROPERTIES After the Marriott Transaction the Company will have gross real estate investments totalling $834 million, in 154 Properties, located in 29 states and operated by 37 separate companies. Ninety-seven percent of the Company's investments will be in 152 retirement communities, assisted living centers, nursing homes and other long term care facilities. Approximately 81% of the investments are in Properties owned by the Company and leased to operators. TYPE OF PROPERTIES TYPE OF INVESTMENTS [PIE CHARTS-see appendix to electronic format document] THE LESSEES AND THE MORTGAGORS The Company's financial condition depends in large part upon the financial condition of the operators of the Company's Properties. After the Marriott Transaction, approximately 70% of the Company's total investments will be in Properties operated by seven NYSE listed companies. In addition to these seven public companies, the remaining HRP Properties are operated by 30 privately held companies. Certain information about publicly owned operators of the Company's Properties contained in their filings with the Commission or other public sources, or provided by these companies is set forth in the chart below.
HRP PUBLIC COMPANY FACILITY OPERATORS (dollars in thousands) TOTAL TOTAL SHARE- HRP HRP HRP OPERATOR FACILITIESANNUALHOLDERSNET FACILITIESFACILITIESINVESTMENT (STOCK SYMBOL)(BEDS) REVENUESEQUITYINCOME(BEDS) OCCUPANCY(% OF TOTAL) Marriott International......787$8,062,000$467,000$161,0001490% (3) $320,000 (NYSE:MAR)(174,951) (2) (3,932) (38.4%) Horizon Healthcare(1)............104 307,796113,45812,6321291%147,011 (NYSE:HHC)(11,883) (1738) (17.6%) GranCare.........................83507,97061,15710,8892791%86,628 (NYSE:GC)(11,300) (3908) (10.4%) Sun Healthcare Group.............47191,71169,5869,749495% 20,617 (NYSE:SHG)(5,272) (605) (2.5%) Beverly Enterprises..............8172,885,881739,00957,924392%13,211 (NYSE:BEV)(86,865) (321) (1.6%) Integrated Health Services.......67282,160176,13315,471196% 2,891 (NYSE:IHS)(8,731) (120) (.4%) Hillhaven(1).....................2841,432,482334,49965,792198%1,283 (NYSE:HIL)(35,149) (120) (.2%)
- --------------- (1) Annual revenues and net income for Horizon Healthcare and Hillhaven are annualized from six-month data. (2) Includes approximately 770 operated or franchised hotels with more than 170,000 rooms and 17 retirement complexes with 4,951 units, including independent and assisted living apartments and beds for nursing homes. (3) Occupancy is aggregate average occupancy for facilities opened for more than one year. Additional Security. In addition to fee ownership of the leased properties and mortgage liens on the mortgaged properties, certain of the Company's leases and mortgages contain additional security features. Generally, with respect to investments originated by the Company, each obligation of an operator to HRP is subject to cross default provisions with respect to all other obligations of that operator to HRP and any collateral pledged by an operator to HRP constitutes collateral for all obligations of that operator. Certain operators have pledged additional collateral or provided corporate guarantees, security deposits, or, in some cases, personal guarantees. MANAGEMENT The Trustees and executive officers of the Company are as follows:
NAME AGE POSITION Mark J. Finkelstein. . . 47 President and Chief Executive Officer John L. Harrington . . . 58 Trustee David J. Hegarty . . . . 37 Executive Vice President, Chief Financial Officer and Secretary Arthur G. Koumantzelis . 63 Trustee Rev. Justinian Manning, C.P. 68 Trustee Gerard M. Martin . . . . 59 Trustee John G. Murray . . . . . 33 Treasurer Barry M. Portnoy . . . . 48 Trustee
Mark J. Finkelstein has been President and Chief Executive Officer of the Company since its organization. Mr. Finkelstein is a past President of the American College of Health Care Administrators. John L. Harrington has been the President of JRY Corporation (the principal owner of the Boston Red Sox baseball club) and is also Executive Director and Trustee of the Yawkey Foundation and a trustee of the JRY Trust. Mr. Harrington is a Director of Shawmut Bank, N.A. David J. Hegarty, a certified public accountant, became Executive Vice President of the Company in July 1993. He has been the Chief Financial Officer of the Company since July 1987, when he joined the Company as Treasurer and Secretary. Arthur G. Koumantzelis is the Senior Vice President and Chief Financial Officer of Cumberland Farms, Inc., a private company engaged in the convenience store business in the northeastern United States and Florida and, through its interest in the partnership operating its Gulf Oil Division, in the distribution and retail sale of gasoline in the northeastern United States. The Reverend Justinian Manning, C.P., is the pastor of St. Gabriel's Parish in Brighton, Massachusetts. He is also on the Board of Directors of Charlesview, a low and moderate income housing program, and St. Elizabeth's Hospital Foundation. He belongs to the Provincial Council of the Passionist Provincialate and is the former Director of Consolidation for the Community. Gerard M. Martin is a real estate investor. Prior to the merger of Horizon Healthcare Corporation ("Horizon") and Greenery Rehabilitation Group, Inc. ("Greenery") in February 1994, he had been the Chairman and Chief Executive Officer of Greenery and its predecessors since 1975. Mr. Martin is a Director of Horizon. John G. Murray, a certified public accountant, joined the Company in July 1993 as Treasurer. Mr. Murray was employed by Fidelity Brokerage Services, Inc. prior to joining the Company, most recently as Director of Finance, Business Analysis and Planning. Barry M. Portnoy has been a partner in the law firm of Sullivan & Worcester, counsel to the Company, since 1978. Mr. Portnoy was a Director of Greenery until February 1994 and is a Director of Horizon. Mr. Harrington, Mr. Koumantzelis and Fr. Manning are the Company's Independent Trustees, that is Trustees who are not affiliated with any of the Company's lessees or mortgagors or with HRPT Advisors, Inc. (the "Advisor"). Under the Company's Declaration of Trust, a majority of the Company's Trustees will at all times consist of Independent Trustees. All investment and policy decisions affecting the Company are made by its Board of Trustees. All day to day operations of the Company are conducted by the Advisor pursuant to an investment advisory contract. The Advisor is owned by Messrs. Martin and Portnoy. Messrs. Finkelstein, Hegarty and Murray, as well as all other personnel involved in the Company's operations are employees of the Advisor. The Advisor is paid an annual advisory fee calculated on the basis of total assets under management (.7% of the first $250 million, plus .5% of additional assets) and an annual incentive fee calculated on the basis of increases in operating cash flow per Share above threshold amounts (15% of cash flow above the threshold amount of $1.37/Share in 1994, which threshold increases by $.05/Share annually thereafter) but no more than $.01/Share. The Advisor currently owns approximately one million Shares which were purchased in 1989. All incentive fees which may be earned by the Advisor will be paid in Shares. The Company believes that its total administrative costs, measured as a percentage of assets under management, are below the average for its industry. FEDERAL INCOME TAX AND ERISA CONSIDERATIONS The following description of certain Federal income tax matters and Employee Retirement Income Security Act of 1974, as amended ("ERISA"), considerations relating to the Company is qualified in its entirety by reference to the more detailed description thereof contained in the Company's Annual Report on Form 10-K, which is incorporated herein by reference. The opinion of Sullivan & Worcester, Boston, Massachusetts, regarding such matters has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The Company is and intends to remain qualified as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the Company's net income which is distributed as dividends to shareholders will be exempt from Federal taxation. Distributions to the Company's shareholders generally will be includable in their income; however, dividends distributed which are in excess of current or accumulated earnings will be treated for tax purposes as a return of capital to the extent of a shareholder's basis, and will reduce the basis of shareholders' Shares. Approximately 26% of dividends distributed in calendar 1993 were treated as a return of capital. The Company intends to conduct its affairs so that the assets of the Company will not be deemed to be "plan assets" of any individual retirement account, employee benefit plan subject to Title I of ERISA, or other qualified retirement plan subject to Section 4975 of the Code which acquires its Shares. The Company believes that, under present law, its distributions do not create so called "unrelated business taxable income" to tax exempt entities such as pension trusts, subject, however, to certain new rules which apply to pension trusts holding more than 10% of the Shares. EACH PROSPECTIVE PURCHASER OF THE SHARES OFFERED HEREBY IS ADVISED TO CONSULT HIS OWN PROFESSIONAL ADVISOR REGARDING THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX AND ERISA CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND SALE OF THE SHARES OFFERED HEREBY. UNDERWRITING The Underwriters named below (the "U.S. Underwriters"), for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), Donaldson, Lufkin & Jenrette Securities Corporation, PaineWebber Incorporated and Smith Barney Shearson Inc. are acting as representatives (the "U.S. Representatives"), have severally agreed, subject to the terms and conditions of the U.S. Purchase Agreement (the "U.S. Purchase Agreement") with the Company relating to 8,500,000 Shares offered in the United States and Canada (the "U.S. Offering"), to purchase from the Company the respective number of Shares set forth opposite their names below.
Number U.S. Underwriter of Shares Merrill Lynch, Pierce, Fenner & Smith Incorporated. . . . . Donaldson, Lufkin & Jenrette Securities Corporation PaineWebber Incorporated. . . . . . . Smith Barney Shearson Inc.. . . . . . Total . . . . . . . . . 8,500,000
The Company has also entered into the International Purchase Agreement (the "International Purchase Agreement") with certain underwriters outside the United States and Canada (the "International Managers"), for whom Merrill Lynch International Limited, Donaldson, Lufkin & Jenrette Securities Corporation, PaineWebber International (U.K.) Ltd. and Smith Barney Shearson Inc. are acting as representatives (the "Lead Managers"), relating to the Shares offered outside the United States and Canada (the "International Offering"). Subject to the terms and conditions of the International Purchase Agreement, the Company has agreed to sell to the International Managers, and the International Managers have severally agreed to purchase, an aggregate of 1,500,000 Shares. Under certain circumstances, the commitments of non- defaulting U.S. Underwriters and International Managers may be increased. The public offering price per Share and the underwriting discount per Share are identical under the U.S. Purchase Agreement and the International Purchase Agreement. In the U.S. Purchase Agreement, the several U.S. Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all of the Shares being sold pursuant to such agreement if any of the Shares being sold pursuant to such agreement are purchased and in the International Purchase Agreement the several International Managers have agreed, subject to the terms and conditions set forth therein, to purchase all of the Shares being sold pursuant to such agreement if any of the Shares being sold pursuant to such agreement are purchased. The closings with respect to the sale of Shares to be purchased by the U.S. Underwriters and the International Managers are conditioned upon one another. The U.S. Representatives have advised the Company that the U.S. Underwriters propose to initally offer the Shares to the public at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $__ per Share. The U.S. Underwriters may allow, and such dealers may reallow, a discount not in excess of $__ per Share to other dealers. After the initial public offering, the public offering price, concession and discount may be changed. The Company has granted to the U.S. Underwriters and the International Managers an option, exercisable by the U.S. Representatives for 30 days from the date of this Prospectus, to purchase up to an additional 1,500,000 Shares, solely to cover over-allotments, if any, at a price per Share equal to the initial public offering price less the underwriting discount set forth on the cover page of this Prospectus, and, with respect to any such Shares issued after the record date for the quarterly dividend for the period ending March 31, 1994, less an amount equal to such dividend. If the U.S. Representatives exercise such option, each U.S. Underwriter and International Manager will, subject to certain conditions, have a firm commitment to purchase approximately the same percentage of such option Shares which the number of Shares to be purchased initially by it bears to 10,000,000 Shares. The U.S. Underwriters and the International Managers have entered into an Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for coordination of their activities. Pursuant to the Intersyndicate Agreement, sales may be made between the U.S. Underwriters and the International Managers of such number of Shares as may be mutually agreed. The price of any Shares so sold shall be the initial public offering price, less an amount not greater than the selling concession. Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom they sell Shares will not offer to sell or sell Shares to any non-U.S. or non-Canadian person or to any person they believe intends to resell to any non-U.S. or non-Canadian person, and the International Managers and any dealer to whom they sell Shares will not offer to sell or sell Shares to any U.S. or Canadian person or to any person they believe intends to resell to any U.S. or Canadian person, except, in each case, for transactions pursuant to the Intersyndicate Agreement. The Company has agreed to indemnify the several U.S. Underwriters and the several International Managers against certain liabilities, including liabilities under the Securities Act. The Company and the Advisor have each agreed that, for a period of 90 days after the date of this Prospectus, it will not, without the prior consent of MLPF&S, issue, sell, contract to sell, grant any option for the sale of, or otherwise dispose of any Shares, other than the Shares being sold in connection with the transactions discussed herein, pursuant to the Company's 1992 Incentive Share Award Plan, and Shares issued upon exercise of any outstanding options. The Company has agreed that, during such 90 day period, it will not, without the prior consent of MLPF&S, terminate, modify or waive any provision in any agreement to which it is a party that restricts or limits the transferability of any Shares. MLPF&S will be entitled to an advisory fee from the Company in connection with consummation of the Marriott Transaction. As described under "The Company -- Recent Developments -- The Marriott Transaction", the Company is also negotiating with MLMCI, a subsidiary of MLPF&S, for provision of the MLMCI Facility which may be used in connection with the Company's consummation of the Marriott Transaction. MLMCI will be entitled to a fee upon consummation of the Marriott Transaction and additional fees if the MLMCI Facility is consummated. In addition, MLPF&S and MLMCI are both presently entitled to reimbursement from the Company for their out-of-pocket expenses incurred in advising and assisting the Company in connection with the Marriott Transaction. LEGAL MATTERS Certain legal matters with respect to the Shares offered by the Company will be passed upon for the Company by Sullivan & Worcester, Boston, Massachusetts and for the Underwriters by Brown & Wood, New York, New York. Sullivan & Worcester and Brown & Wood will rely, as to all matters of Maryland law, upon the opinion of Piper & Marbury, Baltimore, Maryland. Sullivan & Worcester has also given its opinion as to certain Federal income tax matters and certain ERISA considerations relating to the Company. See "Federal Income Tax and ERISA Considerations". Barry M. Portnoy, a partner in the firm of Sullivan & Worcester, is a Trustee of the Company, a director and 50% shareholder of each of the Advisor, Connecticut Subacute Corporation ("CSC"), and Connecticut Subacute Corporation II ("CSCII") and a director of Horizon. Sullivan & Worcester represents the Advisor, CSC, CSCII, Gerard M. Martin and certain affiliates of each of the foregoing on various matters. CSC, CSCII and Horizon are tenants of the Company. EXPERTS The financial statements of the Company appearing in the Company's Annual Report (Form 10-K) for the year ended December 31, 1993; the consolidated financial statements of Greenery appearing in the Greenery Annual Report (Form 10-K) for the year ended September 30, 1993; and the consolidated financial statements of GranCare appearing in the GranCare Annual Report (Form 10-K) for the year ended December 31, 1992, have been audited by Ernst & Young, independent auditors, as set forth in their reports thereon included therein and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. The audited consolidated financial statements and schedules of Horizon incorporated by reference in this Prospectus and elsewhere in the registration statement to the extent and for the periods indicated in their reports, have been audited by Arthur Andersen & Co. and KPMG Peat Marwick, independent public accountants, and are included herein in reliance upon the authority of said firms as experts in giving said reports. THE DECLARATION OF TRUST ESTABLISHING THE COMPANY, DATED OCTOBER 9, 1986, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HEALTH AND REHABILITATION PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE COMPANY SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE COMPANY. ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. HEALTH AND REHABILITATION PROPERTIES TRUST UNAUDITED ADJUSTED BALANCE SHEET AND UNAUDITED ADJUSTED STATEMENT OF INCOME The following unaudited adjusted balance sheet at December 31, 1993 and the unaudited adjusted statement of income for the year ended December 31, 1993 are intended to present the financial position and results of operations of Health and Rehabilitation Properties Trust as if the transactions described in Note 1 were consummated on December 31, 1993 and January 1, 1993, respectively. The unaudited adjusted financial statements should be read in conjunction with the separate financial statements of Health and Rehabilitation Properties Trust for the year ended December 31, 1993 which are incorporated herein by reference. The unaudited adjusted financial statements are not necessarily indicative of the expected financial position and results of operations for any future period. Differences would result from, but not be limited to, changes in the Company's portfolio of real estate investments, changes in interest rates and changes in the debt and/or equity structure of the Company.
HEALTH AND REHABILITATION PROPERTIES TRUST UNAUDITED ADJUSTED BALANCE SHEET DECEMBER 31, 1993 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) HISTORICAL ADJUSTMENTS DECEMBER 31, 1993 (NOTES 1(a) TO (i)) AS ADJUSTED ASSETS Real estate properties, at cost: Land $33,450 $30,694 (a),(f)$64,144 Buildings and improvements330,988250,682 (a),(f)581,670 Equipment 20,373 14,805 (a),(f) 35,178 384,811 296,181 680,992 Less accumulated depreciation 34,969(4,325) (f) 30,644 349,842 300,506 650,348 Real estate mortgages and notes, net157,281960 (b),(f),(i)158,241 Cash and cash equivalents13,887 (2,302) (a),(f),(h)11,585 Interest and rent receivable3,039 3,039 Deferred interest and finance costs, net, and other assets 3,613 3,613 $527,662 $299,164 $826,826
LIABILITIES AND SHAREHOLDERS' EQUITY Borrowings $73,000 $141,008 (a),(b),(i)$214,008 Security deposits 8,300 (4,500) (f) 3,800 Due to affiliate 709 -- 709 Accounts payable and accrued expenses 4,518 -- 4,518 Shareholders' equity: Preferred shares of beneficial interest, $.01 par value, 50,000,000 shares authorized, none issued -- -- -- Common shares of beneficial interest, $.01 par value; 100,000,000 Shares authorized; 44,121,000 and 54,722,500 Shares, as adjusted, issued and outstanding 441 106 (a),(h) 547 Additional paid-in capital470,572157,317 (a),(h)627,889 Cumulative net income118,889 5,233 (b),(f),(i)124,122 Distributions of cash available from operations(148,767) (148,767) Total shareholders' equity 441,135 162,656 603,791 $527,662 $299,164 $826,826
HEALTH AND REHABILITATION PROPERTIES TRUST UNAUDITED ADJUSTED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1993 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) HISTORICAL DECEMBER 31, ADJUSTMENTS 1993 (NOTES 1(a) TO (i)) AS ADJUSTED REVENUES: Rental income $46,069 $29,954 (a),(c),(d),(e),(f)$76,023 Interest income 10,416 9,504 (b),(c),(d),(e),(f),(h),(i) 19,920 Total revenues 56,485 39,458 95,943 EXPENSES: Interest 6,217 6,894 (a),(b),(e),(f),(g),(h),(i)13,111 Advisory fees 2,591 2,101 (a),(b),(c),(d),(e),(f),(i)4,692 Depreciation and amortization 9,087 8,695 (a),(c),(d),(e),(f),(i)17,782 General and administrative 852 852 Total expenses18,74717,690 36,437 Income before extraordinary item37,73821,768 59,506 Extraordinary item (4,321) -- (4,321) Net income $33,417 $21,768 $55,185 Average shares outstanding 34,407 54,723 Per share amounts: Income before extraordinary item $1.10 $1.09 Net income $.97 $1.01 Cash flow available for distribution $1.38 $1.43 Dividends $1.30 --- CASH FLOW AVAILABLE FOR DISTRIBUTION: Income before extraordinary item$37,738 $59,506 Depreciation and amortization9,087 17,782 Other non-cash charges 753 753 Cash flow available for distribution $47,578 $78,041 /TABLE HEALTH AND REHABILITATION PROPERTIES TRUST NOTES TO UNAUDITED ADJUSTED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) NOTE 1 -- BASES OF RECORDING THE ADJUSTMENTS For the purposes of the unaudited adjusted balance sheet at December 31, 1993 and the unaudited adjusted statement of income for the year ended December 31, 1993, it has been assumed that the following transactions took place on December 31, 1993 and January 1, 1993, respectively: (a) Marriott Transaction and Present Offering. On March 17, 1994, the Company entered into an agreement with Host Marriott Corporation to acquire 14 retirement communities containing 3,932 residences or beds for $320,000, subject to adjustment. The complexes are triple net leased through December 31, 2013 to a wholly owned subsidiary of Marriott International, Inc. (Marriott). For purposes of these unaudited adjusted financial statements, minimum annual rent of $27,645 is used, which represents a full year's rent for each facility whether or not the facility was in operation for a full year during 1993. Additional rent of $1,321 was calculated based on 4.5% of 1994's budgeted revenues in excess of base amounts. The Company anticipates incurring $5 million in fees and expenses related to the Marriott Transaction. The leases are cross-defaulted and guaranteed by Marriott. The acquisition is expected to close in June 1994. The Company has filed a Registration Statement with the Securities and Exchange Commission relating to an offering of 10,000,000 Shares (plus a 1,500,000 Share underwriters' over- allotment option). Upon consummation of the offering, the Company will receive approximately $149.2 million net proceeds ($171.6 million, if the underwriters' over-allotment option is exercised in full). The net proceeds have been applied in these statements as funding for the Marriott Transaction. In connection with the execution of the purchase and sale agreement for the Marriott Transaction, the Company provided a $25 million cash deposit. The remaining purchase price will be funded with debt at an assumed interest rate of 6%. Adjustments to the unaudited adjusted financial statements in respect of these transactions are as follows:
Balance Sheet: Income Statement: Land . . . . . . . . . $ 32,500 Rental income . .$28,966 Buildings and improvements 276,250 Interest expense. 9,531 Equipment. . . . . . . 16,250 Advisory fee. . . 1,625 Cash and cash equivalents (25,000) Depreciation and amortization 8,260 Borrowings . . . . . . 150,775 Common Shares. . . . . 100 Additional paid-in capital 149,125
(b) Mortgage Portfolios. On May 20, 1993, the Company acquired a portfolio of mortgage loans from the Resolution Trust Corporation (RTC) for $72,411. The loans, which are secured by first mortgages on 27 nursing homes, had a face value of approximately $79,883 and have maturities ranging from 1996 to 2001. The acquisition was funded using approximately $18,411 of cash with the balance from a $54,000 borrowing under a repurchase facility. The repurchase facility accrued interest at a floating rate based on LIBOR plus a premium and was repaid in full on December 27, 1993. During March 1994, three of these loans with a balance of $8,617 at March 1, 1994 and $8,662 at December 31, 1993 were paid in full. On September 27, 1993, the Company acquired a portfolio of mortgage loans from a group of institutional investors for $16,000. The loans, which are secured by first mortgages on six nursing homes, had a face value of approximately $18,200 and have maturities ranging from 1994 to 1997. The acquisition was funded using approximately $4,100 of cash with the balance borrowed under the repurchase facility referred to above. Adjustments to the unaudited adjusted financial statements in respect of these transactions are as follows:
Balance Sheet: Income Statement: Real estate mortgages.$(7,352) Interest income . . .$2,307 Borrowings . . . . .(8,662) Interest expense. . . 1,040 Cumulative net income1,310 Advisory fee. . . . . 112
(c) SAFECO Portfolio. On June 4, 1993, the Company acquired for cash, three long-term care facilities and related improvement loans for $5,778. The facilities are subject to existing leases with terms expiring between 1995 and 2001. Adjustments to the unaudited adjusted financial statements in respect of these transactions are as follows: Income Statement: Rental income. . . . . . . . .$313 Interest income. . . . . . . . (42) Advisory fee . . . . . . . . . 12 Depreciation and amortization. 54 (d) Sun Healthcare. On November 1, 1993, the Company purchased a 143 bed long-term care facility in Seattle, Washington for $5,125 from Greenery Rehabilitation Group, Inc. (Greenery) and simultaneously leased it to Sun Healthcare Group, Inc. (Sun). In addition, the Company and Sun agreed to extend the lease arrangements on three nursing facilities that had been scheduled to expire in May, 1997, through December, 2005. Minimum annual rent under the new lease for the four propertiesis approximately $2,537. Adjustments to the unaudited adjusted financial statements in respect of this transaction are as follows: Income Statement: Rental income. . . . . . . . . . . . .$200 Interest income. . . . . . . . . . . .(137) Advisory fee . . . . . . . . . . . . . 21 Depreciation and amortization. . . . . 109 (e) Community Care of America. On December 30, 1993, the Company acquired 12 nursing homes and five retirement apartment complexes for $33,400 and leased them to subsidiaries of Community Care of America, Inc. (together with its subsidiaries, CCA). In addition, the Company has agreed to provide improvement financing of $7,300 to CCA. The acquired facilities have been leased on a triple net basis. The minimum annual rent from this transaction will be approximately $3,814. Also, in connection with the CCA purchase-lease transaction described above, the Company provided first mortgage financing on 14 nursing homes and one retirement apartment complex for $19,600 and a $7,000 note secured by a first lien on substantially all of the assets of the borrower at a weighted average interest rate of 10.9%. The notes mature in December 2016. Minimum annual interest from this transaction will be $2,909. Adjustments to the unaudited adjusted financial statements in respect of these transactions are as follows: Income Statement: Rental income. . . . . . . . . . . . .$3,814 Interest income. . . . . . . . . . . . 2,909 Interest expense . . . . . . . . . . . 3,243 Advisory fee . . . . . . . . . . . . . 300 Depreciation and amortization. . . . . 988 (f) Horizon/Greenery Merger. On February 11, 1994, in connection with the merger of Greenery into Horizon Healthcare Corporation (Horizon) the Company sold to Horizon for $28,400, three facilities that had been leased to Greenery. The Company realized a capital gain of approximately $3,906 on the sale of these properties. In addition, Horizon has leased seven facilities previously leased to Greenery, on substantially similar terms except the leases were extended through 2005. The Company has also granted Horizon a ten year option to buy, at the rate of no more than one facility per year, the seven leased facilities. Also, the Company leased the three remaining Greenery facilities to a newly formed corporation, Connecticut Subacute Corporation II (CSCII), an affiliate of HRPT Advisors, Inc. (Advisor). Theses facilities are being managed by and the lease payments are guaranteed by Horizon for a term of up to five years. The terms of these lease arrangements are substantially similar to the original lease arrangements. In addition, the Company provided Horizon with $9,400 first mortgage financing for two facilities. One of the facilities previously was owned by the Company and leased to Greenery. The mortgage notes bear interest at 11.5% per annum and will mature on December 31, 2000. Adjustments to the unaudited adjusted financial statements in respect of these transactions are as follows:
Balance Sheet: Income Statement: Cash and cash equivalents$14,500 Land . . . . . . . . . (1,806) Rental income . .$(3,339) Building and improvements (25,568) Interest income . 1,082 Equipment. . . . . . . (1,445) Interest expense. (524) Accumulated depreciation (4,325) Advisory fee. . . (97) Real estate mortgages and notes, net 9,400Depreciation and amortization (760) Security deposits. . . (4,500) Cumulative net income. 3,906
(g) January 1993 Share Offering. On January 20, 1993, the Company received approximately $107,315 net proceeds from the public offering of 9,000,000 shares of the Company's stock. The proceeds were used, in part, to repay outstanding borrowings of $70,000 under the Company's term loans and $18,500 under the Company's revolving line of credit. On February 17, 1993, the Company received additional net proceeds of approximately $15,822 and issued 1,350,000 shares of the Company's stock in connection with the exercise of the underwriters' over-allotment option. Adjustments to the unaudited adjusted financial statements in respect of these transactions are as follows: Income Statement: Interest expense $(401) (h) December 1993 Share Offering. During the last quarter of 1993, the Company raised approximately $121,655 net proceeds from the public offering of 9,000,000 Shares. The net proceeds were used to repay borrowings under the Company's repurchase facility and to fund the Community Care of America transaction. On January 19, 1994, the underwriters exercised their over- allotment option for 601,500 additional Shares, resulting in additional net proceeds to the Company of approximately $8.3 million. Adjustments to the unaudited adjusted financial statements in respect of these transactions are as follows:
Balance Sheet: Income Statement: Cash and cash equivalents$8,198 Interest income .$ 519 Additional paid-in capital 8,192 Interest expense.$(7,681) Common Shares. . . . . 6 /TABLE (i) Goldome Mortgage Portfolio. On November 19, 1993, the Company was selected as the winning bidder for a portfolio of performing mortgage loans originated by Goldome Credit Corporation. These loans have a combined principal balance of approximately $29.2 million, mature between 1994 and 1999, and are secured by mortgages on 18 nursing homes located in eight states. The Company's bid was for approximately $27.8 million. On December 10, 1993, the Company acquired for $26.6 million mortgage loans with a combined principal balance of $27.9 million secured by 17 nursing homes. In February 1994, the Company acquired the remaining mortgage loan. Also in February 1994 one loan with a balance of $2,275 at February 15, 1994 and December 31, 1993 was paid in full. Adjustments to the unaudited adjusted financial statements in respect of these transactions are as follows:
Balance Sheet: Income Statement: Real estate mortgages. $(1,088) Interest income . .$2,866 Borrowings . . . . . . (1,105) Interest expense. . 1,686 Cumulative net income. 17 Advisory fee. . . . 128 Depreciation and amortization 44 /TABLE No dealer, salesperson or other individual has been authorized to give any information or make any representations not contained in this Prospectus in connection with the offering covered by this Prospectus. If given or made, such information or representations must not be relied upon as having been authorized by the Company or the U.S. Underwriters. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, the Shares in any jurisdiction where, or to any person to whom, it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus or any sale made hereunder shall, under any circumstances, create an implication that there has not been any change in the facts set forth in this Prospectus or in the affairs of the Company since the date hereof. TABLE OF CONTENTS Additional Information . 2 Incorporation of Certain Information by Reference 2 Summary. . . . . . . . . 3 Recent Developments. . . 5 The Company. . . . . . . 7 Distributions. . . . . . 8 Capitalization . . . . . 9 Use of Proceeds. . . . . 9 Investment and Financing Policy 10 Selected Financial Data. 11 Properties . . . . . . . 12 The Lessees and the Mortgagors13 Management . . . . . . . 14 Federal Income Tax and ERISA Considerations . . . . 15 Underwriting . . . . . . 16 Legal Matters. . . . . . 17 Experts. . . . . . . . . 17 Unaudited Adjusted Financial Statements . . . . . . F-1 10,000,000 Shares HEALTH AND REHABILITATION PROPERTIES TRUST Common Shares of Beneficial Interest ____________________ PROSPECTUS ____________________ Merrill Lynch & Co. Donaldson, Lufkin & Jenrette Securities Corporation PaineWebber Incorporated Smith Barney Shearson Inc. April __, 1994 SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED MARCH 29, 1994 PROSPECTUS 10,000,000 Shares HEALTH AND REHABILITATION PROPERTIES TRUST Common Shares of Beneficial Interest ______________________ Health and Rehabilitation Properties Trust (the "Company" or "HRP") is a real estate investment trust which invests primarily in retirement communities, assisted living centers, nursing homes and other long term care facilities. On March 25, 1994, the last reported sale price for the Shares on the New York Stock Exchange was $15 7/8. Of the 10,000,000 Shares offered by the Company, 1,500,000 Shares are being offered initially outside the United States and Canada by the International Managers and 8,500,000 Shares are being offered in a concurrent offering in the United States and Canada by the U.S. Underwriters (collectively, the "Offerings"). See "Underwriting". ______________________ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_________________________________________________________________________________________________________________________________ Price to Underwriting Proceeds to Public Discount(1) Company(2) __________________________________________________________________________________________________________________________________ Per Share. . . . $ $ $ Total(3) . . . . $ $ $ _________________________________________________________________________________________________________________________________
(1) The Company has agreed to indemnify the several International Managers against certain liabilities, including certain liabilities under the Securities Act of 1933. See "Underwriting". (2) Before deducting expenses payable by the Company estimated at $586,681. (3) The Company has granted the International Managers and the U.S. Underwriters an option, exercisable by the U. S. Representatives for 30 days from the date of this Prospectus, to purchase up to 1,500,000 additional Shares, solely to cover over- allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $__________, $__________ and $__________, respectively. See "Underwriting". The Shares offered hereby are offered by the several International Managers subject to prior sale, when, as and if issued to and accepted by them and subject to approval of certain legal matters by Brown & Wood, counsel for the International Managers, and to certain other conditions. The International Managers reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the Shares offered hereby will be made in New York, New York on or about April __, 1994. ________________________ Merrill Lynch International Limited Donaldson, Lufkin & Jenrette Securities Corporation PaineWebber International Smith Barney Shearson Inc. _________________________ The date of this Prospectus is ________, 1994 FEDERAL INCOME TAX AND ERISA CONSIDERATIONS The following description of certain Federal income tax matters and Employee Retirement Income Security Act of 1974, as amended ("ERISA"), considerations relating to the Company is qualified in its entirety by reference to the more detailed description thereof contained in the Company's Annual Report on Form 10-K, which is incorporated herein by reference. The opinion of Sullivan & Worcester, Boston, Massachusetts, regarding such matters has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The Company is and intends to remain qualified as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the Company's net income which is distributed as dividends to shareholders will be exempt from Federal taxation. Distributions to the Company's shareholders generally will be includable in their income; however, dividends distributed which are in excess of current or accumulated earnings will be treated for tax purposes as a return of capital to the extent of a shareholder's basis, and will reduce the basis of shareholders' Shares. Approximately 26% of dividends distributed in calendar 1993 were treated as a return of capital. The Company intends to conduct its affairs so that the assets of the Company will not be deemed to be "plan assets" of any individual retirement account, employee benefit plan subject to Title I of ERISA, or other qualified retirement plan subject to Section 4975 of the Code which acquires its Shares. The Company believes that, under present law, its distributions do not create so called "unrelated business taxable income" to tax exempt entities such as pension trusts, subject, however, to certain new rules which apply to pension trusts holding more than 10% of the Shares. Special Tax Considerations for Foreign Shareholders The rules governing United States income taxation of nonresident alien individuals, foreign corporations, foreign partnerships, and foreign trusts and estates (collectively, "Non- U.S. Shareholders") are complex, and the following discussion is intended only as a summary of such rules. Prospective Non-U.S. Shareholders should consult with their own tax advisors to determine the impact of Federal, state, and local income tax laws on an investment in the Company, including any reporting requirements. In general, a Non-U.S. Shareholder will be subject to regular United States income tax with respect to its investment in the Company if such investment is "effectively connected" with the Non-U.S. Shareholder's conduct of a trade or business in the United States, or if the Non-U.S. Shareholder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year. A corporate Non-U.S. Shareholder that receives income that is (or is treated as) effectively connected with a U.S. trade or business may also be subject to the branch profits tax under Section 884 of the Code, which is payable in addition to regular United States corporate income tax. The following discussion will apply to Non-U.S. Shareholders whose investment in the Company is not so effectively connected. A distribution by the Company that is not attributable to gain from the sale or exchange by the Company of a United States real property interest and that is not designated by the Company as a capital gain dividend will be treated as an ordinary income dividend to the extent that it is made out of current or accumulated earnings and profits. Generally, unless the dividend is effectively connected with the Non-U.S. Shareholder's conduct of a trade or business, such a dividend will be subject to a United States withholding tax equal to 30% of the gross amount of the dividend unless such withholding is reduced by an applicable tax treaty (for example, the treaty between the United States and the United Kingdom provides generally for a maximum rate of withholding of 15% on dividends). A foreign governmental entity,such as a governmental pension plan, may qualify for a compete exemption from withholding on such dividends. A distribution of cash in excess of the Company's earnings and profits will be treated first as a nontaxable return of capital that will reduce a Non-U.S. Shareholder's basis in its shares (but not below zero) and then as gain from the disposition of such shares, the tax treatment of which is described under the rules discussed below with respect to disposition of shares. A distribution in excess of the Company's earnings and profits may be subject to 30% dividend withholding if at the time of the distribution it cannot be determined whether the distribution will be in an amount in excess of the Company's current and accumulated earnings and profits. If its subsequently determined that such distribution is, in fact, in excess of current and accumulated earnings and profits, the Non-U.S. Shareholder may seek a refund from the IRS. The Company expects to withhold United States income tax at the rate of 30% on the gross amount of any such distributions made to a Non-U.S. Shareholder unless (i) a lower tax treaty applies and the required form evidencing eligibility for that reduced rate is filed with the Company or (ii) the Non-U.S. Shareholder files IRS Form 4224 with the Company claiming that the distribution is "effectively connected" income. For any year in which the Company qualifies as a REIT, distributions by the Company that are attributable to gain from the sale or exchange of a United States real property interest will be taxed to a Non-U.S. Shareholder in accordance with the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S. Shareholder as if such distributions were gains "effectively connected" with a United States trade or business. Accordingly, a Non-U.S. Shareholder will be taxed at the normal capital gain rates applicable to a U.S. Shareholder (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of non-resident alien individuals). Distributions subject to FIRPTA may also be subject to a 30% branch profits tax in the hands of a foreign corporate shareholder that is not entitled to treaty exemption. The Company will be required to withhold from distributions to Non-U.S. Shareholders, and remit to the IRS, 35% of the amount of any distribution that could be designated as capital gain dividends. Tax treaties may reduce the Company's withholding obligations. If the amount of tax withheld by the Company with respect to a distribution to a Non-U.S. Shareholder exceeds the shareholder's United States liability with respect to such distribution, the Non-U.S. Shareholder may file for a refund of such excess from the IRS. It should be noted that the 35% withholding tax rate on capital gain dividends corresponds to the maximum income tax rate applicable to corporations but is higher than the 28% maximum rate on capital gains of individuals. If the Shares fail to constitute a "United States real property interest" within the meaning of FIRPTA, a sale of the Shares by a Non-U.S. Shareholder generally will not be subject to United States taxation unless (i) investment in the Shares is effectively connected with the Non-U.S. Shareholder's United States trade or business, in which case, as discussed above, the Non-U.S. Shareholder would be subject to the same treatment as U.S. Shareholders on such gain or (ii) the Non-U.S. Shareholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year, in which case the nonresident alien individual will be subject to a 30% tax on the individual's capital gains. The Shares will not constitute a United States real property interest if the Company is a "domestically controlled REIT". A domestically controlled REIT is a REIT in which at all times during a specified testing period less than 50% in value of its shares is held directly or indirectly by Non-U.S. Shareholders. It is currently anticipated that the Company will be a domestically controlled REIT, and therefore that the sale of Shares will not be subject to taxation under FIRPTA. However, because the Shares will be publicly traded, no assurance can be given that the Company will continue to be a domestically controlled REIT. If the Company did not constitute a domestically controlled REIT, whether a Non-U.S. Shareholder's sale of Shares would be subject to tax under FIRPTA as a sale of a United States real property interest would depend on whether the Shares were "regularly traded" (as defined by applicable Treasury Regulations) on an established securities market (e.g., the New York Stock Exchange, on which the Shares are listed) and on the size of the selling shareholder's interest in the Company. If the gain on the sale of the Shares were subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to the same treatment as a U.S. Shareholder with respect to such gain (subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). In any event, a purchaser of Shares from a Non- U.S. Shareholder will not be required under FIRPTA to withhold on the purchase price if the purchased Shares are "regularly traded" on an established securities market or if the Company is a domestically controlled REIT. Otherwise, under FIRPTA, the purchaser of Shares may be required to withhold 10% of the purchase price and to remit such amount to the IRS. Federal Estate Tax Shares owned or treated as owned by an individual who is not a citizen or resident (as defined for United States federal estate tax purposes) of the United States at the time of death will be includable in the individual's gross estate for United States federal estate tax purposes unless an applicable estate tax treaty provides otherwise. Backup Withholding and Information Reporting Requirements The Company must report annually to the IRS and to each Non- U.S. Shareholder the amount of dividends paid to, and the tax withheld with respect to such holder. These information reporting requirements apply regardless of whether withholding was reduced or eliminated by an applicable tax treaty. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities in the country in which the Non-U.S. Shareholder resides. United States backup withholding tax (which generally is a withholding tax imposed at the rate of 31% on certain payments to persons that fail to furnish the information required under the United States information reporting requirements) will generally not apply to dividends paid on Shares to a Non-U.S. Shareholder at an address outside the United States. The payment of the proceeds from the disposition of Shares to or through the United States office of a broker will be subject to information reporting and backup withholding at a rate of 31% unless the owner, under penalties of perjury, certifies, among other things, its status as a Non-U.S. Shareholder, or otherwise establishes an exemption. The payment of the proceeds from the disposition of Shares to or through a non-U.S. office of a broker generally will not be subject to backup withholding and information reporting. In the case of proceeds from a disposition of Shares paid to or through a non-U.S. office of a U.S. broker or paid to or through a non-U.S. office of a non-U.S. broker that is (i) a "controlled foreign corporation" for United States federal income tax purposes or (ii) a person 50% or more of whose gross income from all sources for a certain three-year period was effectively connected with a United States trade or business, (a) backup withholding will not apply unless the broker has actual knowledge that the owner is not a Non-U.S. Shareholder, and (b) information reporting will not apply if the broker has documentary evidence in its files that the owner is a Non-U.S. Shareholder (unless the broker has actual knowledge to the contrary). Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Shareholder will be refunded (or credited against the Non-U.S. Shareholder's United States federal income tax liability, if any), provided that the required information is furnished to the IRS. EACH PROSPECTIVE PURCHASER OF THE SHARES OFFERED HEREBY IS ADVISED TO CONSULT HIS OWN PROFESSIONAL ADVISOR REGARDING THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX AND ERISA CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND SALE OF THE SHARES OFFERED HEREBY. UNDERWRITING The Managers named below (the "International Managers"), for whom Merrill Lynch International Limited, Donaldson, Lufkin & Jenrette Securities Corporation, PaineWebber International (U.K.) Ltd. and Smith Barney Shearson Inc. are acting as representatives (the "Lead Managers"), have severally agreed, subject to the terms and conditions of the International Purchase Agreement (the "International Purchase Agreement") with the Company relating to 1,500,000 Shares offered outside the United States and Canada (the "International Offering"), to purchase from the Company the respective number of Shares set forth opposite their names below.
Number International Manager of Shares Merrill Lynch International Limited . Donaldson, Lufkin & Jenrette Securities Corporation PaineWebber International (U.K.) Ltd. Smith Barney Shearson Inc . . . . . . Total . . . . . . . . 1,500,000
The Company has also entered into the U.S. Purchase Agreement (the "U.S. Purchase Agreement") with certain underwriters in the United States and Canada (the "U.S. Underwriters"), for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), Donaldson, Lufkin & Jenrette Securities Corporation, PaineWebber Incorporated and Smith Barney Shearson Inc. are acting as representatives (the "U.S. Representatives"), relating to the Shares offered in the United States and Canada (the "U.S. Offering"). Subject to the terms and conditions of the U.S. Purchase Agreement, the Company has agreed to sell to the U.S. Underwriters, and the U.S. Underwriters have severally agreed to purchase, an aggregate of 8,500,000 Shares. Under certain circumstances, the commitments of non- defaulting International Managers and U.S. Underwriters may be increased. The public offering price per Share and the underwriting discount per Share are identical under the International Purchase Agreement and the U.S. Purchase Agreement. In the International Purchase Agreement, the several International Managers have agreed, subject to the terms and conditions set forth therein, to purchase all of the Shares being sold pursuant to such agreement if any of the Shares being sold pursuant to such agreement are purchased and in the U.S. Purchase Agreement the several U.S. Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all of the Shares being sold pursuant to such agreement if any of the Shares being sold pursuant to such agreement are purchased. The closings with respect to the sale of Shares to be purchased by the International Managers and the U.S. Underwriters are conditioned upon one another. The Lead Managers have advised the Company that the International Managers propose to initially offer the Shares to the public at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $__ per Share. The International Managers may allow, and such dealers may reallow, a discount not in excess of $__ per Share to other dealers. After the initial public offering, the public offering price, concession and discount may be changed. The Company has granted to the International Managers and the U.S. Underwriters an option, exercisable by the U.S. Representatives for 30 days from the date of this Prospectus, to purchase up to an additional 1,500,000 Shares, solely to cover over-allotments, if any, at a price per Share equal to the initial public offering price less the underwriting discount set forth on the cover page of this Prospectus, and, with respect to any such Shares issued after the record date for the quarterly dividend for the period ending March 31, 1994, less an amount equal to such dividend. If the U.S. Representatives exercise such option, each International Manager and U.S. Underwriter will, subject to certain conditions, have a firm commitment to purchase approximately the same percentage of such option Shares which the number of Shares to be purchased initially by it bears to 10,000,000 Shares. The International Managers and the U.S. Underwriters have entered into an Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for coordination of their activities. Pursuant to the Intersyndicate Agreement, sales may be made between the International Managers and the U.S. Underwriters of such number of Shares as may be mutually agreed. The price of any Shares so sold shall be the initial public offering price, less an amount not greater than the selling concession. Under the terms of the Intersyndicate Agreement, the International Managers and any dealer to whom they sell Shares will not offer to sell or sell Shares to any U.S. or Canadian person or to any person they believe intends to resell to any U.S. or Canadian person, and the U.S. Underwriters and any dealer to whom they sell Shares will not offer to sell or sell Shares to any non-U.S. or non-Canadian person or to any person they believe intends to resell to any non-U.S. or non-Canadian person, except, in each case, for transactions pursuant to the Intersyndicate Agreement. Each International Manager has agreed that it has not offered or sold and will not offer or sell in the United Kingdom, by means of any document, any Shares offered by the Company other than to persons whose ordinary business it is to buy or sell shares or debentures, whether as principal or agent (except in circumstances which do not constitute an offer to the public within the meaning of the Companies Act 1985). Each International Manager has further agreed that it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Shares offered by the Company in, from or otherwise involving the United Kingdom. Each International Manager has also agreed that it has only issued and passed on and will only issue or pass on to any person in the United Kingdom any document received by it in connection with the issue of the Shares offered by the Company if that person is of a kind described in Article 9(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1988. The Company has agreed to indemnify the several International Managers and the several U.S. Underwriters against certain liabilities, including liabilities under the Securities Act. The Company and the Advisor have each agreed that, for a period of 90 days after the date of this Prospectus, it will not, without the prior consent of MLPF&S, issue, sell, contract to sell, grant any option for the sale of, or otherwise dispose of any Shares, other than the Shares being sold in connection with the transactions discussed herein, pursuant to the Company's 1992 Incentive Share Award Plan, and Shares issued upon exercise of any outstanding options. The Company has agreed that, during such 90 day period, it will not, without the prior consent of MLPF&S, terminate, modify or waive any provision in any agreement to which it is a party that restricts or limits the transferability of any Shares. MLPF&S will be entitled to an advisory fee from the Company in connection with consummation of the Marriott Transaction. As described under "The Company -- Recent Developments -- The Marriott Transaction", the Company is also negotiating with MLMCI, a subsidiary of MLPF&S, for provision of the MLMCI Facility which may be used in connection with the Company's consummation of the Marriott Transaction. MLMCI will be entitled to a fee upon consummation of the Marriott Transaction and additional fees if the MLMCI Facility is consummated. In addition, MLPF&S and MLMCI are both presently entitled to reimbursement from the Company for their respective out-of-pocket expenses incurred in advising and assisting the Company in connection with the Marriott Transaction. No dealer, salesperson or other individual has been authorized to give any information or make any representations not contained in this Prospectus in connection with the offering covered by this Prospectus. If given or made, such information or representations must not be relied upon as having been authorized by the Company or the International Managers. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, the Shares in any jurisdiction where, or to any person to whom, it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus or any sale made hereunder shall, under any circumstances, create an implication that there has not been any change in the facts set forth in this Prospectus or in the affairs of the Company since the date hereof. TABLE OF CONTENTS Additional Information . 2 Incorporation of Certain Information by Reference 2 Prospectus Summary . . . 3 Recent Developments. . . 5 The Company. . . . . . . 7 Distributions. . . . . . 8 Capitalization . . . . . 9 Use of Proceeds. . . . . 9 Investment and Financing Policy . . . . . . . . . 10 Selected Financial Data. 11 Properties . . . . . . . 12 The Lessees and the Mortgagors13 Management . . . . . . . 14 Federal Income Tax and ERISA Considerations . . . . 15 Underwriting . . . . . . 18 Legal Matters. . . . . . 19 Experts. . . . . . . . . 19 Unaudited Adjusted Financial Statements . . . . . . F-1 10,000,000 Shares HEALTH AND REHABILITATION PROPERTIES TRUST Common Shares of Beneficial Interest ____________________ PROSPECTUS ____________________ Merrill Lynch International Limited Donaldson, Lufkin & Jenrette Securities Corporation PaineWebber International Smith Barney Shearson Inc. April __, 1994 APPENDIX TO ELECTRONIC FORMAT DOCUMENT Page 3: Pie chart A pie chart depicting the percentage of the Company's investments which will be in Properties operated by Marriott International (38%); Other Public Companies (Horizon Healthcare, GranCare, Sun Healthcare, Integrated Health, Beverly Enterprises and Hillhaven) (32%); and 30 Private Companies (30%). Dividend chart A bar graph depicting HRP Dividend Growth: 1987 - $1.06; 1988 - $1.12; 1989 - $1.14; 1990 - $1.17; 1991 - $1.23; 1992 - $1.26; 1993 - $1.30; Quarter ended March 31, 1994 annualized - $1.32. Page 7: Map A map of the United States with the states listed immediately below the map shaded and with stars indicating the locations of the Marriott Properties (5 in Florida, 3 in Virginia, 2 in Arizona, 1 each in California, Illinois, Maryland and Texas). Page 10: Pie charts Two pie charts depicting the HRP Capital Structure before the sale of Shares and the Marriott Transaction: debt (14%) and equity (86%); after the sale of Shares and Marriott Transaction: debt (27%) and equity (73%). Page 12: Pie charts Two pie charts depicting the division of HRP's portfolio by type of property: Nursing homes, assisted living and retirement communities (97%) and two psychiatric facilities (3%); and by type of investment: purchase and lease (81%) and mortgages (19%). PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.* Set forth below is an estimate of the amount of fees and expenses to be incurred in connection with the issuance and distribution of the Shares registered hereby, other than underwriting discounts and commissions. Registration Fee Under Securities Act . . $ 61,962 NASD Filing Fee . . . . . . . . . . . . . 18,469 Blue Sky Fees and Expenses. . . . . . . . 25,000 Legal Fees. . . . . . . . . . . . . . . . 200,000 Accounting Fees . . . . . . . . . . . . . 125,000 Printing and Engraving. . . . . . . . . . 75,000 Listing Application Fees. . . . . . . . . 40,250 Transfer Agent Fees . . . . . . . . . . . 1,000 Miscellaneous Fees. . . . . . . . . . . . 40,000 Total. . . . . . . . . . . . . . . . . $ 586,681 - --------------- * All expenses are estimated except the SEC registration fee and the NASD filing fee. ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS. Section 7.4 of the Company's Declaration of Trust, filed as Exhibit 3.1 to this Registration Statement, which provides for indemnification of Trustees and officers of the Company, is hereby incorporated by reference. Reference is made to Section 7 of the Underwriting Agreement (Exhibit 1.1 hereto) with respect to certain provisions for indemnification by the Underwriters of the Company, Trustees, officers and controlling persons under certain circumstances. ITEM 16. EXHIBITS. 1.1 Form of U.S. Purchase Agreement.(*) 1.2 Form of International Purchase Agreement.(*) 3.1 Declaration of Trust, as amended.(1) 3.2 By-Laws.(2) 5.1 Opinion and Consent of Sullivan & Worcester regarding legality.(**) 5.2 Opinion and Consent of Piper & Marbury.(**) 8.1 Opinion and Consent of Sullivan & Worcester regarding tax matters.(**) 23.1 Consent of Sullivan & Worcester (included in their opinions to be filed as Exhibits 5.1 and 8.1 to this Registration Statement). 23.2 Consent of Piper & Marbury (included in their opinion to be filed as Exhibit 5.2 to this Registration Statement). 23.3 Consent of Ernst & Young (included as page II-4 of this Registration Statement).(*) 23.4 Consent of Arthur Andersen & Co. (included as page II-5 of this Registration Statement).(*) 23.5 Consent of KPMG Peat Marwick (included as page II-6 of this Registration Statement.(*) 24 Powers of Attorney.(*) - --------------- (*) Filed herewith. (**) To be filed by amendment. (1) Incorporated by reference to the Company's Registration Statement No 33-71422 on Form S-3 dated November 9, 1993 and amendment thereto. (2) Incorporated by reference to the Company's Registration Statement No. 33-9412 on Form S-11 dated October 10, 1986 and amendments thereto. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes that: (a) For purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (b)(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3) and related Prospectus of Health and Rehabilitation Properties Trust for the registration of 11,500,000 of its common shares of beneficial interest and to the incorporation by reference therein of (a) our report dated February 11, 1994 with respect to the financial statements and schedules of Health and Rehabilitation Properties Trust included in its Annual Report (Form 10-K) for the year ended December 31, 1993, (b) our report dated December 30, 1993 with respect to the consolidated financial statements and schedules of Greenery Rehabilitation Group, Inc. included in Greenery's Annual Report (Form 10-K) for the year ended September 30, 1993, and (c) our report dated February 19, 1993 with respect to the consolidated financial statements and schedules of GranCare, Inc. included in GranCare's Annual Report (Form 10-K) for the year ended December 31, 1992, all filed with the Securities and Exchange Commission. ERNST & YOUNG Boston, Massachusetts March 29, 1994 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this registration statement of our report dated July 23, 1993 (except with respect to the matters discussed in Note 15, as to which the date is August 2, 1993), included in Horizon Healthcare Corporation's Form 10-K/A - Amendment No. 3 for the year ended May 31, 1993, dated October 5, 1993, and to all references to our Firm included in this registration statement. ARTHUR ANDERSEN & CO. Albuquerque, New Mexico March 29, 1994 INDEPENDENT AUDITORS' CONSENT The Board of Directors and Stockholders Horizon Healthcare Corporation: We consent to the use of our report incorporated herein by reference and to the reference to our firm under the heading "Experts" in the prospectus. KPMG PEAT MARWICK Albuquerque, New Mexico March 29, 1994 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this to registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of Massachusetts on March 29, 1994. HEALTH AND REHABILITATION PROPERTIES TRUST By:_David J. Hegarty____________________ David J. Hegarty, Executive Vice President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-3 has been signed by the following persons in the capacities and on the dates indicated:
Signatures Title Date ____Mark J. Finkelstein_________ President and Chief March 29, 1994 Mark J. Finkelstein Executive Officer ____David J. Hegarty____________ Executive Vice PresidentMarch 29, 1994 David J. Hegarty and Chief Financial and Accounting Officer ___John L. Harrington___________ Trustee March 29, 1994 John L. Harrington ___Arthur G. Koumantzelis______ Trustee March 29, 1994 Arthur G. Koumantzelis ___Rev. Justinian Manning, C.P.__ Trustee March 29, 1994 Rev. Justinian Manning, C.P. ____Barry M. Portnoy__________ Trustee March 29, 1994 Barry M. Portnoy ____Gerard M. Martin___________ Trustee March 29, 1994 Gerard M. Martin
POWER OF ATTORNEY The undersigned Officers and Trustees of Health and Rehabilitation Properties Trust hereby severally constitute Mark J. Finkelstein, David J. Hegarty, Gerard M. Martin and Barry M. Portnoy, and each of them, to sign for us and in our names in the capacities indicated below, the Registration Statement on Form S- 3 herewith filed with the Securities and Exchange Commission, and any and all amendments thereto, hereby ratifying and confirming our signatures as they may be signed by our said attorneys to the Registration Statement and any and all amendments to the Registration Statement. Witness our hands and seals on the dates set forth below.
Signatures Title Date ____Mark J. Finkelstein_________ President and Chief March 29, 1994 Mark J. Finkelstein Executive Officer ____David J. Hegarty____________ Executive Vice PresidentMarch 29, 1994 David J. Hegarty and Chief Financial and Accounting Officer ___John L. Harrington___________ Trustee March 29, 1994 John L. Harrington ___Arthur G. Koumantzelis______ Trustee March 29, 1994 Arthur G. Koumantzelis ___Rev. Justinian Manning, C.P.__ Trustee March 29, 1994 Rev. Justinian Manning, C.P. ____Barry M. Portnoy__________ Trustee March 29, 1994 Barry M. Portnoy ____Gerard M. Martin___________ Trustee March 29, 1994 Gerard M. Martin
EX-1.1 2 U.S. PURCHASE AGREEMENT Brown & Wood Draft of 3/28/94 8,500,000 Shares HEALTH AND REHABILITATION PROPERTIES TRUST (a Maryland real estate investment trust) Common Shares of Beneficial Interest ($.01 Par Value) U.S. PURCHASE AGREEMENT ____________ __, 1994 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION PAINEWEBBER INCORPORATED SMITH BARNEY SHEARSON INC. As Representatives of the several U.S. Underwriters named in Schedule A hereto c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281-1305 Dear Sirs: Health and Rehabilitation Properties Trust, a real estate investment trust organized under the laws of the State of Maryland (the "Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Donaldson, Lufkin & Jenrette Securities Corporation ("Donaldson Lufkin"), PaineWebber Incorporated ("PaineWebber") and Smith Barney Shearson Inc. ("Smith Barney") and each of the other Underwriters named in Schedule A hereto (collectively, the "U.S. Underwriters", which term shall also include any underwriter substituted as hereinafter provided in Section 10), for whom Merrill Lynch, Donaldson Lufkin, PaineWebber and Smith Barney are acting as representatives (in such capacity, Merrill Lynch, Donaldson Lufkin, PaineWebber and Smith Barney shall hereinafter be referred to as the "U.S. Representatives"), with respect to the sale by the Company and the purchase by the U.S. Underwriters, acting severally and not jointly, of the number of common shares of beneficial interest, $.01 par value, of the Company (the "Shares of Beneficial Interest") set forth in said Schedule A, except as may otherwise be provided in the U.S. Pricing Agreement, as hereinafter defined, and with respect to the grant by the Company to the U.S. Underwriters of the option described in Section 2 hereof to purchase all or any part of an additional 1,500,000 Shares of Beneficial Interest to cover over-allotments. The aforesaid 8,500,000 Shares of Beneficial Interest set forth in said Schedule A (the "Initial U.S. Shares"), together with all or any part of the 1,500,000 Shares of Beneficial Interest subject to the option described in Section 2 hereof (the "U.S. Option Shares"), are collectively hereinafter called the "U.S. Shares". It is understood that the Company is concurrently entering into an agreement dated the date hereof (the "International Purchase Agreement") providing for the offering by the Company of 1,500,000 shares of beneficial interest (the "Initial International Shares") through arrangements with certain underwriters outside of the United States (the "International Managers") for which Merrill Lynch International Limited, ("MLI") Donaldson, Lufkin & Jenrette Securities Corporation, PaineWebber International (U.K.) Ltd. and Smith Barney Shearson Inc. are acting as lead managers (the "Lead Managers") and the grant by the Company to the International Managers of an option to purchase all or any part the International Managers' pro rata portion of the option shares (the "International Option Shares") to cover over-allotments. The Initial International Shares and the International Option Shares are hereinafter called the "International Shares". It is understood that the Company is not obligated to sell, and the U.S. Underwriters are not obligated to purchase, any Initial U.S. Shares unless all of the Initial International Shares are contemporaneously purchased by the International Managers. The U.S. Underwriters and the International Managers are hereinafter collectively called the "Underwriters", the Initial U.S. Shares and the Initial International Shares are hereinafter collectively called the "Initial Shares", the U.S. Option Shares and the International Option Shares are hereinafter collectively called the "Option Shares" and the U.S. Shares and the International Shares are hereinafter collectively called the "Shares". The Fund understands that the U.S. Underwriters and the International Managers will concurrently enter into an Intersyndicate Agreement of even date herewith (the "Intersyndicate Agreement") -2- providing the coordination of certain transactions among the U.S. Underwriters and the International Managers under the direction of Merrill Lynch. Prior to the purchase and public offering of the U.S. Shares by the several U.S. Underwriters, the Company and the U.S. Representatives, acting on behalf of the several U.S. Underwriters, shall enter into an agreement substantially in the form of Exhibit A hereto (the "U.S. Pricing Agreement"). The U.S. Pricing Agreement may take the form of an exchange of any standard form of written telecommunication between the Company and the U.S. Representatives and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the U.S. Shares will be governed by this Agreement, as supplemented by the U.S. Pricing Agreement. From and after the date of the execution and delivery of the U.S. Pricing Agreement, this Agreement shall be deemed to incorporate the U.S. Pricing Agreement. The initial public offering price and purchase price with respect to the International Shares shall be set forth in a separate instrument (the "International Pricing Agreement"), the form of which is attached to the International Purchase Agreement. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 33-_____) and a related preliminary prospectus for the registration of the Shares under the Securities Act of 1933, as amended (the "1933 Act"), and has filed such amendments thereto, if any, and such amended preliminary prospectuses as may have been required to the date hereof.1 Such registration statement (as amended, if applicable) and the prospectus constituting a part thereof (including, in each case, all documents incorporated or deemed to be incorporated by reference therein and the information, if any, deemed to be a part thereof pursuant to Rule 430A(b) of the rules and regulations under the 1933 Act (the "1933 Act Regulations")), as from time to time amended or supplemented pursuant to the 1933 Act, are hereinafter referred to as the "Registration Statement" and the "Prospectus", respectively, except that if any revised prospectus shall be provided to the Underwriters by the Company for use in connection with the offering of the Shares which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective (whether or not such revised prospectus is required to be filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations), the term "Prospectus" shall refer to such revised prospectus from and after the time it is first provided to the Underwriters for such use. All references in this Agreement to financial statements and schedules and other information which is 1 Two forms of prospectus are to be used in connection with the offering and sale of the Shares: one relating to the U.S. Shares (the "U.S. Prospectus"), and one relating to the International Shares (the "International Prospectus"). -3- "contained," "included" or "stated" in the Registration Statement or the Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement or the Prospectus shall be deemed to mean and include the filing of any document under the Securities Exchange Act of 1934 (the "1934 Act") which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be. The Company understands that the Underwriters propose to make a public offering of the Shares as soon as the U.S. Representatives and the Lead Managers deem advisable after the Registration Statement becomes effective and the U.S. and International Pricing Agreements have been executed and delivered. Section 1. Representations and Warranties. (a) The Company represents and warrants to each U.S. Underwriter as of the date hereof and as of the date of the U.S. Pricing Agreement (such latter date being hereinafter referred to as the "U.S. Representation Date") as follows: (i) At the time the Registration Statement becomes effective and at the U.S. Representation Date, the Registration Statement will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus, at the U.S. Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the U.S. Underwriters or the International Managers, as the case may be, by the Company for use in connection with the offering of the Shares which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective, in which case at the time it is first provided to the U.S. Underwriters or the International Managers for such use) and at Closing Time referred to in Section 2 hereof, will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall not apply to those parts of the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any U.S. Underwriter through the U.S. Representatives or any International Manager through the Lead -4- Managers expressly for use in the Registration Statement or Prospectus. (ii) The documents incorporated or deemed to be incorporated by reference in the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission under the 1934 Act (the "1934 Act Regulations"), and, when read together with the other information in the Prospectus, at the time the Registration Statement becomes effective and at the Closing Time, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (iii) The Company is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, with trust power and authority to carry on its business and to own or lease its properties as described in the Registration Statement, and the Company owns or possesses all licenses and permits necessary for the conduct of its business and the ownership, leasing and operation of its properties, except such licenses and permits as to which the failure to own or possess would not in the aggregate have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company; and the Company is duly qualified and in good standing as a foreign entity authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company. The Company has no subsidiaries. The Company neither owns nor controls, directly or indirectly, any capital stock or other equity interest in any corporation, partnership or other entity. (iv) The authorized, issued and outstanding capital stock of the company is correctly set forth in the Registration Statement under the caption "Capitalization"; all of the outstanding shares of capital stock of the Company have been duly authorized and are validly issued, fully paid, non-assessable (except as otherwise described in the Registration Statement) and free of preemptive rights or other rights to subscribe for or to purchase securities provided for by law or by its Declaration of Trust or bylaws; all of the outstanding shares of capital stock of the Company and options to purchase shares of capital stock of the Company have been issued in accordance with applicable federal and state securities laws; the U.S. Shares to be issued and sold pursuant to -5- this Agreement have been duly authorized and, when issued and delivered to the U.S. Underwriters against payment therefor as provided hereunder and in the U.S. Pricing Agreement, will have been validly issued and will be fully paid, non-assessable (except as otherwise described in the Registration Statement) and free of preemptive rights; all outstanding Shares of Beneficial Interest are listed on the New York Stock Exchange and the Company knows of no reason or set of facts which is likely to result in the delisting of such Shares or the inability to list the Shares; the certificates for such Shares will be valid and in proper legal form; and there are no rights of holders of securities of the Company to the registration of Shares of Beneficial Interest or other securities. (v) The capital stock of the Company and the Shares conform to the description thereof in the Registration Statement and the Prospectus. (vi) The accountants who have certified the financial statements of the Company, and, to the Company's knowledge, of Greenery Rehabilitation Group, Inc. and its subsidiaries ("Greenery") GranCare, Inc. and its subsidiaries ("Grancare"), Horizon Healthcare Corporation ("Horizon") and its subsidiaries and Marriott International, Inc. ("Marriott") filed with the Commission the Registration Statement and the Prospectus are independent certified accountants as required by the 1933 Act. The financial statements of the Company, and, to the Company's knowledge, of other entities, included in the Registration Statement present fairly the financial position and results of operations of the Company and the other entities purported to be shown thereby at the respective dates and for the respective periods specified, and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout such periods. The pro forma financial statements of the Company as adjusted as set forth therein and in the notes thereto included in the Registration Statement and the Prospectus reflect all adjustments necessary to summarize fairly the pro forma condensed combined financial position of the Company at the dates indicated and the pro forma results of their operations for the periods specified. (vii) Except as disclosed in the Registration Statement and Prospectus, there is not now pending or, to the knowledge of the Company, threatened, any litigation, action, suit or proceeding to which the Company or, to the best knowledge of the Company, GranCare, Sun Healthcare Group, Inc. ("Sun"), Marriott, Beverly Enterprises, Integrated Health Services and Hillhaven (collectively, the "Operators") or HRPT Advisors, Inc. (the "Advisor") is or will be a party before or by any court or governmental agency or body, which (A) might result in any material adverse change in the condition, financial or otherwise, or in the -6- earnings, business affairs or business prospects of the Company or, to the best knowledge the Company, of the Operators or the Advisor or (B) might materially and adversely affect the property or assets of the Company or, to the best knowledge of the Company, of the Operators or the Advisor, or (C) relates to environmental matters involving the Company or, to the best knowledge of the Company, of the Operators or the Advisor, or (D) relates to discrimination on the basis of age, sex, religion or race, relating to the Company or, to the best knowledge of the Company, of the Operators or the Advisor, or (E) concerns the Company or, to the best knowledge of the Company, of the Operators or the Advisor, and is required to be disclosed in the Prospectus. (viii) Except as otherwise set forth in the Registration Statement, the Company has good and marketable title or ground leases, free and clear of all liens, claims, encumbrances and restrictions, except liens for taxes not yet due and payable and other liens and encumbrances which do not, either individually or in the aggregate, adversely affect the current use or value thereof, to all property and assets described in the Registration Statement as being owned by it. All leases to which the Company is a party relating to real property, and all other leases which are material to the business of the Company, are valid and binding and no default (to the Company's knowledge in the case of leases to which the Company is a party as lessor) has occurred or is continuing thereunder, and the Company enjoys peaceful and undisturbed possession under all such leases to which it is a party as lessee. With respect to the Properties (as such term is defined in the Prospectus), the Company has such documents, instruments, certificates, opinions and assurances, including without limitation, fee, leasehold owners or mortgage title insurance policies (disclosing no material encumbrances or title exceptions except as otherwise set forth in the Registration Statement), legal opinions and property insurance policies in each case in form and substance as are usual and customary in transactions involving the purchase of similar real estate and are appropriate for the Company to have obtained. Each of the Company and, to the best knowledge of the Company, the Operators and the Advisor has all governmental licenses, certificates, permits, authorizations, approvals, franchises or other rights necessary to engage in the business currently conducted by it, except such licenses and permits as to which the failure to own or possess will not in the aggregate have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company, or, to the best knowledge of the Company, the Operators or the Advisor and neither the Company nor, to the best knowledge of the Company, the Operators or the Advisor has any reason to believe that any governmental body or agency is considering limiting, suspending or revoking any such license, certificate, permit, authorization, approval, franchise or right. -7- (ix) The Company has filed all Federal, State and foreign income tax returns which have been required to be filed and has paid all taxes indicated by said returns and all assessments received by it to the extent that such taxes have become due. (x) Since the dates as of which information is given in the Registration Statement, except as otherwise stated or contemplated therein (i) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company or, to the knowledge of the Company, of the Operators or the Advisor, whether or not arising in the ordinary course of business, (ii) there have been no material transactions entered into by the Company or, to the knowledge of the Company, the Operators or the Advisor, other than transactions in the ordinary course of business, that would, to the Company's knowledge, be materially adverse to, or have a material adverse effect on, the Company, (iii) neither the Company nor, to the knowledge of the Company, the Operators or the Advisor has incurred any obligation, contingent or otherwise, that would, to the Company's knowledge, be materially adverse to, or have a material adverse effect on, the Company, (iv) there has been no change in the capital stock or debt of the Company and (v) there has been no dividend or distribution of any kind declared, paid or made by the Company on its capital stock. (xi) Neither the Company nor, to the best knowledge of the Company, the Operators or the Advisor is in violation of its charter documents or bylaws or in default in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any indenture, instrument or agreement to which the Company or any of its subsidiaries or, to the best knowledge of the Company, the Operators or the Advisor is a party or by which any of their respective properties may be bound or affected, except for any such violation that would not have a material adverse effect on the condition, financial or otherwise, or in the respective earnings, business affairs or business prospects of any of them. Neither the Company nor any of its subsidiaries nor, to the best knowledge of the Company, the Operators or the Advisor is in violation of any law, ordinance, governmental rule or regulation or court decree to which it is subject, except for any such violation that would not have a material adverse effect on the condition, financial or otherwise, or in the respective earnings, business affairs or business prospects of any of them. The execution, delivery and performance of this Agreement, the International Purchase Agreement, the U.S. Pricing Agreement and the International Pricing Agreement, compliance by the Company with all provisions hereof, and the consummation of the transactions contemplated hereby, will not violate or conflict with or constitute a breach of any of the terms or provisions of, or constitute a default under (i) the -8- Declaration of Trust of the Company or, to the best knowledge of the Company, the certificate of incorporation of the Operators or the Advisor, or (ii) any bond, debenture, note or other evidence of indebtedness or any material indenture, instrument or agreement to which the Company or, to the best knowledge of the Company, the Operators or the Advisor is a party or which binds the Company or its properties or, to the best knowledge of the Company, the Operators or the Advisor or any of their respective properties, or (iii) (assuming compliance with all applicable state securities or Blue Sky laws) any law, regulation or ruling or any order, judgment or decree to which the Company or its properties or, to the best knowledge of the Company, the Operators or the Advisor or any of their respective properties may be subject. (xii) Each approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution and delivery by the Company of this Agreement, International Purchase Agreement, the U.S. Pricing Agreement and the International Pricing Agreement and the consummation of the transactions herein and therein contemplated (except such additional steps as may be required by the National Association of Securities Dealers, Inc. (the "NASD") or may be necessary to qualify the Shares for public offering by the U.S. Underwriters or the International Managers under State securities or Blue Sky laws) has been obtained or made and is in full force and effect. (xiii) The Company owns or possesses adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights and know-how (including trade secrets, and other proprietary and confidential information, systems or procedures) necessary to conduct the businesses now operated by it as described in the Prospectus, and, except as disclosed to the Representatives in writing, the Company has not received any notice of infringement of or conflict with (and no officer or trustee of the Company knows of any such infringement of or conflict with) asserted rights of others with respect to any patents, trademarks, service marks, trade names, copyrights or know-how. (xiv) The organization of the Company is in conformity with the requirements of the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a real estate investment trust, and the Company's present ownership, business and operations as described in the Prospectus enable it to meet the present requirements of the Code for such qualification for 1994 and subsequent years. The Company qualified as a real estate investment trust for its 1987, 1988, 1989, 1990, 1991, 1992 and 1993 taxable years. -9- (xv) The Company is not required to register as an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (xvi) Except with respect to the properties listed on the schedule provided to the Underwriters at Closing Time (as defined herein) which are not in compliance with this subsection (a)(xv), but which non-compliance would not in the aggregate have a material adverse effect in the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company, to the Company's knowledge, after due investigation, and except for Hazardous Materials or substances which are handled and/or disposed of in compliance with all applicable federal, state and local requirements, the real property owned, leased or otherwise utilized by the Company in connection with the operation of its business, including without limitation, any subsurface soils and ground water (the "Realty"), is free of contamination from any Hazardous Materials. To the Company's knowledge, after due investigation, the Realty does not contain any underground storage or treatment tanks, active or abandoned water, gas or oil wells, or any other underground improvements or structures, other than the foundations, footings or other supports for the improvements located thereon which based on present knowledge could presently or at any time in the future cause a material detriment to or materially impair the beneficial use thereof by the Company or constitute or cause a significant health, safety or other environmental hazard to occupants or users thereof without regard to any special conditions of such occupants or users. The Company represents that, after due investigation, it has no knowledge of any material violation, with respect to the Realty, of any Environmental Law, or of any material liability on the part of the Company, with respect to the Realty, resulting from the presence, use, release, threatened release, emission, disposal, pumping, discharge, generation or processing of any Hazardous Materials. As used herein, "Environmental Law" means any federal, state or local statute, regulation, judgment, order, or authorization relating to emissions, discharges, releases or threatened releases of Hazardous Materials into ambient air, surface water, ground water, publicly owned treatment works, septic systems or land, or otherwise relating to the pollution or protection of health or the environment. As used herein, "Hazardous Materials" means any substance, material or waste which is regulated by any federal, state or local governmental or quasi- governmental authority, and includes, without limitation, (a) any substance, material or waste defined, used or listed as a "hazardous waste", "hazardous substance", "toxic substance", "medical waste", "infectious waste" or other similar terms as defined or used in any Environmental Law, as such Environmental Law may from time to time be amended, and; (b) any petroleum products, asbestos, lead-based paint, polychlorinated biphenyls, flammable explosives or radioactive materials. -10- (xvii) The documents incorporated or deemed to be incorporated by reference in the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission under the 1934 Act (the "1934 Act Regulations"), and, when read together with the other information in the Prospectus, at the time the Registration Statement becomes effective and at the Closing time, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (xviii) The Advisory Agreement (as defined in the Prospectus) has been duly authorized, executed and delivered by the parties thereto and constitutes the valid agreement of the parties thereto, enforceable in accordance with its terms, except as limited by (a) the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights or remedies of creditors or (b) the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefore may be brought. (xix) The Company is in compliance with all of the provisions of Section 517.075 of the Florida statutes, and all rules and regulations promulgated thereunder relating to issuers doing business in Cuba. (b) Any certificate signed by any officer of the Company and delivered to the U.S. Representatives or to counsel for the U.S. Underwriters shall be deemed a representation and warranty by the Company to each U.S. Underwriter as to the matters covered thereby. Section 2. Sale and Delivery to Underwriters; Closing. (a) On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each U.S. Underwriter, severally and not jointly, and each U.S. Underwriter, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in the U.S. Pricing Agreement, the number of U.S. Shares set forth in Schedule A opposite the name of such U.S. Underwriter (except as otherwise provided in the U.S. Pricing Agreement), plus any additional number of Shares which such U.S. Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof. (1) If the Company has elected not to rely upon Rule 430A under the 1933 Act Regulations, the initial public offering price -11- and the purchase price per share to be paid by the several U.S. Underwriters for the U.S. Shares have each been determined and set forth in the U.S. Pricing Agreement, dated the date hereof, and an amendment to the Registration Statement and the Prospectus will be filed before the Registration Statement becomes effective. (2) If the Company has elected to rely upon Rule 430A under the 1933 Act Regulations, the purchase price per share to be paid by the several U.S. Underwriters for the U.S. Shares shall be an amount equal to the initial public offering price, less an amount per share to be determined by agreement between the U.S. Representatives and the Company. The initial public offering price per share of the U.S. Shares shall be a fixed price to be determined by agreement between the U.S. Representatives and the Company. The initial public offering price per share of the U.S. Shares shall not be higher than the last reported sale price (regular way) or the last reported asked price, whichever is higher, of the Shares of Beneficial Interest on the New York Stock Exchange immediately prior to determination of the initial public offering price. The initial public offering price and the purchase price, when so determined, shall be set forth in the U.S. Pricing Agreement. In the event that such prices have not been agreed upon and the U.S. Pricing Agreement has not been executed and delivered by all parties thereto by the close of business on the fourth business day following the date of this Agreement, this Agreement shall terminate forthwith, without liability of any party to any other party, unless otherwise agreed to by the Company and the U.S. Representatives. (3) In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the U.S. Underwriters, severally and not jointly, to purchase up to an additional 1,500,000 Shares at the price per share set forth in the U.S. Pricing Agreement less an amount equal to any dividend paid by the Company and payable on any Initial Shares and not payable on such Option Shares. The option hereby granted will expire 30 days after the date the Registration Statement becomes effective and may be exercised by the U.S. Representatives on behalf of both the U.S. Underwriters and the International Managers, in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Shares upon notice by the U.S. Representatives to the Company setting forth the number of Option Shares as to which the several Underwriters are then exercising the option and the time, date and place of payment and delivery for such Option Shares. Any such time and date of delivery (a "Date of Delivery") shall be determined by the U.S. Representatives but shall not be later than seven full business days after the exercise of said option, nor in any event prior to Closing Time, as hereinafter -12- defined, unless otherwise agreed upon by the U.S. Representatives and the Company. If the option is exercised as to all or any portion of the Option Shares, the Option Shares shall be purchased by the Underwriters, severally and not jointly, in proportion to their respective Initial Share underwriting obligations as set forth in Schedule A (except as otherwise provided in the U.S. and International Pricing Agreements). (b) Payment of the purchase price for and delivery of certificates for the Initial U.S. Shares shall be made at the office of Sullivan & Worcester, One Post Office Square, Boston, Massachusetts 02109, or at such other place as shall be agreed upon by the U.S. Representatives and the Company, at 10:00 A.M. on the fifth business day (unless postponed in accordance with the provisions of Section 10) following the date the Registration Statement becomes effective (or, if the Company has elected to rely upon Rule 430A, the fifth business day after execution of the U.S. Pricing Agreement), or such other time not later than ten business days after such date as shall be agreed upon by the U.S. Representatives and the Company (such time and date of payment and delivery being herein called "Closing Time"). In addition, in the event that any or all of the Option Shares are purchased by the U.S. Underwriters, payment of the purchase price for and the delivery of certificates for such Option Shares shall be made at the above-mentioned office of Sullivan & Worcester, or at such other place as shall be mutually agreed upon by the Representatives and the Company, on each Date of Delivery as specified in the notice from the U.S. Representatives to the Company. Payment shall be made by certified or official bank check or checks in New York Clearing House or similar next day funds payable to the order of the Company against delivery to the U.S. Representatives for the respective accounts of the U.S. Underwriters of certificates for the Shares to be purchased by them. The certificates for the Initial U.S. Shares and the U.S. Option Shares shall be in such authorized denominations and registered in such names as the U.S. Representatives may request in writing at least two business days before Closing Time or the Date of Delivery, as the case may be. It is understood that each U.S. Underwriter has authorized the U.S. Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Shares which it has agreed to purchase. Merrill Lynch, Donaldson Lufkin, PaineWebber or Smith Barney, individually and not as representatives of the several U.S. Underwriters, may (but shall not be obligated to) make payment of the purchase price for the U.S. Shares to be purchased by any Underwriter whose check has not been received by Closing Time, but any such payment shall not relieve such U.S. Underwriter from its obligations hereunder. The certificates for the Initial U.S. Shares and the U.S. Option Shares will be made available for examination and packaging by the U.S. Representatives not later than 10:00 A.M. on the last business day prior to Closing Time or the Date of Delivery, as the case may be. -13- Section 3. Covenants of the Company. The Company covenants with each U.S. Underwriter as follows: (a) The Company will notify the U.S. Representatives immediately, and confirm the notice in writing, (i) of the effectiveness of the Registration Statement and any amendment thereto (including any post- effective amendment), (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information relating thereto, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose. The Company will make every reasonable effort to prevent the issuance of any such stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) The Company will give the U.S. Representatives notice of its intention to file or prepare any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus (including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of the Shares which differs from the prospectus on file at the Commission at the time the Registration Statement becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) of the 1933 Act Regulations), will furnish the Representatives with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement or use any such prospectus to which counsel for the Underwriters shall reasonably object. (c) The Company will deliver to the U.S. Representatives four signed copies of the Registration Statement as originally filed electronically and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein and the documents incorporated by reference into the Prospectus pursuant to Item 12 of Form S-3) and will also deliver to the Representatives a conformed copy of the Registration Statement as originally filed and of each amendment thereto for each of the Underwriters. (d) The Company will furnish to each U.S. Underwriter, from time to time during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as amended or supplemented) as such U.S. Underwriter may reasonably request for the purposes contemplated by the 1933 Act, the 1933 Act Regulations, the 1934 Act or 1934 Act Regulations. (e) If any event shall occur as a result of which it is necessary, in the opinion of counsel for the U.S. Underwriters, to amend or supplement the Prospectus in order to make the Prospectus not misleading -14- in the light of the circumstances existing at the time it is delivered to a purchaser, the Company will either (i) forthwith prepare and furnish to the Underwriters a reasonable number of copies of an amendment of or supplement to the Prospectus or (ii) make an appropriate filing pursuant to Section 13, 14 or 15 of the 1934 Act, in form and substance reasonably satisfactory to counsel for the U.S. Underwriters, which will amend or supplement the Prospectus so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time it is delivered to a purchaser, not misleading. (f) The Company will endeavor in good faith, in cooperation with the U.S. Underwriters, to qualify the U.S. Shares for offering and sale under the applicable securities laws and real estate syndication laws of such states and other jurisdictions of the United States as the Representatives may designate provided that, in connection therewith, the Company shall not be required to qualify as a foreign corporation or trust or to file any general consent to service of process. In each jurisdiction in which the U.S. Shares have been so qualified the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for so long as required for the distribution of the U.S. Shares. (g) The Company will make generally available to its security holders as soon as reasonably practicable, but not later than 60 days after the close of the period covered thereby, an earning statement of the Company (in form complying with the provisions of Rule 158 of the 1933 Act Regulations) covering a period of at least twelve months beginning not later than the first day of the Company's fiscal quarter next following the effective date of the Registration Statement. "Earning statement", "make generally available" and "effective date" will have the meanings contained in Rule 158 of the 1933 Act Regulations. (h) The Company will use the net proceeds received by it from the sale of the Shares in the manner specified in the Prospectus under the caption "Use of Proceeds" in all material respects. (i) The Company will use its best efforts to effect the listing of the Shares on the New York Stock Exchange ("NYSE"). (j) The Company hereby agrees, concurrently with the execution of this Agreement, to deliver an agreement executed by the Advisor pursuant to which the Advisor agrees not to offer, sell, contract to sell, make subject to any purchase option, or otherwise dispose of any Shares of Beneficial Interest held for its own account, directly or indirectly, in a public or private transaction and the Company and the Advisor each agree not to terminate, modify or waive any provision in any agreement to which the Company or the Advisor is a party that restricts or limits -15- the transferability of Shares of Beneficial Interest, in each case for a period of 90 days after the date of the Prospectus without the prior written consent of Merrill Lynch. The Company further agrees that it will not, without the prior written consent of Merrill Lynch, (x) offer, sell, contract to sell, or otherwise dispose of any Shares of Beneficial Interest or other securities convertible into or exercisable or exchangeable for Shares of Beneficial Interest or (y) file any registration statement (other than the Registration Statement) relating to any such securities with the Commission or any other authority, in each case for a period of 90 days after the date of the Prospectus; provided, however, that the Company may issue Shares of Beneficial Interest pursuant to the Company's existing Share Award Plan and issue and sell Shares of Beneficial Interest to the Underwriters pursuant to this Agreement. (k) The Company currently intends to continue to elect to qualify as a "real estate investment trust" under the Internal Revenue Code of 1986, as amended, and use its best efforts to continue to meet the requirements to qualify as a "real estate investment trust". (l) If, at the time that the Registration Statement becomes effective, any information shall have been omitted therefrom in reliance upon Rule 430A of the 1933 Act Regulations, then immediately following the execution of the Pricing Agreement, the Company will prepare, and file or transmit for filing with the Commission in accordance with such Rule 430A and Rule 424(b) of the 1933 Act Regulations, copies of an amended Prospectus, or, if required by such Rule 430A, a post-effective amendment to the Registration Statement (including an amended Prospectus), containing all information so omitted. Section 4. Payment of Expenses. The Company will pay all expenses incident to the performance of its obligations under this Agreement, including (i) the printing and filing of the Registration Statement as originally filed and of each amendment thereto, (ii) the cost of printing, or reproducing, and distributing to the Underwriters copies of this Agreement and the U.S. Pricing Agreement, (iii) the preparation, issuance and delivery of the certificates for the U.S. Shares to the U.S. Underwriters, (iv) the fees and disbursements of counsel for the Company, referred to in Section 5(b) hereof, (v) the fees and disbursements of the Company's accountants, (vi) the qualification of the U.S. Shares under securities laws and real estate syndication laws in accordance with the provisions of Section 3(f), including filing fees and the fee and disbursements of counsel for the Company in connection therewith and in connection with the preparation of the Blue Sky Survey, (vii) the printing and delivery to the U.S. Underwriters of copies of the Registration Statement as originally filed and of each amendment thereto, of the preliminary prospectuses, and of the Prospectus and any amendments or supplements thereto, (viii) the cost of printing or reproducing and delivering to the U.S. Underwriters copies of the Blue Sky Survey, (ix) the fee of the NASD, (x) the fees and expenses incurred -16- in connection with the listing of the U.S. Shares on the NYSE and (xi) any transfer taxes imposed on the sale of the U.S. Shares to the several U.S. Underwriters. If this Agreement is terminated by the U.S. Representatives in accordance with the provisions of Section 5 or Section 9(a)(i), the Company shall reimburse the U.S. Underwriters for all of their out-of- pocket expenses, including the reasonable fees and disbursements of counsel for the U.S. Underwriters. Section 5. Conditions of U.S. Underwriters' Obligations. The obligations of the U.S. Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company herein contained, to the performance by the Company of its obligations hereunder, and to the following further conditions: (a) The Registration Statement shall have become effective not later than 5:30 P.M. on the date hereof, or, with the consent of the U.S. Representatives, at a later time and date, not later, however, than 5:30 P.M. on the first business day following the date hereof or at such later time and date as may be approved by a majority in interest of the U.S. Underwriters; and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. If the Company has elected to rely upon Rule 430A of the 1933 Act Regulations, the price of the Shares and any price-related information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) of the 1933 Act Regulations within the prescribed time period, and prior to Closing Time the Company shall have provided evidence satisfactory to the Representatives of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A of the 1933 Act Regulations. (b) At Closing Time the Representatives shall have received: (1) The favorable opinion, dated as of Closing Time, of Sullivan & Worcester, counsel for the Company, in form and substance satisfactory to counsel for the U.S. Underwriters, to the effect that: (i) The Company has been duly organized and is validly existing under the laws of its jurisdiction of organization and has the trust power and authority to carry on its business and to own or lease and operate its property as described in the Registration Statement and the Prospectus. (ii) The Company is duly qualified and in good standing and authorized to do business in each jurisdiction in which the nature -17- of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified or in good standing would not have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company. (iii) The Company has the requisite power and authority to enter into and perform this Agreement and the U.S. Pricing Agreement; the Company has the requisite power and authority to issue and deliver the Shares. (iv) This Agreement and the U.S. Pricing Agreement have been duly authorized, executed and delivered by the Company. (v) (A) The authorized and issued capital stock of the Company is correctly set forth in the Registration Statement and Prospectus under the caption "Capitalization"; (B) all of the outstanding shares of capital stock of the Company have been duly authorized and are validly issued, fully paid and non-assessable (except as otherwise described in the Registration Statement) and free of preemptive rights or other rights to subscribe for or to purchase securities provided for by law or by its Declaration of Trust or bylaws; (C) the U.S. Shares have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement and in the U.S. Pricing Agreement, will be validly issued, fully paid and, except as otherwise described in the Registration Statement, non-assessable and the issuance of such Shares is not subject to any preemptive or similar rights; (D) all outstanding Shares of Beneficial Interest are listed on the New York Stock Exchange and the Shares, upon notice of issuance, will be so listed; (E) the certificates for the Shares are valid and in proper legal form; and (F) to such counsel's knowledge, there are no holders of securities of the Company entitled to the registration of Shares of Beneficial Interest or other securities. (vi) The Company is not required to register as an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (vii) To the extent required to be described therein, the Shares and the rights related thereto conform in all material respects to the descriptions in the Registration Statement and Prospectus. (viii) The Registration Statement has become effective under the 1933 Act, and, to such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted by or is pending before the Commission. -18- (ix) To such counsel's knowledge, there is no legal or governmental proceeding pending or threatened against the Company or to which the Company is a party or to which any of the properties of the Company is subject which is required to be described in the Registration Statement or Prospectus and is not so described, or any contract, lease or other document which is required to be described in the Registration Statement or Prospectus or is required to be filed as an exhibit to the Registration Statement which is not described or filed as required; the descriptions thereof or references thereto are accurate in all material respects; and, to such counsel's knowledge, each contract, lease or document so described is in full force and effect in accordance with its terms. (x) Neither the Company nor the Advisor is in violation of its charter documents or bylaws or, to such counsel's knowledge, in default in the performance of any material obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any material indenture, instrument or other agreement to which the Company or the Advisor is a party or which binds the Company or the Advisor or any of their property; to such counsel's knowledge, neither the Company nor the Advisor is in violation of any law, ordinance, governmental rule or regulation or court decree to which it is subject except where such violation would not have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company or the Advisor, as the case may be. (xi) The Company owns or possesses all licenses and permits necessary for the conduct of its business and the ownership, leasing and operation of its properties, except such licenses and permits as to which the failure to own or possess will not in the aggregate have a material adverse effect on the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company. (xii) The execution, delivery and performance of this Agreement and the U.S. Pricing Agreement and the consummation of the transactions contemplated hereby will not conflict with or constitute a breach or violation of any of the terms or provisions of, or constitute a default under, (A) any bond, debenture, note or other evidence of indebtedness or any indenture, instrument or agreement of which such counsel has knowledge to which the Company or the Advisor is a party or which binds either of them or any of their property, (B) the charter documents or bylaws of the Company or the Advisor or (C) any law, regulation, ruling, judgment, decree or order of which such counsel has knowledge to which the Company or the Advisor or any of their properties may be subject. -19- (xiii) Except with respect to state securities or blue sky laws and regulations, all proceedings required in connection with the authorization and issuance of the Shares have been taken and all authorizations, consents, approvals, licenses or other orders of any regulatory body, administrative agency or other governmental body required for the valid issuance and delivery of the Shares hereunder have been obtained. (xiv) No consents or waivers from the holders of the Company's capital stock are required to consummate the transactions contemplated hereby other than such consents and waivers as have been obtained. (xv) At the time the Registration Statement became effective and at the Representation Date, the Registration Statement and the Prospectus and any supplement or amendment thereto (except for financial statements and other financial and statistical data and schedules contained therein as to which such counsel need not express an opinion) complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. (xvi) The investments of the Company described in the Prospectus are permitted investments under the Declaration of Trust of the Company. (xvii) The Advisory Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and legally binding agreement of the Company enforceable in accordance with its terms, except (A) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, (B) that the remedy of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought, and (C) as any indemnification and contribution provisions thereunder may be limited by applicable law and public policy. (xviii) The Advisory Agreement has been duly authorized, executed and delivered by the Advisor and constitutes the valid and legally binding agreement of the Advisor, enforceable in accordance with its terms except (A) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, (B) that the remedy of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought, and (C) as any indemnification and contribution provisions thereunder may be limited by applicable law and public policy. -20- (xix) The execution and delivery of the Advisory Agreement by the Company and the Advisor and the performance by the Company and the Advisor of the obligations contained therein and the compliance with their terms did not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under the charter documents or bylaws of the Company or the Advisor, respectively, or any license, permit, material agreement, indenture or other instrument known to such counsel to which the Company or the Advisor, respectively, is bound, or any law, administrative regulation or court or governmental decree known to such counsel applicable to the Company or the Advisor. (xx) The Advisor (A) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and (B) has requisite corporate power and authority to conduct its business as described in the Prospectus and to own and operate the properties used and useful in said business. (xxi) No facts have come to such counsel's attention that lead such counsel to believe that the Company does not have insurable title to each item of real property owned by it subject to such encumbrances and defects as set forth in the title policies obtained in connection with the acquisition thereof (or as otherwise described in the Registration Statement) or that the Company leases are not valid. (xxii) Each document filed pursuant to the 1934 Act (other than the financial statements and supporting schedules included therein, as to which no opinion need be rendered) and incorporated or deemed to be incorporated by reference in the Prospectus complied when so filed as to form in all material respects with the 1934 Act and the 1934 Act Regulations. (xxiii) The Company has qualified to be taxed as a real estate investment trust pursuant to Sections 856-860 of the Internal Revenue Code, as amended, for the fiscal years ended December 31, 1987 through December 31, 1993, and the Company's present method of operation and its assets and contemplated income are such that the Company is in a position under present law to so qualify for the fiscal year ended December 31, 1994 and in the future. With respect to matters governed by Maryland law, such counsel may rely upon an opinion, dated as of Closing Time, of Piper & Marbury, a copy of which shall have been furnished to the Representatives at Closing Time in form and substance satisfactory to counsel for the U.S. Underwriters. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that the Registration Statement, as of the time it became effective under the 1933 Act, contained an untrue statement of a material fact or omitted to -21- state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriters by the Company for use in connection with the offering of the Shares which differs from the Prospectus on file at the Commission at the Representation Date, in which case at the time it is first provided to the U.S. Underwriters for such use) or at Closing Time, contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (except that such counsel need express no view as to financial statements, schedules and other financial information included therein). With respect to such statement, Sullivan & Worcester may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (2) The favorable opinion, dated as of Closing Time, of Brown & Wood, counsel for the U.S. Underwriters, with respect to the matters set forth in (iv), (vii), (viii) and (xv) of subsection (b)(1) of this Section. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that the Registration Statement, as of the time it became effective under the 1933 Act, contained in untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriters by the Company for use in connection with the offering of the Shares which differs from the Prospectus on file at the Commission at the Representation Date, in which case at the time it is first provided to the Underwriters for such use) or at Closing Time, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (except that such counsel need express no view as to financial statements, schedules and other financial information included). With respect to such statement, Brown & Wood may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (c) At Closing Time (i) the Registration Statement and the Prospectus shall contain all statements which are required to be stated therein in accordance with the 1933 Act and the 1933 Act Regulations and in all material respects shall conform to the requirements of the 1933 Act and the 1933 Act Regulations, and neither the Registration Statement nor the Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and no action, -22- suit or proceeding at law or in equity shall be pending or to the knowledge of the Company threatened against the Company which would be required to be set forth in the Prospectus other than as set forth therein, (ii) there shall not have been, since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change in the condition, financial or otherwise, of the Company or in its earnings, business affairs or business prospects, whether or not arising in the ordinary course of business from that set forth in the Registration Statement, and (iii) no proceedings shall be pending or, to the knowledge of the Company, threatened against the Company before or by any Federal, state or other commission, board or administrative agency wherein an unfavorable decision, ruling or finding would materially and adversely affect the business, property, financial condition or income of the Company other than as set forth in the Prospectus; and the U.S. Representatives shall have received, at Closing Time, a certificate of the President and Chief Executive Officer and the chief financial officer of the Company, dated as of Closing Time, evidencing compliance with the provisions of this subsection (c) and stating that the representations and warranties set forth in Section 1(a) hereof are accurate as though expressly made at and as of Closing Time. (d) At the time of execution of this Agreement, the U.S. Representatives shall have received from Ernst & Young a letter dated such date, in form and substance satisfactory to the Representatives, to the effect that (i) they are independent public accountants as required by the 1933 Act and the applicable published rules and regulations thereunder with respect to the Company; (ii) it is their opinion that the audited financial statements of the Company, Greenery, GranCare, Horizon and Marriott included in the Registration Statement and covered by their opinions therein comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the related published rules and regulations thereunder; (iii) they have performed limited procedures, not constituting an audit, including a reading of the latest available interim financial statements of the Company, a reading of the minute books of the Company since December 31, 1993, inquiries of officials of the Company responsible for financial and accounting matters and such other inquiries and procedures as may be specified in such letter, and on the basis of such limited review and procedures nothing came to their attention that caused them to believe that: (A) at a specified date not more than five days prior to the date of such letter, there was any decrease in the shareholders' equity of the Company, any decrease in total assets or any increase in total borrowings of the Company, as compared with the amounts shown in the latest balance sheet included in the Registration Statement; or -23- (B) during the period from the date of the latest balance sheet included in the Registration Statement, to a specified date not more than five days prior to the date of such letter, there were any decreases, as compared with the corresponding period in the preceding year, in total revenues, net income or income per share; except in all cases for increases or decreases which the Registration Statement discloses or contemplates have occurred or may occur; (iv) in addition to the limited procedures referred to in clause (iii) above, they have carried out certain specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information which are derived from the general accounting records of the Company, which are included in the Registration Statement and which are specified by the U.S. Representatives and the Lead Managers, and have compared such amounts, percentages and financial information with the accounting records of the Company and have found them to be in agreement; and (v) they have read the unaudited pro forma financial statements which are included in the Registration Statement and have performed specified procedures set forth in detail in such letter and found the amounts resulting from such procedures to be in agreement with the amounts set forth in such unaudited pro forma financial statements and nothing has come to their attention which causes them to believe that the unaudited pro forma financial statements included in the Registration Statement, which combine certain financial statements of the Company with certain transactions set forth in the notes to such pro forma statements, do not comply as to form in all material respects with Article 11 of Regulation S-X under the 1933 Act. (e) At Closing Time the U.S. Representatives shall have received from Ernst & Young a letter dated as of Closing Time to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (d) of this Section, except that the "specified date" referred to shall be a date not more than five days prior to Closing Time, and, if the Company has elected to rely on Rule 430A of the 1933 Act Regulations, to the further effect that they have carried out procedures as specified in clause (iv) of subsection (d) of this Section with respect to certain amounts, percentages and financial information deemed to be a part of the Registration Statement pursuant to Rule 430A(b). (f) At Closing Time counsel for the U.S. Underwriters shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Shares as herein contemplated and related proceedings, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Shares as herein contemplated shall be -24- reasonably satisfactory in form and substance to the U.S. Representatives and counsel for the U.S. Underwriters. (g) In the event the U.S. Representatives exercise their option provided in Section 2 hereof to purchase all or any portion of the Option Shares, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company hereunder shall be true and correct as of each Date of Delivery, and the U.S. Representatives shall have received: (1) A certificate of the President and Chief Executive Officer and the chief financial officer of the Company, dated such Date of Delivery, confirming that their certificates delivered at Closing Time pursuant to Section 5(c) hereof remain true as of such Date of Delivery. (2) The favorable opinion of Sullivan & Worcester, special counsel for the Company, in form and substance satisfactory to counsel for the U.S. Underwriters, dated such Date of Delivery, relating to the Option Shares and otherwise to the same effect as the opinion required by Section 5(b)(1) hereof. (3) The favorable opinion of Brown & Wood, counsel for the U.S. Underwriters, dated such Date of Delivery, relating to the Option Shares and otherwise to the same effect as the opinion required by Section 5(b)(2) hereof. (4) A letter from Ernst & Young, in form and substance satisfactory to the U.S. Representatives, dated such Date of Delivery, substantially the same in scope and substance as the letter furnished to the Representatives pursuant to Section 5(e) hereof, except that the "specified date" in the letter furnished pursuant to this Section 5(g)(4) shall be a date not more than five days prior to such Date of Delivery. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the U.S. Representatives by notice to the Company at any time at or prior to Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4 hereof. Section 6. Indemnification. (a) The Company hereby agrees to indemnify and hold harmless each U.S. Underwriter and each person, if any, who controls any U.S. Underwriter within the meaning of Section 15 of the 1933 Act as follows: (1) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained -25- in the Registration Statement (or any amendment thereto), including the information deemed to be part of the Registration Statement pursuant to Rule 430A(b) of the 1933 Act Regulations, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission, or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (2) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and (3) against any and all expense whatsoever, as incurred (including, subject to Section 6(c) hereof, the fees and disbursements of counsel chosen by the Representatives), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceedings by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (1) or (2) above; provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any U.S. Underwriter through the U.S. Representatives expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto); and provided, further, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any U.S. Underwriter from whom the person asserting any such loss, claim, damage or expense purchased U.S. Shares, or any person controlling such U.S. Underwriter, if a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto and excluding documents incorporated or deemed to be incorporated by reference therein) was not sent or given by or on behalf of such U.S. Underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the U.S. Shares to such -26- person, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or expense. (b) Each U.S. Underwriter severally agrees to indemnify and hold harmless the Company, each of the Company's trustees, each of the Company's officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such U.S. Underwriter through the U.S. Representatives expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. Section 7. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Section 6 hereof is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, the Company and the Underwriters shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by the Company and one or more of the Underwriters, as incurred, in such proportions that the Underwriters are responsible for that portion represented by the percentage that the underwriting discount appearing on the cover page of the Prospectus bears to the initial public offering price appearing thereon and the Company is responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the -27- amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay in respect of such losses, liabilities, claims, damages and expenses. For purposes of this Section, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as such Underwriter, and each trustee of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company. Section 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement and the U.S. Pricing Agreement, or contained in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any U.S. Underwriter or an controlling person, or by or on behalf of the Company, and shall survive delivery of the U.S. Shares to the U.S. Underwriters. Section 9. Termination of Agreement. (a) The U.S. Representatives may terminate this Agreement, by notice to the Company, at any time at or prior to Closing Time (i) if there has been, since the respective dates as of which information is given in the Registration Statement, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or any outbreak of hostilities or escalation of existing hostilities or other calamity or crisis the effect of which on the financial markets of the United States is such as to make it, in the U.S. Representatives' reasonable judgment, impracticable to market the Shares or enforce contracts for the sale of the Shares, or (iii) if trading in the Shares of Beneficial Interest of the Company has been suspended by the Commission, or if trading generally on either the New York Stock Exchange or the American Stock Exchange has been suspended, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by either of said exchanges or by order of the Commission or any other governmental authority, or if a banking moratorium has been declared by Federal or New York authorities. (b) If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4, and provided further that Sections 6 and 7 hereof shall survive such termination. Section 10. Default by One or More of the U.S. Underwriters. If one or more of the U.S. Underwriters shall fail at Closing Time to -28- purchase the Shares which it or they are obligated to purchase under this Agreement and the U.S. Pricing Agreement (the "Defaulted Shares"), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Shares in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Shares does not exceed 10% of the U.S. Shares, the non-defaulting U.S. Underwriters shall be obligated to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting U.S. Underwriters, or (b) if the number of Defaulted Shares exceeds 10% of the Shares, this Agreement shall terminate without liability on the part of any non-defaulting U.S. Underwriter. No action taken pursuant to this Section shall relieve any defaulting U.S. Underwriter from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement, either the U.S. Representatives or the Company shall have the right to postpone Closing Time for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. Section 11. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of tele- communication. Notices to the Underwriters shall be directed to the Representatives c/o Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated at Merrill Lynch World Headquarters, North Tower, World Financial Center, New York, New York 10281-1305, attention of Tjarda Clagett, Director Corporate Syndicate; and notices to the Company shall be directed to it at 400 Center Street, Newton, Massachusetts 02158, Attention: Mark J. Finkelstein. Section 12. Parties. This Agreement and the U.S. Pricing Agreement shall each inure to the benefit of and be binding upon the U.S. Underwriters and the Company and their respective successors. Nothing expressed or mentioned in this Agreement or the Pricing Agreement is intended or shall be construed to give any person, firm or corporation, other than those referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or the U.S. Pricing Agreement or any provision herein or therein contained. This Agreement and the U.S. Pricing Agreement and all conditions and provisions hereof -29- and thereof are intended to be for the sole and exclusive benefit of the parties hereto and thereto and their respective successors and said controlling persons and officers, trustees and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of U.S. Shares from any U.S. Underwriter shall be deemed to be a successor by reason merely of such purchase. Section 13. Governing Law and Time; Miscellaneous. This Agreement and the Pricing Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in said State. Specified times of day refer to New York City time. THE DECLARATION OF TRUST ESTABLISHING THE COMPANY, DATED OCTOBER 9, 1986, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HEALTH AND REHABILITATION PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE COMPANY SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE COMPANY. ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. -30- If the foregoing is in accordance with your understanding of our agreement, please sign and return to us a counterpart hereof, whereupon this instrument along with all counterparts will become a binding agreement between the Underwriters and the Company in accordance with its terms. Very truly yours, HEALTH AND REHABILITATION PROPERTIES TRUST By Authorized Officer CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION PAINEWEBBER INCORPORATED SMITH BARNEY SHEARSON INC. By: Merrill Lynch, Pierce, Fenner & Smith Incorporated By Authorized Officer For themselves and as Representatives of the other Underwriters named in Schedule A hereto. -31- SCHEDULE A Number of Name of Underwriter Initial Shares Merrill Lynch, Pierce, Fenner & Smith Incorporated ....................... Donaldson, Lufkin & Jenrette Securities Corporation .................................. PaineWebber Incorporated........................ Smith Barney Shearson Inc....................... Total........................................... 8,500,000 Exhibit A 8,500,000 Shares HEALTH AND REHABILITATION PROPERTIES TRUST (a Maryland real estate investment trust) Common Shares of Beneficial Interest ($.01 Par Value) PRICING AGREEMENT __________ __, 1994 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION PAINEWEBBER INCORPORATED SMITH BARNEY SHEARSON INC. As Representatives of the several Underwriters c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281-1305 Dear Sirs: Reference is made to the Purchase Agreement, dated ___________ __, 1994 (the "Purchase Agreement"), relating to the purchase by the several Underwriters named in Schedule A thereto, for whom Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, PaineWebber Incorporated and Smith Barney Shearson Inc. are acting as representatives (the "Representatives"), of the above shares of beneficial interest (the "Shares") of Health and Rehabilitation Properties Trust (the "Company"). Pursuant to Section 2 of the Purchase Agreement, the Company agrees with each Underwriter as follows: 1. The initial public offering price per share for the Shares, determined as provided in said Section 2, shall be $ . 2. The purchase price per share for the Shares to be paid by the several Underwriters shall be $ , being an amount equal to the initial public offering price set forth above less $ per share. If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Underwriters and the Company in accordance with its terms. Very truly yours, HEALTH AND REHABILITATION PROPERTIES TRUST By Authorized Officer CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION PAINEWEBBER INCORPORATED SMITH BARNEY SHEARSON INC. By: Merrill Lynch, Pierce, Fenner & Smith Incorporated By Director For themselves and as Representatives of the other Underwriters named in Schedule A to the Purchase Agreement. -2- EX-1.2 3 INTERNATIONAL PURCHASE AGREEMENT Brown & Wood Draft of 3/28/94 1,500,000 Shares HEALTH AND REHABILITATION PROPERTIES TRUST (a Maryland real estate investment trust) Common Shares of Beneficial Interest ($.01 Par Value) INTERNATIONAL PURCHASE AGREEMENT ____________ __, 1994 MERRILL LYNCH INTERNATIONAL LIMITED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION PAINEWEBBER INTERNATIONAL (U.K.) LTD. SMITH BARNEY SHEARSON INC. As Lead Managers of the several International Managers c/o Merrill Lynch International Limited Ropemaker Place 25 Ropemaker Street London ECZY 9LY England Dear Sirs: Health and Rehabilitation Properties Trust, a real estate investment trust organized under the laws of the State of Maryland (the "Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch International Limited ("MLI"), Donaldson, Lufkin & Jenrette Securities Corporation ("Donaldson Lufkin"), PaineWebber International (U.K.) Ltd. ("PaineWebber") and Smith Barney Shearson Inc. ("Smith Barney") and each of the other International Managers named in Schedule A hereto (collectively, the "International Managers", which term shall also include any International Manager substituted as hereinafter provided in Section 10), for whom MLI, Donaldson Lufkin, PaineWebber and Smith Barney are acting as lead managers (in such capacity, Merrill Lynch, Donaldson Lufkin, PaineWebber and Smith Barney shall hereinafter be referred to as the "Lead Managers"), with respect to the sale by the Company and the purchase by the International Managers, acting severally and not jointly, of the number of common shares of beneficial interest, $.01 par value, of the Company (the "Shares of Beneficial Interest") set forth in said Schedule A, except as may otherwise be provided in the International Pricing Agreement, as hereinafter defined, and with respect to the grant by the Company to the International Managers of the option described in Section 2 hereof to purchase all or any part of an additional 1,500,000 Shares of Beneficial Interest to cover over- allotments. The aforesaid 1,500,000 Shares of Beneficial Interest set forth in said Schedule A (the "Initial International Shares"), together with all or any part of the 1,500,000 Shares of Beneficial Interest subject to the option described in Section 2 hereof (the "International Option Shares"), are collectively hereinafter called the "International Shares". It is understood that the Company is concurrently entering into an agreement dated the date hereof (the "U.S. Purchase Agreement") providing for the offering by the Company of 8,500,000 shares of beneficial interest (the "Initial U.S. Shares") through arrangements with certain underwriters in the United States (the "U.S. Underwriters") for which Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Donaldson, Lufkin & Jenrette Securities Corporation, PaineWebber Incorporated and Smith Barney Shearson Inc. are acting as representatives (the "U.S. Representatives") and the grant by the Company to the U.S. Underwriters of an option to purchase all or any part of the U.S. Underwriters' pro rata portion of the option shares (the "U.S. Option Shares") to cover over-allotments. The Initial U.S. Shares and the U.S. Option Shares are hereinafter called the "U.S. Shares". It is understood that the Company is not obligated to sell, and the International Managers are not obligated to purchase, any Initial International Shares unless all of the Initial U.S. Shares are contemporaneously purchased by the U.S. Underwriters. The International Managers and the U.S. Underwriters are hereinafter collectively called the "Underwriters", the Initial International Shares and the Initial U.S. Shares are hereinafter collectively called the "Initial Shares", the U.S. Option Shares and the International Option Shares are hereinafter collectively called the "Option Shares" and the International Shares and the U.S. Shares are hereinafter collectively called the "Shares". The Fund understands that the International Managers and the U.S. Underwriters will concurrently enter into an Intersyndicate Agreement of even date herewith (the "Intersyndicate Agreement") providing for the coordination of certain transactions among the International Managers and the U.S. Underwriters under the direction of Merrill Lynch. Prior to the purchase and public offering of the International Shares by the several International Managers, the Company and the Lead Managers, acting on behalf of the several International Managers, shall enter into an agreement substantially in the form of Exhibit A hereto 2 (the "International Pricing Agreement"). The International Pricing Agreement may take the form of an exchange of any standard form of written telecommunication between the Company and the International Managers and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the International Shares will be governed by this Agreement, as supplemented by the International Pricing Agreement. From and after the date of the execution and delivery of the International Pricing Agreement, this Agreement shall be deemed to incorporate the International Pricing Agreement. The initial public offering price and purchase price with respect to the U.S. Shares shall be set forth in a separate instrument (the "U.S. Pricing Agreement"), the form of which is attached to the U.S. Purchase Agreement (the "U.S. Purchase Agreement"). The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 33-_____) and a related preliminary prospectus for the registration of the Shares under the Securities Act of 1933, as amended (the "1933 Act"), and has filed such amendments thereto, if any, and such amended preliminary prospectuses as may have been required to the date hereof.1 Such registration statement (as amended, if applicable) and the prospectus constituting a part thereof (including, in each case, all documents incorporated or deemed to be incorporated by reference therein and the information, if any, deemed to be a part thereof pursuant to Rule 430A(b) of the rules and regulations under the 1933 Act (the "1933 Act Regulations")), as from time to time amended or supplemented pursuant to the 1933 Act, are hereinafter referred to as the "Registration Statement" and the "Prospectus", respectively, except that if any revised prospectus shall be provided to the Underwriters by the Company for use in connection with the offering of the Shares which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective (whether or not such revised prospectus is required to be filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations), the term "Prospectus" shall refer to such revised prospectus from and after the time it is first provided to the Underwriters for such use. All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Registration Statement or the Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement or the Prospectus shall be deemed to mean and 1 Two forms of prospectus are to be used in connection with the offering and sale of the Shares: one relating to the International Shares (the "International Prospectus"), and one relating to the U.S. Shares (the "U.S. Prospectus"). 3 include the filing of any document under the Securities Exchange Act of 1934 (the "1934 Act") which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be. The Company understands that the Underwriters propose to make a public offering of the Shares as soon as the U.S. Representatives and the Lead Managers deem advisable after the Registration Statement becomes effective and the U.S. and International Pricing Agreements have been executed and delivered. Section 1. Representations and Warranties. (a) The Company represents and warrants to each International Manager as of the date hereof and as of the date of International Pricing Agreement (such latter date being hereinafter referred to as the "Representation Date") as follows: (i) At the time the Registration Statement becomes effective and at the Representation Date, the Registration Statement will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus, at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the International Managers or the U.S. Underwriters, as the case may be, by the Company for use in connection with the offering of the Shares which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective, in which case at the time it is first provided to the International Managers or the U.S. Underwriters for such use) and at Closing Time referred to in Section 2 hereof, will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall not apply to those parts of the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any International Manager through the Lead Managers or any U.S. Underwriter through the U.S. Representatives expressly for use in the Registration Statement or Prospectus. (ii) The documents incorporated or deemed to be incorporated by reference in the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission under the 1934 Act (the "1934 Act Regulations"), and, when read together with the other information in the Prospectus, at the time the Registration Statement becomes 4 effective and at the Closing Time, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (iii) The Company is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, with trust power and authority to carry on its business and to own or lease its properties as described in the Registration Statement, and the Company owns or possesses all licenses and permits necessary for the conduct of its business and the ownership, leasing and operation of its properties, except such licenses and permits as to which the failure to own or possess would not in the aggregate have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company; and the Company is duly qualified and in good standing as a foreign entity authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company. The Company has no subsidiaries. The Company neither owns nor controls, directly or indirectly, any capital stock or other equity interest in any corporation, partnership or other entity. (iv) The authorized, issued and outstanding capital stock of the company is correctly set forth in the Registration Statement under the caption "Capitalization"; all of the outstanding shares of capital stock of the Company have been duly authorized and are validly issued, fully paid, non-assessable (except as otherwise described in the Registration Statement) and free of preemptive rights or other rights to subscribe for or to purchase securities provided for by law or by its Declaration of Trust or bylaws; all of the outstanding shares of capital stock of the Company and options to purchase shares of capital stock of the Company have been issued in accordance with applicable federal and state securities laws; the International Shares to be issued and sold pursuant to this Agreement have been duly authorized and, when issued and delivered to the International Managers against payment therefor as provided hereunder and in the International Pricing Agreement, will have been validly issued and will be fully paid, non-assessable (except as otherwise described in the Registration Statement) and free of preemptive rights; all outstanding Shares of Beneficial Interest are listed on the New York Stock Exchange and the Company knows of no reason or set of facts which is likely to result in the delisting of such Shares or the inability to list the Shares; the certificates for such International Shares will be valid and in proper legal form; and there are no rights of holders of securities of the Company to the registration of Shares of Beneficial Interest or other securities. 5 (v) The capital stock of the Company and the Shares conform to the description thereof in the Registration Statement and the Prospectus. (vi) The accountants who have certified the financial statements of the Company, and, to the Company's knowledge, of Greenery Rehabilitation, Group, Inc. and its subsidiaries ("Greenery"), GranCare, Inc. and its subsidiaries ("Grancare"), Horizon Healthcare Corporation ("Horizon") and its subsidiaries and Marriott International, Inc. ("Marriott") filed with the Commission the Registration Statement and the Prospectus are independent certified accountants as required by the 1933 Act. The financial statements of the Company, and, to the Company's knowledge, of other entities, included in the Registration Statement present fairly the financial position and results of operations of the Company and the other entities purported to be shown thereby at the respective dates and for the respective periods specified, and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout such periods. The pro forma financial statements of the Company as adjusted as set forth therein and in the notes thereto included in the Registration Statement and the Prospectus reflect all adjustments necessary to summarize fairly the pro forma condensed combined financial position of the Company at the dates indicated and the pro forma results of their operations for the periods specified. (vii) Except as disclosed in the Registration Statement and Prospectus, there is not now pending or, to the knowledge of the Company, threatened, any litigation, action, suit or proceeding to which the Company or, to the best knowledge of the Company, GranCare, Sun Healthcare Group, Inc. ("Sun"), Marriott, Beverly Enterprises, Integrated Health Services and Hillhaven (collectively, the "Operators") or HRPT Advisors, Inc. (the "Advisor") is or will be a party before or by any court or governmental agency or body, which (A) might result in any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company or, to the best knowledge the Company, of the Operators or the Advisor or (B) might materially and adversely affect the property or assets of the Company or, to the best knowledge of the Company, of the Operators or the Advisor, or (C) relates to environmental matters involving the Company or, to the best knowledge of the Company, of the Operators or the Advisor, or (D) relates to discrimination on the basis of age, sex, religion or race, relating to the Company or, to the best knowledge of the Company, of the Operators or the Advisor, or (E) concerns the Company or, to the best knowledge of the Company, of the Operators or the Advisor, and is required to be disclosed in the Prospectus. (viii) Except as otherwise set forth in the Registration Statement, the Company has good and marketable title or ground leases, free and clear of all liens, claims, encumbrances and restrictions, 6 except liens for taxes not yet due and payable and other liens and encumbrances which do not, either individually or in the aggregate, adversely affect the current use or value thereof, to all property and assets described in the Registration Statement as being owned by it. All leases to which the Company is a party relating to real property, and all other leases which are material to the business of the Company, are valid and binding and no default (to the Company's knowledge in the case of leases to which the Company is a party as lessor) has occurred or is continuing thereunder, and the Company enjoys peaceful and undisturbed possession under all such leases to which it is a party as lessee. With respect to the Properties (as such term is defined in the Prospectus), the Company has such documents, instruments, certificates, opinions and assurances, including without limitation, fee, leasehold owners or mortgage title insurance policies (disclosing no material encumbrances or title exceptions except as otherwise set forth in the Registration Statement), legal opinions and property insurance policies in each case in form and substance as are usual and customary in transactions involving the purchase of similar real estate and are appropriate for the Company to have obtained. Each of the Company and, to the best knowledge of the Company, the Operators and the Advisor has all governmental licenses, certificates, permits, authorizations, approvals, franchises or other rights necessary to engage in the business currently conducted by it, except such licenses and permits as to which the failure to own or possess will not in the aggregate have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company, or, to the best knowledge of the Company, the Operators or the Advisor and neither the Company nor, to the best knowledge of the Company, the Operators or the Advisor has any reason to believe that any governmental body or agency is considering limiting, suspending or revoking any such license, certificate, permit, authorization, approval, franchise or right. (ix) The Company has filed all Federal, State and foreign income tax returns which have been required to be filed and has paid all taxes indicated by said returns and all assessments received by it to the extent that such taxes have become due. (x) Since the dates as of which information is given in the Registration Statement, except as otherwise stated or contemplated therein (i) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company or, to the knowledge of the Company, of the Operators or the Advisor, whether or not arising in the ordinary course of business, (ii) there have been no material transactions entered into by the Company or, to the knowledge of the Company, the Operators or the Advisor, other than transactions in the ordinary course of business, that would, to the Company's knowledge, be materially adverse to, or have a material adverse effect on, the 7 Company, (iii) neither the Company nor, to the knowledge of the Company, the Operators or the Advisor has incurred any obligation, contingent or otherwise, that would, to the Company's knowledge, be materially adverse to, or have a material adverse effect on, the Company, (iv) there has been no change in the capital stock or debt of the Company and (v) there has been no dividend or distribution of any kind declared, paid or made by the Company on its capital stock. (xi) Neither the Company nor, to the best knowledge of the Company, the Operators or the Advisor is in violation of its charter documents or bylaws or in default in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any indenture, instrument or agreement to which the Company or any of its subsidiaries or, to the best knowledge of the Company, the Operators or the Advisor is a party or by which any of their respective properties may be bound or affected, except for any such violation that would not have a material adverse effect on the condition, financial or otherwise, or in the respective earnings, business affairs or business prospects of any of them. Neither the Company nor any of its subsidiaries nor, to the best knowledge of the Company, the Operators or the Advisor is in violation of any law, ordinance, governmental rule or regulation or court decree to which it is subject, except for any such violation that would not have a material adverse effect on the condition, financial or otherwise, or in the respective earnings, business affairs or business prospects of any of them. The execution, delivery and performance of this Agreement, the U.S. Purchase Agreement, the International Pricing Agreement and the U.S. Pricing Agreement, compliance by the Company with all provisions hereof, and the consummation of the transactions contemplated hereby, will not violate or conflict with or constitute a breach of any of the terms or provisions of, or constitute a default under (i) the Declaration of Trust of the Company or, to the best knowledge of the Company, the certificate of incorporation of the Operators or the Advisor, or (ii) any bond, debenture, note or other evidence of indebtedness or any material indenture, instrument or agreement to which the Company or, to the best knowledge of the Company, the Operators or the Advisor is a party or which binds the Company or its properties or, to the best knowledge of the Company, the Operators or the Advisor or any of their respective properties, or (iii) (assuming compliance with all applicable state securities or Blue Sky laws) any law, regulation or ruling or any order, judgment or decree to which the Company or its properties or, to the best knowledge of the Company, the Operators or the Advisor or any of their respective properties may be subject. (xii) Each approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution and delivery by the Company of this Agreement, the U.S. Purchase 8 Agreement, the International Pricing Agreement and the U.S. Pricing Agreement and the consummation of the transactions herein and therein contemplated (except such additional steps as may be required by the National Association of Securities Dealers, Inc. (the "NASD") or may be necessary to qualify the Shares for public offering by the International Managers or the U.S. Underwriters under State securities or Blue Sky laws) has been obtained or made and is in full force and effect. (xiii) The Company owns or possesses adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights and know-how (including trade secrets, and other proprietary and confidential information, systems or procedures) necessary to conduct the businesses now operated by it as described in the Prospectus, and, except as disclosed to the Representatives in writing, the Company has not received any notice of infringement of or conflict with (and no officer or trustee of the Company knows of any such infringement of or conflict with) asserted rights of others with respect to any patents, trademarks, service marks, trade names, copyrights or know-how. (xiv) The organization of the Company is in conformity with the requirements of the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a real estate investment trust, and the Company's present ownership, business and operations as described in the Prospectus enable it to meet the present requirements of the Code for such qualification for 1994 and subsequent years. The Company qualified as a real estate investment trust for its 1987, 1988, 1989, 1990, 1991, 1992 and 1993 taxable years. (xv) The Company is not required to register as an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (xvi) Except with respect to the properties listed on the schedule provided to the Underwriters at Closing Time (as defined herein) which are not in compliance with this subsection (a)(xv), but which non-compliance would not in the aggregate have a material adverse effect in the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company, to the Company's knowledge, after due investigation, and except for Hazardous Materials or substances which are handled and/or disposed of in compliance with all applicable federal, state and local requirements, the real property owned, leased or otherwise utilized by the Company in connection with the operation of its business, including without limitation, any subsurface soils and ground water (the "Realty"), is free of contamination from any Hazardous Materials. To the Company's knowledge, after due investigation, the Realty does not contain any underground storage or treatment tanks, active or abandoned water, gas or oil wells, or any other underground 9 improvements or structures, other than the foundations, footings or other supports for the improvements located thereon which based on present knowledge could presently or at any time in the future cause a material detriment to or materially impair the beneficial use thereof by the Company or constitute or cause a significant health, safety or other environmental hazard to occupants or users thereof without regard to any special conditions of such occupants or users. The Company represents that, after due investigation, it has no knowledge of any material violation, with respect to the Realty, of any Environmental Law, or of any material liability on the part of the Company, with respect to the Realty, resulting from the presence, use, release, threatened release, emission, disposal, pumping, discharge, generation or processing of any Hazardous Materials. As used herein, "Environmental Law" means any federal, state or local statute, regulation, judgment, order, or authorization relating to emissions, discharges, releases or threatened releases of Hazardous Materials into ambient air, surface water, ground water, publicly owned treatment works, septic systems or land, or otherwise relating to the pollution or protection of health or the environment. As used herein, "Hazardous Materials" means any substance, material or waste which is regulated by any federal, state or local governmental or quasi- governmental authority, and includes, without limitation, (a) any substance, material or waste defined, used or listed as a "hazardous waste", "hazardous substance", "toxic substance", "medical waste", "infectious waste" or other similar terms as defined or used in any Environmental Law, as such Environmental Law may from time to time be amended, and; (b) any petroleum products, asbestos, lead-based paint, polychlorinated biphenyls, flammable explosives or radioactive materials. (xvii) The documents incorporated or deemed to be incorporated by reference in the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission under the 1934 Act (the "1934 Act Regulations"), and, when read together with the other information in the Prospectus, at the time the Registration Statement becomes effective and at the Closing time, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (xviii) The Advisory Agreement (as defined in the Prospectus) has been duly authorized, executed and delivered by the parties thereto and constitutes the valid agreement of the parties thereto, enforceable in accordance with its terms, except as limited by (a) the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights or remedies of 10 creditors or (b) the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefore may be brought. (xix) The Company is in compliance with all of the provisions of Section 517.075 of the Florida statutes, and all rules and regulations promulgated thereunder relating to issuers doing business in Cuba. (b) Any certificate signed by any officer of the Company and delivered to the Lead Managers or to counsel for the International Managers shall be deemed a representation and warranty by the Company to each International Manager as to the matters covered thereby. Section 2. Sale and Delivery to International Managers; Closing. (a) On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each International Manager severally and not jointly, and each International Manager, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in the International Pricing Agreement, the number of International Shares set forth in Schedule A opposite the name of such International Manager (except as otherwise provided in the International Pricing Agreement), plus any additional number of International Shares which such International Manager may become obligated to purchase pursuant to the provisions of Section 10 hereof. (1) If the Company has elected not to rely upon Rule 430A under the 1933 Act Regulations, the initial public offering price and the purchase price per share to be paid by the several International Managers for the International Shares have each been determined and set forth in the International Pricing Agreement, dated the date hereof, and an amendment to the Registration Statement and the Prospectus will be filed before the Registration Statement becomes effective. (2) If the Company has elected to rely upon Rule 430A under the 1933 Act Regulations, the purchase price per share to be paid by the several International Managers for the International Shares shall be an amount equal to the initial public offering price, less an amount per share to be determined by agreement between the Lead Managers and the Company. The initial public offering price per share of the International Shares shall be a fixed price to be determined by agreement between the Lead Managers and the Company. The initial public offering price per share of the International Shares shall not be higher than the last reported sale price (regular way) or the last reported asked price, whichever is higher, of the Shares of Beneficial Interest on the New York Stock Exchange immediately prior to determination of the initial public offering price. The initial 11 public offering price and the purchase price, when so determined, shall be set forth in the International Pricing Agreement. In the event that such prices have not been agreed upon and the International Pricing Agreement has not been executed and delivered by all parties thereto by the close of business on the fourth business day following the date of this Agreement, this Agreement shall terminate forthwith, without liability of any party to any other party, unless otherwise agreed to by the Company and the Lead Managers. (3) In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the International Managers, severally and not jointly, to purchase up to an additional 1,500,000 Shares at the price per share set forth in the International Pricing Agreement less an amount equal to any dividend paid by the Company and payable on any Initial Shares and not payable on such Option Shares. The option hereby granted will expire 30 days after the date the Registration Statement becomes effective and may be exercised by the U.S. Representatives on behalf of both the International Managers and the U.S. Underwriters in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Shares upon notice by the U.S. Representatives to the Company setting forth the number of Option Shares as to which the several Underwriters are then exercising the option and the time, date and place of payment and delivery for such Option Shares. Any such time and date of delivery (a "Date of Delivery") shall be determined by the U.S. Representatives but shall not be later than seven full business days after the exercise of said option, nor in any event prior to Closing Time, as hereinafter defined, unless otherwise agreed upon by the U.S. Representatives and the Company. If the option is exercised as to all or any portion of the Option Shares, the Option Shares shall be purchased by the Underwriters, severally and not jointly, in proportion to their respective Initial Share underwriting obligations as set forth in Schedule A (except as otherwise provided in the International and U.S. Pricing Agreements). (b) Payment of the purchase price for and delivery of certificates for the Initial International Shares shall be made at the office of Sullivan & Worcester, One Post Office Square, Boston, Massachusetts 02109, or at such other place as shall be agreed upon by the Lead Managers and the Company, at 10:00 A.M. on the fifth business day (unless postponed in accordance with the provisions of Section 10) following the date the Registration Statement becomes effective (or, if the Company has elected to rely upon Rule 430A, the fifth business day after execution of the International Pricing Agreement), or such other time not later than ten business days after such date as shall be agreed upon by the Lead Managers and the Company (such time and date of payment and delivery being herein called "Closing Time"). In addition, in the event that any or all of the Option Shares are purchased by the 12 International Managers, payment of the purchase price for and the delivery of certificates for such Option Shares shall be made at the above-mentioned office of Sullivan & Worcester, or at such other place as shall be mutually agreed upon by the U.S. Representatives and the Company, on each Date of Delivery as specified in the notice from the U.S. Representatives to the Company. Payment shall be made by certified or official bank check or checks in New York Clearing House or similar next day funds payable to the order of the Company against delivery to the Lead Managers for the respective accounts of the International Managers of certificates for the Shares to be purchased by them. The certificates for the Shares shall be in such authorized denominations and registered in such names as the Lead Managers may request in writing at least two business days before Closing Time or the Date of Delivery, as the case may be. It is understood that each International Manager has authorized the Lead Managers, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the International Shares which it has agreed to purchase. MLI, Donaldson Lufkin, PaineWebber or Smith Barney, individually and not as lead managers of the several International Managers may (but shall not be obligated to) make payment of the purchase price for the International Shares to be purchased by any International Manager whose check has not been received by Closing Time, but any such payment shall not relieve such International Manager from its obligations hereunder. The certificates for the Initial International Shares and the International Option Shares will be made available for examination and packaging by the Lead Managers not later than 10:00 A.M. on the last business day prior to Closing Time or the Date of Delivery, as the case may be. Section 3. Covenants of the Company. The Company covenants with each International Manager as follows: (a) The Company will notify the Lead Managers immediately, and confirm the notice in writing, (i) of the effectiveness of the Registration Statement and any amendment thereto (including any post- effective amendment), (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information relating thereto, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose. The Company will make every reasonable effort to prevent the issuance of any such stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) The Company will give the Lead Managers notice of its intention to file or prepare any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus (including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of 13 the Shares which differs from the prospectus on file at the Commission at the time the Registration Statement becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) of the 1933 Act Regulations), will furnish the Representatives with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement or use any such prospectus to which counsel for the Underwriters shall reasonably object. (c) The Company will deliver to the Lead Managers four signed copies of the Registration Statement as originally filed electronically and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein and the documents incorporated by reference into the Prospectus pursuant to Item 12 of Form S-3) and will also deliver to the Representatives a conformed copy of the Registration Statement as originally filed and of each amendment thereto for each of the Underwriters. (d) The Company will furnish to each International Manager, from time to time during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as amended or supplemented) as such International Manager may reasonably request for the purposes contemplated by the 1933 Act, the 1933 Act Regulations, the 1934 Act or 1934 Act Regulations. (e) If any event shall occur as a result of which it is necessary, in the opinion of counsel for the International Managers, to amend or supplement the Prospectus in order to make the Prospectus not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, the Company will either (i) forthwith prepare and furnish to the Lead Managers a reasonable number of copies of an amendment of or supplement to the Prospectus or (ii) make an appropriate filing pursuant to Section 13, 14 or 15 of the 1934 Act, in form and substance reasonably satisfactory to counsel for the International Managers, which will amend or supplement the Prospectus so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time it is delivered to a purchaser, not misleading. (f) The Company will endeavor in good faith, in cooperation with the International Managers, to qualify the International Shares for offering and sale under the applicable securities laws and real estate syndication laws of such states and other jurisdictions of the United States as the Lead Managers may designate provided that, in connection therewith, the Company shall not be required to qualify as a foreign corporation or trust or to file any general consent to service of process. In each jurisdiction in which the International Shares have been so qualified the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such 14 qualification in effect for so long as required for the distribution of the International Shares. (g) The Company will make generally available to its security holders as soon as reasonably practicable, but not later than 60 days after the close of the period covered thereby, an earning statement of the Company (in form complying with the provisions of Rule 158 of the 1933 Act Regulations) covering a period of at least twelve months beginning not later than the first day of the Company's fiscal quarter next following the effective date of the Registration Statement. "Earning statement", "make generally available" and "effective date" will have the meanings contained in Rule 158 of the 1933 Act Regulations. (h) The Company will use the net proceeds received by it from the sale of the Shares in the manner specified in the Prospectus under the caption "Use of Proceeds" in all material respects. (i) The Company will use its best efforts to effect the listing of the Shares on the New York Stock Exchange ("NYSE"). (j) The Company hereby agrees, concurrently with the execution of this Agreement, to deliver an agreement executed by the Advisor pursuant to which the Advisor agrees not to offer, sell, contract to sell, make subject to any purchase option, or otherwise dispose of any Shares of Beneficial Interest held for its own account, directly or indirectly, in a public or private transaction and the Company and the Advisor each agree not to terminate, modify or waive any provision in any agreement to which the Company or the Advisor is a party that restricts or limits the transferability of Shares of Beneficial Interest, in each case for a period of 90 days after the date of the Prospectus without the prior written consent of MLI. The Company further agrees that it will not, without the prior written consent of MLI, (x) offer, sell, contract to sell, or otherwise dispose of any Shares of Beneficial Interest or other securities convertible into or exercisable or exchangeable for Shares of Beneficial Interest or (y) file any registration statement (other than the Registration Statement) relating to any such securities with the Commission or any other authority, in each case for a period of 90 days after the date of the Prospectus; provided, however, that the Company may issue Shares of Beneficial Interest pursuant to the Company's existing Share Award Plan and issue and sell Shares of Beneficial Interest to the Underwriters pursuant to this Agreement. (k) The Company currently intends to continue to elect to qualify as a "real estate investment trust" under the Internal Revenue Code of 1986, as amended, and use its best efforts to continue to meet the requirements to qualify as a "real estate investment trust". (l) If, at the time that the Registration Statement becomes effective, any information shall have been omitted therefrom in reliance upon Rule 430A of the 1933 Act Regulations, then immediately following 15 the execution of the International Pricing Agreement, the Company will prepare, and file or transmit for filing with the Commission in accordance with such Rule 430A and Rule 424(b) of the 1933 Act Regulations, copies of an amended Prospectus, or, if required by such Rule 430A, a post-effective amendment to the Registration Statement (including an amended Prospectus), containing all information so omitted. Section 4. Payment of Expenses. The Company will pay all expenses incident to the performance of its obligations under this Agreement, including (i) the printing and filing of the Registration Statement as originally filed and of each amendment thereto, (ii) the cost of printing, or reproducing, and distributing to the International Managers copies of this Agreement and the International Pricing Agreement, (iii) the preparation, issuance and delivery of the certificates for the International Shares to the International Managers, (iv) the fees and disbursements of counsel for the Company, referred to in Section 5(b) hereof, (v) the fees and disbursements of the Company's accountants, (vi) the qualification of the International Shares under securities laws and real estate syndication laws in accordance with the provisions of Section 3(f), including filing fees and the fee and disbursements of counsel for the Company in connection therewith and in connection with the preparation of the Blue Sky Survey, (vii) the printing and delivery to the International Managers of copies of the Registration Statement as originally filed and of each amendment thereto, of the preliminary prospectuses, and of the Prospectus and any amendments or supplements thereto, (viii) the cost of printing or reproducing and delivering to the International Managers copies of the Blue Sky Survey, (ix) the fee of the NASD, (x) the fees and expenses incurred in connection with the listing of the Shares on the NYSE and (xi) any transfer taxes imposed on the sale of the International Shares to the several International Managers. If this Agreement is terminated by the Lead Managers in accordance with the provisions of Section 5 or Section 9(a)(i), the Company shall reimburse the International Managers for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the International Managers. Section 5. Conditions of International Managers' Obligations. The obligations of the International Managers hereunder are subject to the accuracy of the representations and warranties of the Company herein contained, to the performance by the Company of its obligations hereunder, and to the following further conditions: (a) The Registration Statement shall have become effective not later than 5:30 P.M. on the date hereof, or, with the consent of the Lead Managers, at a later time and date, not later, however, than 5:30 P.M. on the first business day following the date hereof or at such later time and date as may be approved by a majority in interest of the 16 International Managers; and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. If the Company has elected to rely upon Rule 430A of the 1933 Act Regulations, the price of the Shares and any price-related information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) of the 1933 Act Regulations within the prescribed time period, and prior to Closing Time the Company shall have provided evidence satisfactory to the Lead Managers, of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A of the 1933 Act Regulations. (b) At Closing Time the Lead Managers shall have received: (1) The favorable opinion, dated as of Closing Time, of Sullivan & Worcester, counsel for the Company, in form and substance satisfactory to counsel for the International Managers, to the effect that: (i) The Company has been duly organized and is validly existing under the laws of its jurisdiction of organization and has the trust power and authority to carry on its business and to own or lease and operate its property as described in the Registration Statement and the Prospectus. (ii) The Company is duly qualified and in good standing and authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified or in good standing would not have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company. (iii) The Company has the requisite power and authority to enter into and perform this Agreement and the International Pricing Agreement; the Company has the requisite power and authority to issue and deliver the International Shares. (iv) This Agreement and the International Pricing Agreement have been duly authorized, executed and delivered by the Company. (v) (A) The authorized and issued capital stock of the Company is correctly set forth in the Registration Statement and Prospectus under the caption "Capitalization"; (B) all of the outstanding shares of capital stock of the Company have been duly authorized and are validly issued, fully paid and non-assessable (except as otherwise described in the Registration Statement) and free of preemptive rights or other rights to subscribe for or to purchase securities provided 17 for by law or by its Declaration of Trust or bylaws; (C) the Shares have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement and in the International Pricing Agreement, will be validly issued, fully paid and, except as otherwise described in the Registration Statement, non-assessable and the issuance of such Shares is not subject to any preemptive or similar rights; (D) all outstanding Shares of Beneficial Interest are listed on the New York Stock Exchange and the Shares, upon notice of issuance, will be so listed; (E) the certificates for the Shares are valid and in proper legal form; and (F) to such counsel's knowledge, there are no holders of securities of the Company entitled to the registration of Shares of Beneficial Interest or other securities. (vi) The Company is not required to register as an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (vii) To the extent required to be described therein, the Shares and the rights related thereto conform in all material respects to the descriptions in the Registration Statement and Prospectus. (viii) The Registration Statement has become effective under the 1933 Act, and, to such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted by or is pending before the Commission. (ix) To such counsel's knowledge, there is no legal or governmental proceeding pending or threatened against the Company or to which the Company is a party or to which any of the properties of the Company is subject which is required to be described in the Registration Statement or Prospectus and is not so described, or any contract, lease or other document which is required to be described in the Registration Statement or Prospectus or is required to be filed as an exhibit to the Registration Statement which is not described or filed as required; the descriptions thereof or references thereto are accurate in all material respects; and, to such counsel's knowledge, each contract, lease or document so described is in full force and effect in accordance with its terms. (x) Neither the Company nor the Advisor is in violation of its charter documents or bylaws or, to such counsel's knowledge, in default in the performance of any material obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any material indenture, instrument or other agreement to which the Company or the Advisor is a party or which binds the Company or the Advisor or any of their property; to such counsel's knowledge, neither the Company nor the Advisor is in violation of any law, ordinance, governmental rule or regulation or court decree to which it is subject except where such violation would 18 not have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company or the Advisor, as the case may be. (xi) The Company owns or possesses all licenses and permits necessary for the conduct of its business and the ownership, leasing and operation of its properties, except such licenses and permits as to which the failure to own or possess will not in the aggregate have a material adverse effect on the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company. (xii) The execution, delivery and performance of this Agreement and the International Pricing Agreement and the consummation of the transactions contemplated hereby will not conflict with or constitute a breach or violation of any of the terms or provisions of, or constitute a default under, (A) any bond, debenture, note or other evidence of indebtedness or any indenture, instrument or agreement of which such counsel has knowledge to which the Company or the Advisor is a party or which binds either of them or any of their property, (B) the charter documents or bylaws of the Company or the Advisor or (C) any law, regulation, ruling, judgment, decree or order of which such counsel has knowledge to which the Company or the Advisor or any of their properties may be subject. (xiii) Except with respect to state securities or blue sky laws and regulations, all proceedings required in connection with the authorization and issuance of the Shares have been taken and all authorizations, consents, approvals, licenses or other orders of any regulatory body, administra-tive agency or other governmental body required for the valid issuance and delivery of the Shares hereunder have been obtained. (xiv) No consents or waivers from the holders of the Company's capital stock are required to consummate the transactions contemplated hereby other than such consents and waivers as have been obtained. (xv) At the time the Registration Statement became effective and at the Representation Date, the Registration Statement and the Prospectus and any supplement or amendment thereto (except for financial statements and other financial and statistical data and schedules contained therein as to which such counsel need not express an opinion) complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. (xvi) The investments of the Company described in the Prospectus are permitted investments under the Declaration of Trust of the Company. 19 (xvii) The Advisory Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and legally binding agreement of the Company enforceable in accordance with its terms, except (A) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, (B) that the remedy of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought, and (C) as any indemnification and contribution provisions thereunder may be limited by applicable law and public policy. (xviii) The Advisory Agreement has been duly authorized, executed and delivered by the Advisor and constitutes the valid and legally binding agreement of the Advisor, enforceable in accordance with its terms except (A) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, (B) that the remedy of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought, and (C) as any indemnification and contribution provisions thereunder may be limited by applicable law and public policy. (xix) The execution and delivery of the Advisory Agreement by the Company and the Advisor and the performance by the Company and the Advisor of the obligations contained therein and the compliance with their terms did not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under the charter documents or bylaws of the Company or the Advisor, respectively, or any license, permit, material agreement, indenture or other instrument known to such counsel to which the Company or the Advisor, respectively, is bound, or any law, administrative regulation or court or governmental decree known to such counsel applicable to the Company or the Advisor. (xx) The Advisor (A) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and (B) has requisite corporate power and authority to conduct its business as described in the Prospectus and to own and operate the properties used and useful in said business. (xxi) No facts have come to such counsel's attention that lead such counsel to believe that the Company does not have insurable title to each item of real property owned by it subject to such encumbrances and defects as set forth in the title policies obtained in connection with the acquisition thereof (or as otherwise described in the Registration Statement) or that the Company leases are not valid. 20 (xxii) Each document filed pursuant to the 1934 Act (other than the financial statements and supporting schedules included therein, as to which no opinion need be rendered) and incorporated or deemed to be incorporated by reference in the Prospectus complied when so filed as to form in all material respects with the 1934 Act and the 1934 Act Regulations. (xxiii) The Company has qualified to be taxed as a real estate investment trust pursuant to Sections 856-860 of the Internal Revenue Code, as amended, for the fiscal years ended December 31, 1987 through December 31, 1993, and the Company's present method of operation and its assets and contemplated income are such that the Company is in a position under present law to so qualify for the fiscal year ended December 31, 1994 and in the future. With respect to matters governed by Maryland law, such counsel may rely upon an opinion, dated as of Closing Time, of Piper & Marbury, a copy of which shall have been furnished to the Representatives at Closing Time in form and substance satisfactory to counsel for the International Managers. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that the Registration Statement, as of the time it became effective under the 1933 Act, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the International Managers by the Company for use in connection with the offering of the Shares which differs from the Prospectus on file at the Commission at the Representation Date, in which case at the time it is first provided to the Underwriters for such use) or at Closing Time, contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (except that such counsel need express no view as to financial statements, schedules and other financial information included therein). With respect to such statement, Sullivan & Worcester may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (2) The favorable opinion, dated as of Closing Time, of Brown & Wood, counsel for the International Managers, with respect to the matters set forth in (iv), (vii), (viii) and (xv) of subsection (b)(1) of this Section. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that the Registration Statement, as of the time it became effective under the 1933 Act, contained in untrue statement of a material fact or omitted to state a material fact required to be stated therein or 21 necessary to make the statements therein not misleading or that the Prospectus, at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriters by the Company for use in connection with the offering of the Shares which differs from the Prospectus on file at the Commission at the Representation Date, in which case at the time it is first provided to the Underwriters for such use) or at Closing Time, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (except that such counsel need express no view as to financial statements, schedules and other financial information included). With respect to such statement, Brown & Wood may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (c) At Closing Time (i) the Registration Statement and the Prospectus shall contain all statements which are required to be stated therein in accordance with the 1933 Act and the 1933 Act Regulations and in all material respects shall conform to the requirements of the 1933 Act and the 1933 Act Regulations, and neither the Registration Statement nor the Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and no action, suit or proceeding at law or in equity shall be pending or to the knowledge of the Company threatened against the Company which would be required to be set forth in the Prospectus other than as set forth therein, (ii) there shall not have been, since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change in the condition, financial or otherwise, of the Company or in its earnings, business affairs or business prospects, whether or not arising in the ordinary course of business from that set forth in the Registration Statement, and (iii) no proceedings shall be pending or, to the knowledge of the Company, threatened against the Company before or by any Federal, state or other commission, board or administrative agency wherein an unfavorable decision, ruling or finding would materially and adversely affect the business, property, financial condition or income of the Company other than as set forth in the Prospectus; and the Lead Managers shall have received, at Closing Time, a certificate of the President and Chief Executive Officer and the chief financial officer of the Company, dated as of Closing Time, evidencing compliance with the provisions of this subsection (c) and stating that the representations and warranties set forth in Section 1(a) hereof are accurate as though expressly made at and as of Closing Time. (d) At the time of execution of this Agreement, the Lead Managers shall have received from Ernst & Young a letter dated such date, in form and substance satisfactory to the Lead Managers, to the effect that (i) they are independent public accountants as required by the 1933 Act and the applicable published rules and regulations thereunder with respect 22 to the Company; (ii) it is their opinion that the audited financial statements of the Company, Greenery, GranCare, Horizon and Marriott included in the Registration Statement and covered by their opinions therein comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the related published rules and regulations thereunder; (iii) they have performed limited procedures, not constituting an audit, including a reading of the latest available interim financial statements of the Company, a reading of the minute books of the Company since December 31, 1993, inquiries of officials of the Company responsible for financial and accounting matters and such other inquiries and procedures as may be specified in such letter, and on the basis of such limited review and procedures nothing came to their attention that caused them to believe that: (A) at a specified date not more than five days prior to the date of such letter, there was any decrease in the shareholders' equity of the Company, any decrease in total assets or any increase in total borrowings of the Company, as compared with the amounts shown in the latest balance sheet included in the Registration Statement; or (B) during the period from the date of the latest balance sheet included in the Registration Statement, to a specified date not more than five days prior to the date of such letter, there were any decreases, as compared with the corresponding period in the preceding year, in total revenues, net income or income per share; except in all cases for increases or decreases which the Registration Statement discloses or contemplates have occurred or may occur; (iv) in addition to the limited procedures referred to in clause (iii) above, they have carried out certain specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information which are derived from the general accounting records of the Company, which are included in the Registration Statement and which are specified by the Lead Managers and the U.S. Representatives, and have compared such amounts, percentages and financial information with the accounting records of the Company and have found them to be in agreement; and (v) they have read the unaudited pro forma financial statements which are included in the Registration Statement and have performed specified procedures set forth in detail in such letter and found the amounts resulting from such procedures to be in agreement with the amounts set forth in such unaudited pro forma financial statements and nothing has come to their attention which causes them to believe that the unaudited pro forma financial statements included in the Registration Statement, which combine certain financial statements of the Company with certain transactions set forth in the notes to such pro forma statements, do not comply as to form in all material respects with Article 11 of Regulation S-X under the 1933 Act. 23 (e) At Closing Time the Lead Managers shall have received from Ernst & Young a letter dated as of Closing Time to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (d) of this Section, except that the "specified date" referred to shall be a date not more than five days prior to Closing Time, and, if the Company has elected to rely on Rule 430A of the 1933 Act Regulations, to the further effect that they have carried out procedures as specified in clause (iv) of subsection (d) of this Section with respect to certain amounts, percentages and financial information deemed to be a part of the Registration Statement pursuant to Rule 430A(b). (f) At Closing Time counsel for the International Managers shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the International Shares as herein contemplated and related proceedings, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the International Shares as herein contemplated shall be reasonably satisfactory in form and substance to the Lead Managers and counsel for the International Managers. (g) In the event the U.S. Representatives exercise their option provided in Section 2 hereof to purchase all or any portion of the Option Shares, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company hereunder shall be true and correct as of each Date of Delivery, and the Lead Managers shall have received: (1) A certificate of the President and Chief Executive Officer and the chief financial officer of the Company, dated such Date of Delivery, confirming that their certificates delivered at Closing Time pursuant to Section 5(c) hereof remain true as of such Date of Delivery. (2) The favorable opinion of Sullivan & Worcester, special counsel for the Company, in form and substance satisfactory to counsel for the International Managers, dated such Date of Delivery, relating to the Option Shares and otherwise to the same effect as the opinion required by Section 5(b)(1) hereof. (3) The favorable opinion of Brown & Wood, counsel for the International Managers, dated such Date of Delivery, relating to the Option Shares and otherwise to the same effect as the opinion required by Section 5(b)(2) hereof. (4) A letter from Ernst & Young, in form and substance satisfactory to the Lead Managers, dated such Date of Delivery, 24 substantially the same in scope and substance as the letter furnished to the Representatives pursuant to Section 5(e) hereof, except that the "specified date" in the letter furnished pursuant to this Section 5(g)(4) shall be a date not more than five days prior to such Date of Delivery. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Lead Managers by notice to the Company at any time at or prior to Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4 hereof. Section 6. Indemnification. (a) The Company hereby agrees to indemnify and hold harmless each International Manager and each person, if any, who controls any International Manager within the meaning of Section 15 of the 1933 Act as follows: (1) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the information deemed to be part of the Registration Statement pursuant to Rule 430A(b) of the 1933 Act Regulations, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission, or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (2) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and (3) against any and all expense whatsoever, as incurred (including, subject to Section 6(c) hereof, the fees and disbursements of counsel chosen by the Representatives), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceedings by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or 25 omission, to the extent that any such expense is not paid under (1) or (2) above; provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any International Manager through the Lead Managers expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto); and provided, further, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any such loss, claim, damage or expense purchased International Shares, or any person controlling such Underwriter, if a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto and excluding documents incorporated or deemed to be incorporated by reference therein) was not sent or given by or on behalf of such International Manager to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Shares to such person, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or expense. (b) Each International Manager severally agrees to indemnify and hold harmless the Company, each of the Company's trustees, each of the Company's officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such International Manager through the Lead Managers expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in 26 connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. Section 7. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Section 6 hereof is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, the Company and the International Managers shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by the Company and one or more of the International Managers, as incurred, in such proportions that the International Managers are responsible for that portion represented by the percentage that the underwriting discount appearing on the cover page of the Prospectus bears to the initial public offering price appearing thereon and the Company is responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding the provisions of this Section 7, no International Manager shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such International Manager has otherwise been required to pay in respect of such losses, liabilities, claims, damages and expenses. For purposes of this Section, each person, if any, who controls an International Manager within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as such International Manager, and each trustee of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company. Section 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement and the International Pricing Agreement, or contained in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any International Manager or an controlling person, or by or on behalf of the Company, and shall survive delivery of the International Shares to the International Managers. Section 9. Termination of Agreement. (a) The Lead Managers may terminate this Agreement, by notice to the Company, at any time at or prior to Closing Time (i) if there has been, since the respective dates as of which information is given in the Registration Statement, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company, whether or not arising in the ordinary course of business, or (ii) if 27 there has occurred any material adverse change in the financial markets in the United States or any outbreak of hostilities or escalation of existing hostilities or other calamity or crisis the effect of which on the financial markets of the United States is such as to make it, in the Lead Managers reasonable judgment, impracticable to market the Shares or enforce contracts for the sale of the Shares, or (iii) if trading in the Shares of Beneficial Interest of the Company has been suspended by the Commission, or if trading generally on either the New York Stock Exchange or the American Stock Exchange has been suspended, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by either of said exchanges or by order of the Commission or any other governmental authority, or if a banking moratorium has been declared by Federal or New York authorities. (b) If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4, and provided further that Sections 6 and 7 hereof shall survive such termination. Section 10. Default by One or More of the International Managers. If one or more of the International Managers shall fail at Closing Time to purchase the Shares which it or they are obligated to purchase under this Agreement and the International Pricing Agreement (the "Defaulted Shares"), the Lead Managers shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting International Managers, or any other international managers, to purchase all, but not less than all, of the Defaulted Shares in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Lead Managers shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Shares does not exceed 10% of the Shares, the non-defaulting International Managers shall be obligated to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting International Managers, or (b) if the number of Defaulted Shares exceeds 10% of the Shares, this Agreement shall terminate without liability on the part of any non-defaulting International Manager. No action taken pursuant to this Section shall relieve any defaulting International Manager from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement, either the Lead Managers or the Company shall have the right to postpone Closing Time for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. 28 Section 11. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the International Managers shall be directed to the Lead Managers c/o Merrill Lynch International Limited at Ropemaker Place, 25 Ropemaker Street, London ECZ 9LY, England, attention of ___________________, ___________________; and notices to the Company shall be directed to it at 400 Center Street, Newton, Massachusetts 02158, Attention: Mark J. Finklestein. Section 12. Parties. This Agreement and the International Pricing Agreement shall each inure to the benefit of and be binding upon the International Managers and the Company and their respective successors. Nothing expressed or mentioned in this Agreement or the International Pricing Agreement is intended or shall be construed to give any person, firm or corporation, other than those referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or the International Pricing Agreement or any provision herein or therein contained. This Agreement and the Pricing Agreement and all conditions and provisions hereof and thereof are intended to be for the sole and exclusive benefit of the parties hereto and thereto and their respective successors and said controlling persons and officers, trustees and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of International Shares from any International Manager shall be deemed to be a successor by reason merely of such purchase. Section 13. Governing Law and Time; Miscellaneous. This Agreement and the Pricing Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in said State. Specified times of day refer to New York City time. THE DECLARATION OF TRUST ESTABLISHING THE COMPANY, DATED OCTOBER 9, 1986, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HEALTH AND REHABILITATION PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE COMPANY SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE COMPANY. ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. 29 If the foregoing is in accordance with your understanding of our agreement, please sign and return to us a counterpart hereof, whereupon this instrument along with all counterparts will become a binding agreement between the Underwriters and the Company in accordance with its terms. Very truly yours, HEALTH AND REHABILITATION PROPERTIES TRUST By Authorized Officer CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH INTERNATIONAL LIMITED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION PAINEWEBBER INTERNATIONAL (U.K.) LTD. SMITH BARNEY SHEARSON INC. By: Merrill Lynch International Limited By Authorized Officer For themselves and as Lead Managers of the other International Managers named in Schedule A hereto. 30 SCHEDULE A Number of Name of Underwriter Initial Shares Merrill Lynch International Limited........... Donaldson, Lufkin & Jenrette Securities Corporation ................................ PaineWebber International (U.K.) Ltd........... Smith Barney Shearson Inc..................... Total......................................... 1,500,000 Exhibit A 1,500,000 Shares HEALTH AND REHABILITATION PROPERTIES TRUST (a Maryland real estate investment trust) Common Shares of Beneficial Interest ($.01 Par Value) INTERNATIONAL PRICING AGREEMENT __________ __, 1994 MERRILL LYNCH INTERNATIONAL LIMITED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION PAINEWEBBER INTERNATIONAL (U.K.) LTD. SMITH BARNEY SHEARSON INC. As Lead Managers of the several International Managers c/o Merrill Lynch International Limited Ropemaker Place 25 Ropemaker Street London, ECZY 9LY England Dear Sirs: Reference is made to the Purchase Agreement, dated ___________ __, 1994 (the "Purchase Agreement"), relating to the purchase by the several International Managers named in Schedule A thereto, for whom Merrill Lynch International Limited, Donaldson, Lufkin & Jenrette Securities Corporation, PaineWebber International (U.K.) Ltd. and Smith Barney Shearson Inc. are acting as lead managers (the "Lead Managers"), of the above shares of beneficial interest (the "Shares") of Health and Rehabilitation Properties Trust (the "Company"). Pursuant to Section 2 of the International Purchase Agreement, the Company agrees with each International Manager as follows: 1. The initial public offering price per share for the Shares, determined as provided in said Section 2, shall be $ . 2. The purchase price per share for the Shares to be paid by the several International Managers shall be $ , being an amount equal to the initial public offering price set forth above less $ per share. If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the International Managers and the Company in accordance with its terms. Very truly yours, HEALTH AND REHABILITATION PROPERTIES TRUST By Authorized Officer CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH INTERNATIONAL LIMITED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION PAINEWEBBER INTERNATIONAL (U.K.) LTD. SMITH BARNEY SHEARSON INC. By: Merrill Lynch International Limited By Director For themselves and as Lead Managers of the other International Managers named in Schedule A to the International Purchase Agreement. 2 -----END PRIVACY-ENHANCED MESSAGE-----