-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kp7tHJE8qG1JM0TquePGM8b0b3mqgQTnd+Wxa56HfMrTSA6/mmceJCwK12OvstPP qsO13Xt6qMYDrdtpVC319A== 0001029869-97-000304.txt : 19970303 0001029869-97-000304.hdr.sgml : 19970303 ACCESSION NUMBER: 0001029869-97-000304 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970217 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970228 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTH & RETIREMENT PROPERTIES TRUST CENTRAL INDEX KEY: 0000803649 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 046558834 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09317 FILM NUMBER: 97547861 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 FORMER COMPANY: FORMER CONFORMED NAME: HEALTH & REHABILITATION PROPERTIES TRUST DATE OF NAME CHANGE: 19920703 8-K 1 HRP TRUST FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): February 17, 1997 HEALTH AND RETIREMENT PROPERTIES TRUST (Exact name of registrant as specified in charter) Maryland 1-9317 04-6558834 (State or other (Commission file (IRS employer jurisdiction of number) identification no.) incorporation) 400 Centre Street, Newton, Massachusetts 02158 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: 617-332-3990 THIS CURRENT REPORT CONTAINS FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED OR PROJECTED. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE REGISTRANT UNDERTAKES NO OBLIGATION TO PUBLISH REVISED FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. Item 5. Other Events. A. GPI Acquisition. As previously announced, on February 17, 1997 Health and Retirement Properties Trust (the "Company" or "HRP") entered into a Agreement of Merger (the "Merger Agreement") with Government Property Investors, Inc. (together with its subsidiaries, except where the context requires otherwise, "GPI"), a Delaware corporation, providing for the merger (the "Merger") of a wholly-owned subsidiary of GPI into and with a wholly-owned subsidiary of the Company ("HRP Merger Sub"). Except with respect to references to common shares of beneficial interest of the Company ("Common Shares") and unless the context otherwise requires, references in this Item of this Report to the Company include HRP Merger Sub and its subsidiaries. Pursuant to the Merger and related transactions, the Company would acquire up to 30 office buildings containing approximately 3.4 million square feet, substantially all of which is leased to various agencies of the United States Government (the "Government Office Properties"). Based upon the closing sale price for the Common Shares as reported by the New York Stock Exchange (the "Closing Price") on February 25, 1997 ($20.25 per share), the purchase price would be approximately $448 million. The value of the First Closing Consideration (as hereafter defined) will vary with the Common Share price on the Closing Date (as hereafter defined). As set out in the Merger Agreement, the purchase price payable on the Closing Date will be approximately $436 million, of which approximately $72.6 million will be paid by the issuance of approximately 4.2 million Common Shares, valued at $17.291 per share (the "First Closing Consideration"), approximately $47 million will be paid by the Company's assumption of debt secured by mortgages on four properties, and approximately $317 million will be paid in cash at the time of or shortly after the consummation of the Merger to retire other debt and pay certain obligations of GPI and its subsidiaries assumed by the Company. The Company will pay an additional amount (the "Second Closing Consideration") equal to the greater of $8 million or 3% of the aggregate cost of Additional Properties (as hereafter defined) acquired by the Company prior to the first anniversary of the Closing Date (the "Second Closing Date") by the issuance of Common Shares valued at the arithmetic average of the closing sales prices for the Common Shares as reported by the NYSE for the 20 trading days immediately prior to the Second Closing Date. This transaction is expected to close, at least with respect to 24 Government Office Properties with a value of approximately $389 million (calculated based upon the Closing Price on February 25, 1997), on or about March 31, 1997 (the "Closing Date"). In addition, the Company will have the option to pursue the acquisition of Additional Properties (as hereafter defined) leased to various Government agencies where negotiations were commenced by the sellers of the Government Office Properties. The information presented in this Report, unless otherwise indicated, is stated as though the acquisition of all 30 of the Government Office Properties has occurred. The closing under the Merger Agreement is subject to certain conditions, including the delivery of certain estoppel certificates and obtaining certain third-party consents. There can be no assurance, however, that the acquisition of any or all of the Government Office Properties will be completed, that the net operating income set forth herein will be achieved or that, after the occurrence of the Merger, the Company will acquire all of the properties under contract for acquisition or development or any additional Government Office Properties. A copy of the Merger Agreement is filed as an exhibit to this Report. The description of the Merger set forth herein describes certain provisions of the Merger Agreement, but does not purport to be complete and is subject to, and qualified in its entirety by reference to, all of the provisions of the Merger Agreement, including the definition of certain terms therein. The Merger. Pursuant to the Merger Agreement, Government Property Holdings Trust (together with its subsidiaries, except where context requires otherwise, "GPH"), a Maryland real estate investment trust to be formed by GPI, will merge with and into HRP Merger Sub and all outstanding stock of GPH will be converted into the right to receive the First Closing Consideration and the Second Closing Consideration. Prior to the Merger, GPI will contribute all of its interest in certain of its subsidiaries to GPH, and GPH will assume certain of GPI's indebtedness and certain other obligations of GPI. On the Closing Date, pursuant to the Merger Agreement GPI, GPH, HRP, HRP Merger Sub and certain related parties will enter into additional agreements (the "Other Transactions"), among them the Investment and Registration Rights Agreement (the "Registration Rights Agreement"), the Indemnification Agreement, the Voting Agreement, Information Access Agreement and the Service Contract. See "--Additional Agreements." The Merger is intended to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. Government Office Properties. The Government Office Properties consist of (i) 24 completed facilities purchased or developed by GPI prior to the Merger (collectively, the "Existing Government Office Properties"); (ii) three office buildings under development by GPI and third parties pursuant to development agreements (the "Development Properties"); and (iii) three office buildings with respect to which GPI has entered into purchase and sale agreements as purchaser (the "Contract Properties"). Pursuant to the Merger Agreement, if certain conditions relating to (i) the Development Property located in Aurora, Colorado (the "Aurora Premises") are satisfied on or before July 31, 1997, HRP will buy all interests of GPI and its affiliates in the Aurora Premises and (ii) the Contract Properties are satisfied on or before the Second Closing Date (hereafter defined), HRP will buy all interests of GPI and its affiliates in the Contract Properties. In addition, GPI has entered into negotiations to acquire an additional ten office buildings (the "Additional Properties") which negotiations HRP may elect to continue following the Merger. GPI has the option to transfer the Existing Government Office Property located in Houston, Texas (the "Houston Premises") to a third party in return for a $5 million reduction in the purchase price. Based upon the Closing Price on February 25, 1997, the reduction in the First Closing Consideration would be $5.9 million. The Government Office Properties are located in 17 states and the District of Columbia and are occupied by different agencies of the U.S. Government, including the Internal Revenue Service, Drug Enforcement Agency, Army Corps of Engineers and Department of Energy. GSA leases have been awarded for the Development Properties, which are under development by GPI in conjunction with third party developers and are scheduled to be completed by January 1998. The Additional and Contract Properties are generally 100% leased, primarily to the U.S. Government. See "Summary of the Government Office Properties." The number of useable square feet of each Government Office Property has been determined for these purposes based on the aggregate leased square footage specified in currently effective leases. The average remaining lease term for the Government Office Properties is approximately eight years. Most of these leases include tenant renewal options for extended periods. The current rents payable under these leases are approximately $61 million per year and most of the rental rates are subject to annual adjustments based upon increasing operating expenses as measured by Consumer Price Index increases. Generally, the leases are so called "modified gross leases" under which the Company, as landlord, will be required to provide certain property management services. The net operating income which the Company will receive from these leases, before depreciation, amortization and interest costs, and before management and home office costs, will depend upon the efficiency with which the Company is able to provide these services, but the Company estimates that such net income would be approximately $45 million per annum. Five of the 30 Government Office Properties are currently under contract for acquisition and/or development and will not produce rental income until their acquisition and development is completed. First Closing Consideration. The First Closing Consideration is payable by the issuance of Common Shares, valued at $17.291 per share, equal to $436 million minus the total debt of GPI and its subsidiaries (including approximately $47 million of debt which will be assumed by HRP Merger Sub on the Closing Date (the "Assumed Debt") but excluding debt to affiliates and certain others), plus the aggregate amount of certain net current assets of GPH and its subsidiaries as of the Closing Date. First Closing Consideration Adjustments. The amount of the First Closing Consideration is subject to the following reductions: i. an amount equal to the aggregate of prepayment penalties, if any, which would be incurred as the result of the prepayment of debt of GPI and its subsidiaries (exclusive of the Assumed Debt) on the Closing Date; ii. if the Development Property located in Golden, Colorado (the "Golden Premises") is not complete and the obligation of the tenant thereof to pay rent has not commenced by the Closing Date, the amount of $9,046,823; 2 iii. if the Development Property located in San Diego, California (the "San Diego Premises") is not complete and the obligation of both of the tenants thereof to pay rent has not commenced by the Closing Date, the amount of $1,530,954; iv. $11,647,101, provided that GPH has not succeeded to the interest of GPI in the Aurora Premises; v. if the Contract Property located in Waco, Texas (the "Waco Premises") is not ready for acquisition on the Closing Date, the amount of $8,514,714; vi. if the Contract Property located in Los Angeles, California (the "LA MEPS Premises") is not ready for acquisition on the Closing Date, the amount of $10,060,162; vii. if the Contract Property located in Phoenix, Arizona (the "Phoenix Premises") is not ready for acquisition on the Closing Date, the amount of $12,159,106; and viii. if GPI exercises its right to retain the Houston Premises, the amount of $5,000,000. The Merger Agreement contemplates that GPH will not succeed to the interest of GPI in the Aurora Premises on or before the Closing Date. If GPI elects to retain the Houston Premises and sells the Houston Premises prior to the Closing Date and any of the proceeds of such sale (the "Houston Proceeds") are included in the current assets of GPH used in the calculation of the First Closing Consideration, the Common Shares issued on account of the Houston Proceeds will be that number of Common Shares equal to the quotient of the Houston Proceeds divided by $19.2125 per share. Upon completion of the development or acquisition of the Golden Premises, the San Diego Premises, the Aurora Premises, the Waco Premises, the LA MEPS Premises and the Phoenix Premises, the amount of the reductions referred to above, less amounts expended (or anticipated to be expended) by HRP Merger Sub in connection with the acquisition or development of such premises (and in the case of the Aurora Premises, see "--The Aurora Premises") will be payable by the issuance of Common Shares valued at $17.291 per share. Second Closing Consideration. The aggregate cost of acquiring Additional Properties used to determine the Second Closing Consideration will include the purchase price, any contingent purchase price, the amount of any indebtedness assumed (but exclusive of transaction expenses and commissions paid by HRP or any of its affiliates), and will include Additional Properties with respect to which, prior to the Second Closing Date, HRP or any of its affiliates have purchased or entered into a binding agreement to purchase. The Second Closing Consideration payable in Common Shares will be adjusted (i) to offset any difference between the debt and certain current assets of GPI used in the determination of the First Closing Consideration as of the Closing Date and the actual amounts of such debt and certain current assets following the Closing Date; (ii) if the amounts paid to GPI or its successor pursuant to the Service Contract (as hereafter defined) (the "Service Contract Payment") are less than the amounts actually paid by GPI or its successor for office expenses, salaries and other operating expenses through July 31, 1997, by the addition of an amount of up to the difference between such amounts, provided that such amount shall not exceed the difference between $947,935 and the Service Contract Payment; (iii) if the aggregate amount funded or anticipated to be funded by HRP subsequent to the consummation of the Merger to complete the Golden Premises (including interest thereon) exceeds $9,046,823, by the deduction of one-half of such excess; and (iv) if the aggregate amount funded or anticipated to be funded by HRP subsequent to the consummation of the Merger to complete the San Diego Premises (including interest thereon) exceeds $1,530,954, by the deduction of one-half of such excess. Additional Agreements. Pursuant to the Merger Agreement, the agreements described below (the "Additional Agreements") are to be entered into by certain parties to the Merger Agreement and others. A copy of the form of each Additional Agreement and each of certain other related agreements is filed as a schedule to Exhibit 10.1 to this Report. The descriptions of the Additional Agreements describe the material provisions of each of the Additional Agreements, but do not purport to be complete and are subject to, and qualified in their entirety by reference to, all of the provisions of each of the Additional Agreements, including the definition of certain terms therein. Registration Rights Agreement. Pursuant to the Registration Rights Agreement, HRP has agreed to file with the Securities and Exchange Commission within 30 days following the Closing Date a registration statement relating to the offer and sale of Common Shares delivered on the Closing Date to GPI pursuant to the Merger Agreement by the holders thereof. The Company has also agreed to amend such registration statement from time to time to include additional Common Shares delivered after the Closing Date to GPI and its successors pursuant to the Merger Agreement. HRP is required to use its best efforts to have such registration statement declared effective as soon as reasonably practicable after filing and to maintain the continuous effectiveness of such registration statement for three years from the Closing Date or such shorter period as will terminate when all such Common Shares have been sold. The Registration Rights Agreement provides for suspension periods when the registration statement is not effective and for block out periods in connection with other offerings of the securities of HRP, each on customary terms and conditions. The Registration Rights Agreement also provides certain cross-indemnities between HRP and sellers of the Common Shares subject to the Registration Rights Agreement. Such indemnities may be unenforceable, in whole or in part, under federal or state securities laws or certain public policies. 3 Indemnification Agreement. Pursuant to the Indemnification Agreement, GPI will indemnify HRP and other related parties for certain losses arising out of any breach of any warranty or representation made by GPI in the Merger Agreement, the Registration Rights Agreement or the Indemnification Agreement; provided that, any claim for indemnification must be made by December 31, 1997. The Indemnification Agreement provides that GPI has no liability for such losses until such losses exceed $1,500,000 in the aggregate (except for certain losses related to the Existing Government Office Property located in College Park, Maryland) and that GPI shall have no liability for losses in excess of the Second Closing Consideration. Voting Agreement. At the time of the Merger, HRP Merger Sub and The 1818 Fund II, L.P. and Rosecliff Realty, L.P., the principal stockholders of GPI (the "Principal Stockholders"), will enter into the Voting Agreement, pursuant to which each Principal Stockholder has agreed that it will not, until the occurrence of a Change in Management (as defined in the Voting Agreement) or until such Principal Stockholder, with its affiliates, owns less than 25% of the aggregate Common Shares received by such Principal Stockholder as Merger Consideration, unless otherwise approved by the Board of Trustees of HRP, (i) transfer any Common Shares held by Principal Stockholder to any person who, to the Principal Stockholders' knowledge, holds directly, or is an affiliate of a person who holds, 5% or more of the aggregate Common Shares at the time outstanding; (ii) make directly or indirectly or participate in an unsolicited offer to purchase any Common Shares; (iii) vote (or direct to be voted) any Common Shares or any other shares of equity interest in HRP as to which either has direct or indirect voting power or control in favor of any transaction that could result in a Change of Control (as defined in the Voting Agreement) of HRP; or (iv) present any shareholder proposal dealing with a Change of Control of HRP. Information and Access Agreement. At the time of the Merger, the Company and the Principal Stockholders will enter into the Information and Access Agreement pursuant to which the Company will, upon request, permit the Principal Stockholders to inspect the Company's properties, provide financial information, make certain of the Company's officers available for consultation and inform the Principal Stockholders of significant corporate actions. Each Principal Stockholder has agreed to hold all such information in confidence. The Information and Access Agreement will terminate on the third anniversary of the Closing Date. Service Contract. At the time of the Merger, GPI and M&P Partners, Limited Partnership ("M&P"), an affiliate of HRPT Advisors, Inc. ("Advisors"), the Company's investment advisor, which is owned by Advisors and Messrs. Gerard M. Martin and Barry M. Portnoy, the Managing Trustees of the Company, will enter into the Service Contract, pursuant to which certain employees of GPI will provide administrative and support services to HRP Merger Sub until July 31, 1997. M&P is required to reimburse GPI for such employees' compensation and for rent payments for GPI's office space in Washington, D.C. until July 31, 1997 in an amount not to exceed $700,000. The Aurora Premises. If, at any time on or before July 31, 1997, certain conditions relating to the Aurora Premises have been satisfied, HRP will issue to GPI a number of Common Shares with an aggregate value (with each such Common Share valued at $17.291) equal to $11,647,101 less the sum of (x) $1,000,000, (y) the amount of any indebtedness or funding obligations assumed by HRP with respect to the Aurora Premises, and (z) the cost to complete construction of the Aurora Premises in accordance with the plans and specifications therefor and as set forth in the guaranteed maximum price construction contract relating to the Aurora Premises and including, without limitation, any amounts required to be paid to buy out the third party development partner and interest imputed on amounts advanced by HRP with respect to the Aurora Premises, from the date advanced until the date the obligation to pay rent of the tenant under the development lease in effect with respect to the Aurora Premises shall commence, in consideration for the transfer of all GPI and GPI affiliate ownership interests in the entity holding title to the Aurora Premises. Within thirty (30) days after the last to occur of (x) completion of the construction of the Aurora Premises, (y) the novation of the lease in effect with respect to the Aurora Premises to HRP and (z) the commencement of the obligation of the tenant under the lease to pay rent, HRP will issue GPI a number of Common Shares valued at $17.291 per share with an aggregate value equal to the amount, if any, by which $11,647,101 exceeds the actual aggregate amounts funded by HRP with respect to the Aurora Premises (including, without limitation, interest and third party development partner buy-out costs and Common Shares previously issued). 4 Plan of Financing. Pursuant to the Merger Agreement, HRP will pay certain debt and other obligations of GPI and its subsidiaries in the amount of approximately $317 million on the Closing Date. Funds to pay such debt and other obligations may come from borrowings under HRP's unsecured bank credit facility (the "Bank Credit Facility"), from new borrowings or from the sale of Common Shares. The Bank Credit Facility is a $250 million unsecured revolving credit facility with a syndicate of banks. This facility matures in 2000 and interest on drawings is at LIBOR plus 87.5 basis points or prime. Aggregate borrowings under the Bank Credit Facility at February 26, 1997 were $140 million. HRP is in the process of negotiating amendments to the Bank Credit Facility to permit HRP to consummate the Merger and to extend the maturity until 2001. The Government Office Properties Business. Most of the Government Office Properties are leased through the General Services Administration ("GSA"). HRP believes that the GSA's long term demand for leased space will continue to be strong as a result of federal budget pressures to limit capital expenditures and the need to use funds available for capital expenditures to modernize the GSA inventory of owned buildings, over half of which exceed 50 years of age. Most large GSA leases are written for initial contractual terms of 10 to 20 years plus renewal options totaling an additional 5 to 20 years. Many GSA leases, including leases for some Government Office Properties, permit the GSA to terminate the lease by notices given any time after a so called "firm term." The average remaining firm term for the Government Office Properties to be acquired by HRP is approximately 8 years; the average remaining contractual term for these properties is approximately 10 years; and the average remaining full term for these leases, including all renewal options, is approximately 13 years. Based upon the GSA or tenant investments in improvements to the Government Office Properties, the high cost of relocation, the stability of the tenant missions and space requirements of the Government agencies which occupy these properties, HRP believes that there is a high probability of lease renewals for the Government Office Properties in many cases beyond the renewal periods. Moreover, because of the locations of many of these properties and the high standards to which they have been developed, HRP believes it may be able to lease or sell most of such properties to commercial users in the event the GSA terminates or fails to renew a lease. GSA is not directly dependent upon the government appropriations process to fund its annual budget for contractual lease obligations. GSA has authority to spend a lump sum amount from the Federal Buildings Fund for payment of its lease obligations. The Federal Buildings Fund is primarily funded with the lease payments of the government agency tenants, who pay GSA quarterly in advance for the space they occupy. Although the budget of each GSA tenant agency is subject to the appropriations process, virtually none of the agencies require line item approval for lease payments under existing leases, and funds to meet obligations under existing leases have been consistently available and have continued to be available during government shut-downs. Each year Congress allocates the percentage of the Federal Buildings Fund that GSA can spend for leased space. 5 While the payment structure described in the preceding paragraph has been in place since 1975 and GSA has historically had sufficient authority and resources to meet its obligations under long-term leases, changes in the U.S. Government's policies or regulations in this regard could have an adverse effect on HRP. HRP's operation of the Government Office Properties could also be adversely affected by changes in the procedures for authorizing GSA to enter into new leases. HRP cannot predict what impact, if any, such initiatives will have on HRP. Leases. The Government Office Properties are primarily leased to U.S. Government agencies through GSA and, in three cases (the Government Office Properties in Safford, Arizona, Gaithersburg, Maryland and Santa Fe, New Mexico), directly to the tenant agency. While HRP believes the provisions of the GSA leases on the Government Office Properties (the "Leases") as summarized below are representative of the lease terms generally available from GSA, there can be no assurance that such terms will be available with respect to other properties acquired by HRP or to renewals by GSA of the Leases. Although the Safford, Gaithersburg and Santa Fe leases do not have GSA as the lessee, such leases are on GSA lease forms; therefore, for purposes of general description, the description of the Leases herein includes such leases. Each of the Leases requires GSA to pay (i) a fixed base rent amount ("Base Rent"), (ii) a pass-through for changes in real estate taxes from a base year and (iii) annual CPI adjustments of the portion of the Base Rent that represents estimated operating expenses and utilities. The Leases generally provide that GSA's obligation to pay rent is dependent on the lessor's obligation to provide services, including all required building services, utilities, maintenance and repairs. Therefore, if the lessor fails to provide any such service, GSA has the right to offset the amount of any valid claim against rent. Rental obligations under the Leases are absolute and unconditional general obligations of the United States, subject to the terms of the particular Lease. With one exception, the Leases do not contain any provisions conditioning the payment of rent on annual appropriations. The U.S. Government's obligations under leases such as the Leases are subject to the Prompt Payment Act and the regulations promulgated thereunder by the Office of Management and Budget, pursuant to which any rent payments not made when due will bear interest from the day after the due date for not more than one year at an interest rate from time to time established by the Secretary of the Treasury. Payment of the Base Rent (including the CPI adjustment component of the Base Rent) is not conditioned on monthly invoices or notices of adjustments, while invoices are required for additional charges above the Base Rent. The Leases do not provide for acceleration of the payment obligations thereunder for failure to make a payment when due, but the Lessor would have standing to sue for collection of unpaid rent under the Contract Disputes Act of 1978, as amended. The Leases generally have a fixed Base Term during which the lease is not terminable or cancelable by either the U.S. Government tenant or the lessor. In some cases, the lease may provide for a renewal option, in which case GSA must take affirmative action to renew the lease. In other cases, the lease may provide for early termination rights either after a specified date in the Base Term or during a renewal period, in which case occupancy continues unless GSA affirmatively acts to terminate the lease. The Leases can also be terminated at any time under the following limited circumstances: (i) a substantial casualty or a taking by eminent domain of a substantial portion of the leased property, (ii) upon default by the lessor of its obligations under the lease, which default remains uncured after applicable notice and cure period, or upon "repeated and unexcused" defaults notwithstanding timely cure of such defaults, (iii) breach by the lessor of various representations, including those regarding PCB's, asbestos or other hazardous waste or (iv) violation by the lessor of statutes relating to, among other things, kick-backs, equal opportunity or use of small business concerns and small disadvantaged business concerns. Any provider of goods and services to the U.S. Government, including a landlord under a lease, may be debarred, suspended or otherwise declared ineligible for the award of contracts by any federal agency if such provider is determined to have, among other things, committed fraud or a criminal offense in obtaining or performing public contracts, violated federal or state anti-kickback or similar statutes or repeatedly defaulted under public contracts. In addition, GSA has the right to terminate a lease in the event of a violation by the landlord of certain regulations such as those requiring equal opportunity hiring 6 or the use of subcontractors that qualify as small businesses or minority-owned businesses. Any such violation or repeated defaults by HRP or any of its officers could (i) disqualify HRP from acquiring additional government-leased properties or obtaining renewals of the Leases or (ii) result in termination of the Leases, all of which would have an adverse effect on HRP's Funds from Operations and its ability to make expected distributions to shareholders. HRP will generally be compensated by insurance proceeds in the case of insured casualties or a condemnation award in the case of a taking by eminent domain. HRP believes that the probability of renewal for GSA leases is high, primarily because of the tenant's investment in the leased facilities and, with respect to the Government Office Properties, the stability of the tenant's mission and resulting space requirements. While at the closing of the Merger HRP (i) anticipates receiving certificates from GSA to the effect that GSA has given no notice of existing defaults by GPI under any of the leases of the Existing Government Office Properties and (ii) will be provided a limited indemnity for liabilities HRP incurs that relate to prior periods, there can be no assurance that such certificates and indemnities would be sufficient to protect HRP from such liabilities. Summary of the Government Office Properties. Set forth below is a summary of the Government Office Properties:
Primary Percent Yr. Built/ Tenant Rentable Leased Street Address Location Renovated Agency Sq. Ft. 12/31/96 - ------------------------------------------------------------------------------------------------------ Existing Government Office Properties 4700 River Road College Park, MD 1994 Animal and 324,415 100% Plant Health Inspection Service 20 Massachusetts Washington, D.C. 1974/96 Army Corps of 323,270 100% Avenue Engineers 50 North Robinson Oklahoma City, OK 1992 Internal 180,781 100% Revenue Service 400 State Avenue Kansas City, KS 1970/90 Housing and 161,015 89% Urban Develop- ment(1) 5600 Columbia Pike Falls Church, VA 1966/93 Defense 163,674 100% Information Systems Agency 625 Indiana Avenue Washington, D.C. 1989 Defense 157,005 93% Nuclear Safety Board(2) 4560 Viewridge Drive San Diego, CA 1996 Drug 147,955(6) 100% Enforcement Agency 130 and 138 Buffalo, NY 1994 Department of 146,779 100% Delaware Avenue Justice(3) 7 Primary Percent Yr. Built/ Tenant Rentable Leased Street Address Location Renovated Agency Sq. Ft. 12/31/96 - ----------------------------------------------------------------------------------------------------- 820 West Diamond Gaithersburg, MD 1995 National 137,087 100% Avenue Institution of Standards and Technology 5353 Yellowstone Cheyenne, WY 1995 Bureau of Land 122,647 100% Boulevard Management 6710 Oxon Hill Road Oxon Hill, MD 1992 Internal 122,042 100% Revenue Service 610 Business Park Houston, TX(4) 1993 Department of 118,656 100% Veteran Affairs 9797 and 9799 San Diego, CA 1994 Federal Bureau 94,272 100% Aero Drive of Investigation 2420 Stevens Center Richland, WA 1995 Department of 90,262 100% Place Energy 20400 Century Germantown, MD 1995 Department of 80,269 100% Boulevard Energy 4241 N.E. 34th Street Kansas City, MO 1995 Financial 77,993 100% Management Services 1474 Rodeo Drive Santa Fe, NM 1987 Bureau of Land 76,978 100% Management 2430 Stevens Center Richland, WA 1995 Department of 47,069 100% Place Energy 711 14th Avenue Safford, AZ 1992 Bureau of Land 37,780 100% Management 2029 Stonewall Falling Waters, WV 1993 Bureau of 36,818 100% Jackson Drive Alcohol, Tobacco and Firearms 220 E. Bryan Street Savannah, GA 1970/90 Federal Bureau 35,759 100% of Investigation 3200 E. Hemisphere Tucson, AZ 1993 Drug 30,112 100% Loop Enforcement Agency 8 Primary Percent Yr. Built/ Tenant Rentable Leased Street Address Location Renovated Agency Sq. Ft. 12/31/96 - ------------------------------------------------------------------------------------------------------ 435 Montano NE Albuquerque, NM 1984 Bureau of Land 29,756 100% Management 15 12th Avenue North Petersburg, AK 1983 Forest Service 24,279 100% Contract Properties 201 E. Indianola Phoenix, AZ 1984/97 Federal Bureau 87,308 100% Avenue of Investigation 5051 Rodeo Road Los Angeles, CA 1960/96 Military 70,000 100% Entrance Processing Station [No Street Address] Waco, TX 1997 Department of 137,784 100% Veterans Affairs(5) Development Properties 4181 Ruffin Road San Diego, CA 1980/97 Defense 148,000 96% Finance and Accounting Services(6) 16401 East Aurora, CO 1997 Office of Civilian CenterTech Parkway Health and Medical Programs of the Uniformed Services(5) 116,500 100% 59th Avenue and Golden, CO 1997 Environmental 43,232 100% McIntyre Street Protection -------- Agency Total-All Properties 3,369,497
(1) The Kansas City property is occupied by six federal government agencies under four separate leases: Housing and Urban Development, Bureau of Census, Bureau of Prisons, Department of Labor, Equal Employment Opportunity Commission and Civil Rights Commission. A portion of the space is leased to commercial tenants and the State of Kansas. (2) The Washington, D.C. (Indiana Ave.) property is occupied by four agencies under separate leases: the Defense Nuclear Facilities Safety Board; the Veteran's Administration General Counsel; the U.S. Court of Veteran's Appeals; and the Department of Justice Child Care Center. A portion of the space is leased to commercial retail tenants. (3) The Buffalo, NY property is leased under three separate GSA leases to different agencies within the Department of Justice: the U.S. Attorney's Office; the Immigration and Immigration and Naturalization Service and the Executive Office of Immigration Review. 9 (4) This Property is under an active lease and lease payments are being made, but the tenant is not occupying this building. (5) Occupancy to begin upon completion of development. (6) There are two government agency leases for this property. The primary tenant has begun occupancy. The secondary tenant's occupancy will begin when certain buildouts have been completed. GSA's standards for office facilities are comparable to Class A commercial facilities, and the improvements in many of the Government Offices have security features, energy conservation systems and technological capacity that are higher than in most commercial facilities and amenities not normally included in standard commercial space, such as child care centers, fitness centers and cafeterias. In addition, GSA requires its leased premises to comply with strict building safety standards, including handicap accessibility, testing for radon, lead in paint or water and air quality. HRP will carry, upon taking title to the Government Office Properties, comprehensive liability, fire, extended coverage, rental loss and title insurance covering all of the Government Office Properties, with policy specifications, insured limits and deductibles customarily carried for similar properties with carriers management deems capable to providing such coverage. However, certain losses may not be insurable or may be insurable only at prohibitive rates. In the event of a partial casualty or condemnation of a Government Office Property, GSA is entitled to a rent abatement for the untenantable portion of the Government Office Property, and HRP's coverage will include rental loss for all periods during which GSA is entitled to an abatement under the Leases. The Government Office Properties are insured for loss due to terrorist activities, although there can be no assurance that insurance for such risks will continue to be available at acceptable rates. Should an uninsured loss or a loss in excess of insured limits occur, HRP could lose its capital invested in the affected property, as well as the anticipated future revenues from such property and would continue to be obligated on any mortgage indebtedness or other obligations related to the property. Any such loss could materially and adversely affect the business and financial condition of HRP. HRP believes that the Government Office Properties will be adequately insured in accordance with industry standards. In connection with each Property, a Phase I environmental site assessment was performed by an independent engineering firm. The studies were performed at various times between 1993 and 1996 and in connection with the Merger, HRP has contracted for updates to such Phase I studies. These Phase I studies have included, among other things, a visual inspection of the Properties and the surrounding area and a review of relevant state, federal and historical documents. In certain instances, the consultant performed limited sampling for the presence of radon, lead paint, and asbestos containing materials. In several cases surface sampling was undertaken either as part of the Phase I study, as a subsequent Phase II investigation or by others prior to GPI's acquisition of the property. Based on the Phase I and other environmental studies, HRP does not believe that there are any environmental liabilities associated with any of the Government Office Properties that would have a material adverse effect on HRP's business, assets or results of operations taken as a whole, nor is HRP aware of any such material environmental liability. Nevertheless, it is possible that the Phase I and other environmental studies did not reveal all environmental liabilities or that there are material environmental liabilities of which HRP is unaware. In addition, there can be no assurance that (i) future laws, ordinances regulations, or court decisions will not impose any material environmental liability or (ii) the current environmental conditions of the Government Office Properties will not be affected by tenants, by the condition of land or operations in the vicinities of the properties (such as the presence or operation of underground storage tanks), or by third parties unrelated to HRP. B. Authorization of Additional Common Shares of Beneficial Interest. In connection with the Merger described above under "GPI Acquisition" and the contemplated financing thereof, the Trustees of the Company have voted to increase the authorized number of common shares of beneficial interest, $0.01 par value per share, of the Company from 100,000,000 to 125,000,000. As provided in the Company's Amended and Restated Declaration of Trust, as amended, such increase does not require the consent or approval of shareholders of the Company. 10 C. Management's Discussion and Analysis of Financial Condition and Results of Operations Health and Retirement Properties Trust Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - --------------------- Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 Total revenues for the year ended December 31, 1996 were $120.2 million, an increase of $6.9 million over the year ended December 31, 1995. Rental income increased to $98.0 million from $90.2 million and interest and other income decreased to $22.1 million from $23.1 million. Rental income increased as a net result of new real estate investments during 1996, offset by the exclusion of rental revenue from the Company's formerly wholly owned subsidiary Hospitality Properties Trust ("HPT"). HPT is a real estate investment trust investing principally in income producing hotel real estate. The Company's investment in HPT is accounted for using the equity method, and the 1996 period does not include revenue and expenses of HPT. Interest and other income decreased as a [net result of the scheduled and early repayment of mortgage loans acquired from the Resolution Trust Company in 1992 and 1993. The Company anticipates that such prepayments will continue and consequently interest income will decline in the future. This interest income decline was partially offset in 1996 by short term investment income on excess cash which resulted from the Company's issuance of convertible debentures during the fourth quarter of 1996. Total expenses for 1996 increased to $55.5 million from $54.7 million in 1995. The increase of $0.8 million is the net result of higher operating, general and administrative expenses during the 1996 period. Interest expense declined due to lower borrowings and lower interest rates during 1996 as compared to 1995. Depreciation expense was essentially unchanged as the net result of new real estate investments during 1996 was offset by the HPT transaction described above. Amortization expense declined due to the write-off of deferred finance fees in March 1996 and October 1996. Income before gain (loss) on sale of properties and extraordinary items for 1996 increased to $77.2 million, or $1.16 per share, from $61.8 million, or $1.04 per share, in 1995. Net income for 1996 increased to $73.3 million, or $1.11 per share, from $64.2 million, or $1.08 per share, in 1995. These increases are primarily the result of net new real estate investments and the recognition of the gain on the equity transaction of HPT. The Company's business goal is to maximize funds from operations ("FFO") rather than net income. The Company's Board of Trustees considers FFO, among other factors, when determining dividends to be paid to shareholders. The Company has adopted the National Association of Real Estate Investment Trust's ("NAREIT") definition of FFO as income before equity in earnings of HPT, gain (loss) on sale of real estate and extraordinary items, plus depreciation, other non-cash items and the Company's proportionate share of HPT's FFO. Funds from operations for the year ended December 31, 1996, was $99.1 million, or $1.50 per share, versus $84.6 million, or $1.43 per share, in 1995. Funds from operations for 1996 increased $14.5 million, or 17.1%, over the prior year. The increase is the result of new investments in 1996. Dividends declared for the years ended December 31, 1996 and 1995 were $94.3 million, or $1.42 per share, and $83.9 million, or $1.38 per share, respectively. Dividends in excess of net income constitute a return of capital. For 1996, the return of capital portion reported was 24.8% of dividends. Cash flow provided by operating activities and cash available for distribution may not necessarily equal funds from operations as the cash flow of the Company is affected by other factors not included in the funds from operations calculation, such as changes in assets and liabilities. Cash flow provided by (used for) operating, investing and financing activities were $98.3 million, ($235.3 million) and $140.2 million, respectively for the year ended December 31, 1996 and $82.3 million, ($190.3 million) and $68.8 million, respectively, for the year ended December 31, 1995. Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 Total revenues for the year ended December 31, 1995 were $113.3 million, an increase of $26.6 million, or 30.7%, over the year ended December 31, 1994. Rental income increased to $90.2 million from $63.9 million and interest income increased to $23.1 million from $22.8 million. Rental income increased as a result of new purchase and lease investments during 1995 and a full year's results on 1994 investments. Interest income increased slightly due to interest income from new investments in mortgages and notes, offset by the reduction in interest income resulting from the repayment of existing mortgages and notes. 11 Health and Retirement Properties Trust Management's Discussion and Analysis of Financial Condition and Results of Operations Total expenses for 1995 increased to $54.7 million from $28.8 million for the comparable 1994 period. The increase of $25.9 million was due primarily to increases in interest expense of $15.3 million, general and administrative expense of $1.8 million, and depreciation and amortization expense of $8.1 million. The increases in general and administrative and depreciation and amortization expenses are directly related to the Company's increased real estate investments whereas interest expense increased primarily due to higher amounts outstanding under the revolving credit facility and the issuance of $200 million senior notes issued in July 1994. Income before gain (loss) on sale of properties and extraordinary items for 1995 increased to $61.8 million, or $1.04 per share, from $57.9 million, or $1.10 per share, in 1994. Per share amounts decreased reflecting the issuance of 9 million new shares of the Company's stock in December 1994 and 6.5 million new shares issued in December 1995. Net income in 1995 and 1994 was $64.2 million, or $1.08 per share, and $49.9 million, or $.95 per share, respectively. Funds from operations for the year ended December 31, 1995 was $84.6 million, or $1.43 per share, versus $71.9 million, or $1.36 per share, in 1994. FFO for 1995 increased $12.7 million, or 17.7%, over the prior year. The increase is the result of new investments in 1995. Dividends declared for the years ended December 31, 1995 and 1994 were $1.38 and $1.33 per share, respectively. Dividends in excess of net income constitute a return of capital. For 1995 the return of capital portion was 11.8% of dividends and 5.9% of dividends was considered a long term capital gain. Cash flow provided by (used for) operating, investing and financing activities were $82.3 million, ($190.3 million) and $68.8 million, respectively, for the year ended December 31, 1995 and $76.4 million, ($261.8 million) and $229.4 million, respectively in 1994. Liquidity and Capital Resources Total assets of the Company increased to $1.2 billion at December 31, 1996 from $999.7 million as of December 31, 1995. The increase of $229.8 million, or 23.0%, is primarily the result of increases in the Company's net new real estate investments. During 1996, the Company acquired five nursing properties, three retirement communities, twelve medical office buildings and invested in capitalized improvements for existing properties for an aggregated amount of approximately $225.4 million. In addition, the Company provided debt and improvement financing totaling $17.2 million secured by a retirement community and by properties under existing mortgages with the Company. These transactions were funded by borrowing on the Company's revolving credit facility and available cash. In addition, the Company received principal payments and repayments on real estate mortgages of $10.2 million. At December 31, 1996, the Company owned 4,000,000, or 14.9%, of the common shares of beneficial interest of HPT with a carrying value of $103.1 million and market value of $116.0 million. During April 1996, HPT completed a public stock offering of 14,250,000 common shares of beneficial interest at a per share price of $26.625 for total consideration of approximately $379.4 million. As a result of this transaction, the Company's ownership percentage in HPT was reduced from 31.8% to 14.9% and the Company realized a gain of $3.6 million. Although the Company did not sell any shares, pursuant to the Company's accounting policy, gains and losses on the issuance of common shares of beneficial interest by HPT are recognized in the Company's income statement. In January 1996, the Company issued 475,000 common shares resulting in net proceeds of approximately $7 million as a result of the underwriters' exercise of the over-allotment option granted pursuant to the Company's equity offering in December 1995. In March 1996, the Company entered into a new credit facility to refinance its $250 million unsecured revolving bank credit facility. The restated credit facility matures in 2000 and bears interest at LIBOR plus 0.875% per annum. In connection with the refinancing, the Company recognized an extraordinary loss of $2.4 million from the early write-off of capitalized expenses associated with the prior credit facility. 12 Health and Retirement Properties Trust Management's Discussion and Analysis of Financial Condition and Results of Operations In April, 1996 the Company prepaid the outstanding secured Revenue Refunding Bonds totaling $17.6 million by borrowing on the revolving bank credit facility and from available cash. In October 1996, the Company issued $200 million of 7.5% and $40 million of 7.25% Convertible Subordinated Debentures (the "Debentures") due 2003 and 2001, respectively. The Debentures are non-callable for three years but are convertible at any time prior to maturity into common shares of the Company at a price of $18 per share. The net proceeds were used in part to repay the then outstanding balance of $147 million on the Company's revolving bank credit facility and $75.5 million was placed in an irrevocable trust to complete an in-substance defeasance of the $75 million Floating Rate Senior Notes, Series A, due 1999. The Company recognized an extraordinary loss of $1.5 million as a result of the write-off of capitalized expenses associated with the debt prepaid in the fourth quarter of 1996. At December 31, 1996, approximately $12.2 million of the Debentures due 2003 had been converted into 679,441 common shares of the Company. During January 1997, approximately $16 million of the Debentures due 2003 had been converted into 891,496 common shares of the Company. At December 31, 1996, the Company had $21.9 million of cash and cash equivalents and had drawn $140 million of the $250 million revolving debt facility. In addition, in June 1996 the Company filed a $750 million shelf registration statement ("Shelf") that was declared effective by the Securities and Exchange Commission. At December 31, 1996, $640 million was available to be drawn on the Shelf. As of December 31, 1996, the Company had commitments to provide improvement financing to existing properties and to purchase a medical office building totaling approximately $16 million. In January 1997, the Company acquired the medical office building for $5.4 million with available cash. In February 1997, the Company announced it had entered into an agreement to acquire up to 30 office buildings which are leased to various agencies of the United States government. The properties comprise approximately 3.4 million square feet and are located in 17 states and the District of Columbia. Under the terms of the acquisition agreement, consideration to be paid for this acquisition is approximately $317 million in cash to retire certain assumed debt and to pay certain other obligations of the seller, plus the assumption of approximately $47 million of other debt and the issuance of approximately 4.2 million unregistered common shares of the Company. The acquisition is subject to various conditions customary in real estate transactions and is expected to be substantially consummated by March 31, 1997; however, no assurances can be given that this transaction will actually close. The Company intends to fund these commitments with a combination of cash on hand, amounts available under its existing credit facilities, proceeds of mortgage prepayments, if any, and/or proceeds of other financings such as the possible issuance of additional securities. The Company continues to seek new investments to expand and diversify its portfolio of leased and mortgaged health care, retirement and related real estate. The Company believes that the transactions described above will improve the security of its future funds from operations, cash available for distribution, and dividends. The Company intends to balance the use of debt and equity in such a manner that the long term cost of funds borrowed to acquire or mortgage finance facilities is appropriately matched, to the extent practicable, with the terms of the investments made with such borrowed funds. As of December 31, 1996, the Company's debt as a percentage of total book capitalization was approximately 41%. There can be no assurances that debt or equity financing will be available to fund the Company's existing commitments or its future growth, but the Company expects such financing will be available. Impact of Inflation - ------------------- Management believes that the Company is not adversely affected by inflation. In the real estate market, inflation tends to increase the value of the Company's underlying real estate which may be realized at the end of the lessees' fixed rent terms. In the health care and hotel industries, inflation usually increases the lessees' and mortgagors' revenues, thereby increasing the Company's additional rent or interest. At December 31, 1996, increases in interest rates on $200 million of the Company's outstanding debt were capped by the use of interest rate cap agreements which provide for maximum weighted average interest rates of approximately 6.24% on its variable rate debt. 13 Health and Retirement Properties Trust Management's Discussion and Analysis of Financial Condition and Results of Operations Certain Considerations - ---------------------- The discussion and analysis of the Company's financial condition and results of operations requires the Company to make certain estimates and assumptions and contains certain statements of the Company's beliefs, intent or expectation concerning projections, plans, future events and performance. The estimates, assumptions and statements, such as those relating to the Company's ability to expand its portfolio, performance of its assets, the ability to pay dividends from FFO, its tax status as a "real estate investment trust," the ability to appropriately balance the use of debt and equity and to access capital markets depends upon various factors over which the Company and/or the Company's lessees and mortgagors have or may have limited or no control. Those factors include, without limitation, the status of the economy, capital markets (including prevailing interest rates), compliance with and changes to regulations within the health care industry, competition, changes to federal, state and local legislation and other factors. The Company cannot predict the impact of these factors, if any. However, these factors could cause the Company's actual results for subsequent periods to be different from those stated, estimated or assumed in this discussion and analysis of the Company's financial condition and results of operations. The Company believes that its estimates and assumptions are reasonable and prudent at this time. 14 Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements (see index on page F-1) (b) Pro Forma Financial Information and Other Data (see index on page F-1) (c) Exhibits 10.1 Merger Agreement dated February 17, 1997 between Health and Retirement Properties Trust and Government Property Investors, Inc. including forms of Escrow Agreement, Investment and Registration Rights Agreement, Voting Agreement, Information Access Agreement, Indemnification Agreement, Service Contract, Non-Solicitation Agreement and Second Closing Escrow Agreement 10.2 Third Amended and Restated Revolving Loan Agreement, dated as of March 15, 1996, among Health and Retirement Properties Trust, as borrower, the lenders named therein, Kleinwort Benson Limited, as agent, Wells Fargo Bank, National Association, as administrative agent, Natwest Bank, N.A., as co-agent, et al. 10.3 Letter Agreement, dated as of October 21, 1996, among Health and Retirement Properties Trust, as borrower, Kleinwort Benson Limited, as agent, and the Majority Lenders clarifying certain provisions of the Third Amended and Restated Revolving Loan Agreement relating to Health and Retirement Properties Trust's 7.5% Convertible Subordinated Debentures due 2003, Series B 10.4 First Amendment, dated as of December 15, 1996, to Third Amended and Restated Revolving Loan Agreement, dated as of March 15, 1996, among Health and Retirement Properties Trust, as borrower, the lenders named therein, Kleinwort Benson Limited, as agent, Wells Fargo Bank, National Association, as administrative agent, Natwest Bank, N.A., as co-agent, et al. 23.1 Consents of Ernst & Young LLP 27.1 Financial Data Schedule 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HEALTH AND RETIREMENT PROPERTIES TRUST By: /s/ David J. Hegarty ----------------------------------- David J. Hegarty, President Date: February 27, 1997 16 Contents a.) (i) Consolidated Financial Statements of Health and Retirement Properties Trust Report of Ernst & Young LLP, Independent Auditors ......................................................F-2 Report of Arthur Andersen LLP, Independent Public Accountants ..........................................F-3 Consolidated Balance Sheets for the years ended December 31, 1996 and 1995 .............................F-4 Consolidated Statements of Income for each of the three years in the period ended December 31, 1996 ....F-5 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 1996 ............................................................................F-6 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 19996 .................................................................................F-7 Notes to Consolidated Financial Statements .............................................................F-8 a.) (ii) Consolidated Financial Statements of Government Property Investors, Inc. Report of Ernst & Young LLP, Independent Auditors ......................................................F-15 Consolidated Balance Sheets.............................................................................F-16 Consolidated Statements of Operations for the years ended December 31, 1996 and 1995 and Combined Statement of Operations for the period from May 20 (Inception) to December 31, 1994.................................................................................................F-17 Consolidated Statements of Stockholders' Equity/(Deficit) for the years ended December 31, 1996 and 1995 and Combined Statement of Owners' Equity for the period from May 20 (Inception) to December 31, 1994.....................................................................F-18 Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995 and Combined Statement of Cash Flows for the period from May 20 (Inception) to December 31, 1994.................................................................................................F-19 Notes to Consolidated Financial Statements .............................................................F-21 b.) Pro Forma Financial and Other Data Unaudited Pro Forma Balance Sheets and Other Data and Unaudited Pro Forma Statement of Income and Other Data Background Information ........................................................F-43 Unaudited Pro Forma Balance Sheets and Other Data ......................................................F-44 Unaudited Pro Forma Statement of Income and Other Data .................................................F-45 Notes to Pro Forma Financial Data and Other Data .......................................................F-46
F-1 REPORT OF INDEPENDENT AUDITORS To the Trustees and Shareholders Health and Retirement Properties Trust We have audited the accompanying consolidated balance sheets of Health and Retirement Properties Trust as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of Hospitality Properties Trust (a real estate investment trust in which the Company has a 14.9% interest) have been audited by other auditors whose report has been furnished to us; insofar as our opinion on the consolidated financial statements relates to data included for Hospitality Properties Trust, it is based solely on their report. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Health and Retirement Properties Trust at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP ERNST & YOUNG LLP Boston, Massachusetts February 6, 1997 F-2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Trustees and Shareholders of Hospitality Properties Trust: We have audited the consolidated balance sheets of Hospitality Properties Trust (the "Company") as of December 31, 1995 and 1996, and the related consolidated statements of income, shareholders' equity and cash flows for the period from February 7, 1995 (inception) to December 31, 1995 and the year ended December 31, 1996 not presented separately herein. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hospitality Properties Trust as of December 31, 1995 and 1996, and the results of its operations and its cash flows for the period from February 7, 1995 (inception) to December 31, 1995 and the year ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Washington, D.C. January 10, 1997 F-3 HEALTH AND RETIREMENT PROPERTIES TRUST CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
December 31, ------------------------------------- 1996 1995 ------------------------------------- ASSETS Real estate properties, at cost (including properties leased to affiliates with a cost of $109,843 and $103,324, respectively): Land $ 93,522 $ 72,124 Buildings and improvements 912,217 706,087 ------------------------------------- 1,005,739 778,211 Less accumulated depreciation 76,921 55,855 ------------------------------------- 928,818 722,356 Real estate mortgages and notes, net (including note from an affiliate of $2,365 and $1,565, respectively) 150,205 141,307 Investment in Hospitality Properties Trust 103,062 99,959 Cash and cash equivalents 21,853 18,640 Interest and rents receivable 11,612 7,895 Deferred interest and finance costs, net, and other assets 13,972 9,520 ------------------------------------- $ 1,229,522 $ 999,677 ===================================== LIABILITIES AND SHAREHOLDERS' EQUITY Bank notes payable $ 140,000 $ 53,000 Senior notes and bonds payable, net 124,385 216,759 Convertible subordinated debentures 227,790 - Accounts payable and accrued expenses 10,711 4,678 Prepaid rents 7,608 6,919 Security deposits 8,387 7,386 Due to affiliates 2,593 2,351 Dividends payable - 22,992 Commitments and contingencies - - 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, 66,888,917 shares and 65,690,166 shares issued and outstanding, respectively 669 657 Additional paid-in capital 795,263 775,688 Cumulative net income 306,298 233,044 Dividends (394,182) (323,797) ------------------------------------- Total shareholders' equity 708,048 685,592 ------------------------------------- $ 1,229,522 $ 999,677 ====================================
See accompanying notes F-4 HEALTH AND RETIREMENT PROPERTIES TRUST CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Ended December 31, ------------------------------------------ 1996 1995 1994 ------------------------------------------ Revenues: Rental income $ 98,039 $ 90,246 $ 63,856 Interest and other income 22,144 23,076 22,827 ------------------------------------------ Total revenues 120,183 113,322 86,683 ------------------------------------------ Expenses: Operating expenses 3,776 644 - Interest 22,545 24,274 8,965 Depreciation and amortization 22,106 22,849 14,724 General and administrative 7,055 6,914 5,116 ------------------------------------------ Total expenses 55,482 54,681 28,805 ------------------------------------------ Income before equity in earnings of Hospitality Properties Trust, gain (loss) on sale of properties and extraordinary items 64,701 58,641 57,878 Equity in earnings of Hospitality Properties Trust 8,860 3,119 - Gain on equity transaction of Hospitality Properties Trust 3,603 - - ------------------------------------------ Income before gain (loss) on sale of properties and extraordinary items 77,164 61,760 57,878 Provision for loss on sale of properties - - (10,000) Gain on sale of properties - 2,476 3,994 ------------------------------------------ Income before extraordinary items 77,164 64,236 51,872 Extraordinary items - early extinguishment of debt (3,910) - (1,953) ------------------------------------------ Net income $ 73,254 $ 64,236 $ 49,919 ========================================== Weighted average shares outstanding 66,255 59,227 52,738 ========================================== Per share amounts: Income before gain (loss) on sale of properties and extraordinary items $ 1.16 $ 1.04 $ 1.10 ========================================== Income before extraordinary items $ 1.16 $ 1.08 $ .98 ========================================== Net income $ 1.11 $ 1.08 $ .95 ==========================================
See accompanying notes F-5 HEALTH AND RETIREMENT PROPERTIES TRUST CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
Additional Cumulative Number of Common Paid-in Net Shares Shares Capital Income Dividends Total ------------------------------------------------------------------------------------ Balance at December 31, 1993 44,121,000 $ 441 $ 470,572 $ 118,889 $ (148,767) $ 441,135 Issuance of shares 13,251,500 133 182,233 - - 182,366 Stock grants 12,500 - 184 - - 184 Net income - - - 49,919 - 49,919 Dividends - - - - ( 71,565) (71,565) -------------------------------------------------------------------------------------- Balance at December 31, 1994 57,385,000 574 652,989 168,808 (220,332) 602,039 Issuance of shares to acquire real estate 1,777,766 18 24,426 - - 24,444 Issuance of shares 6,500,000 65 97,879 - - 97,944 Stock grants 27,400 - 394 - - 394 Net income - - - 64,236 - 64,236 Dividends - - - - (103,465) (103,465) -------------------------------------------------------------------------------------- Balance at December 31, 1995 65,690,166 657 775,688 233,044 (323,797) 685,592 Issuance of shares 475,000 5 6,985 - - 6,990 Conversion of convertible subordinated debentures 679,441 7 11,860 - - 11,867 Stock grants 44,310 - 730 - - 730 Net income - - - 73,254 - 73,254 Dividends - - - - (70,385) (70,385) -------------------------------------------------------------------------------------- Balance at December 31, 1996 66,888,917 $ 669 $ 795,263 $ 306,298 $ (394,182) $ 708,048 ======================================================================================
See accompanying notes F-6 HEALTH AND RETIREMENT PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
Year Ended December 31, ------------------------------------------------ 1996 1995 1994 ------------------------------------------------ Cash flows from operating activities: Net income $ 73,254 $ 64,236 $ 49,919 Adjustments to reconcile net income to cash provided by operating activities: Gain on sale of properties - (2,476) (3,994) Gain on equity transaction of Hospitality Properties Trust (3,603) - - Equity in earnings of Hospitality Properties Trust (8,860) (3,119) - Dividends from Hospitality Properties Trust 9,360 960 - Extraordinary items 3,910 - 1,953 Depreciation 21,065 21,048 13,593 Amortization 1,041 1,801 1,131 Provision for loss on real estate - - 10,000 Amortization of deferred interest costs 1,444 1,529 864 Change in assets and liabilities: Increase in interest and rents receivable and other assets (7,839) (1,639) (5,148) Increase (decrease) in security deposits 1,001 3,586 (4,500) Increase (decrease) in accounts payable and accrued expenses 6,033 (11,427) 11,828 Increase in prepaid rents 689 6,919 - Increase in due to affiliates 823 843 799 ------------------------------------------------ Cash provided by operating activities 98,318 82,261 76,445 ------------------------------------------------ Cash flows from investing activities: Real estate acquisitions and improvements (225,428) (267,470) (324,554) Investments in mortgage loans (17,191) (24,375) (9,372) Proceeds from repayment of notes and mortgage loans 8,091 38,107 48,762 Proceeds from sale of real estate - 5,000 23,318 Proceeds from Hospitality Properties Trust initial public offering - 60,000 - Loans to affiliate (800) (1,565) - ------------------------------------------------ Cash used for investing activities (235,328) (190,303) (261,846) ------------------------------------------------ Cash flows from financing activities: Proceeds from issuance of common shares 6,990 97,944 182,366 Proceeds from borrowings 481,000 219,000 333,770 Payments on borrowings (247,070) (166,000) (208,000) Deferred finance costs incurred (7,320) (1,666) (7,180) Dividends paid (93,377) (80,473) (71,565) ------------------------------------------------- Cash provided by financing activities 140,223 68,805 229,391 ------------------------------------------------ Increase (decrease) in cash and cash equivalents 3,213 (39,237) 43,990 Cash and cash equivalents at beginning of period 18,640 57,877 13,887 ------------------------------------------------ Cash and cash equivalents at end of period $ 21,853 $ 18,640 $ 57,877 ================================================ Supplemental cash flow information: Interest paid $ 19,662 $ 22,783 $ 5,677 =============================================== Non-cash investing and financing activities: Investment in real estate mortgages $ - $ (19,500) $ (5,100) Assumption of bonds payable - - 17,620 Real estate acquisitions - (24,444) (17,620) Sale of real estate - 19,500 5,100 Issuance of common shares 12,597 24,838 184 Conversion of convertible subordinated debentures (11,867) - - Investment in Hospitality Properties Trust - (100,000) -
See accompanying notes F-7 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) Note 1. Organization Health and Retirement Properties Trust, a Maryland real estate investment trust (the "Company"), was organized on October 9, 1986. The Company invests in income-producing real estate, primarily retirement housing and health care related properties. As of December 31, 1996, the Company had investments in 175 properties located in 28 states and the District of Columbia. The properties include 122 long-term care facilities, 25 retirement and assisted living communities, 12 nursing homes with subacute services and 16 medical office buildings and clinics. In addition, at December 31, 1996, the Company had a 14.9% equity investment in Hospitality Properties Trust ("HPT"). At December 31, 1996, HPT owned 82 hotels in 26 states. The Company is dependent upon its lessees' and mortgagors' compliance with regulations within the health care industry. Future changes to these regulations may affect the health care industry, the Company's lessees and mortgagors and, as a result, the Company. Note 2. Summary of Significant Accounting Policies Basis of Presentation. The consolidated financial statements include the Company's investment in 100% owned subsidiaries. The Company's investment in 50% or less owned companies is accounted for using the equity method. All inter-company transactions have been eliminated. The Company uses the income statement method to account for issuance of common shares of beneficial interest by HPT. Under this method, gains and losses on issuance of stock by HPT are recognized in the Company's income statement. Real Estate Property and Mortgage Investments. Real estate properties and mortgages are recorded at cost. Depreciation on real estate investments is provided for on a straight-line basis over the estimated useful lives ranging up to 40 years. Impairment losses on investments are recognized where indicators of impairment are present and the undiscounted cash flow (net realizable value) estimated to be generated by the Company's investments are less than the carrying amount of such investments. The determination of net realizable value includes consideration of many factors including income to be earned from the investment, holding costs (exclusive of interest), estimated selling prices, and prevailing economic conditions. Cash and Cash Equivalents. Cash, over-night repurchase agreements and short-term investments with maturities of three months or less at the date of purchase are carried at cost plus accrued interest. Deferred Interest and Finance Costs. Costs incurred to secure certain borrowings are capitalized and amortized over the terms of the respective loans. Accumulated amortization at December 31, 1996 and December 31, 1995 was $1,171 and $2,853 respectively. Interest Rate Hedging Arrangements. The Company enters into interest rate hedging arrangements to limit its exposure to increasing interest rates with respect to its bank borrowings and notes payable. Their cost is included in interest expense ratably over the terms of the respective agreements. Amounts receivable from hedging arrangements are accrued as an adjustment to interest expense. The unamortized cost of these agreements is included in other assets. Revenue Recognition. Rental income from operating leases is recognized on a straight line basis over the life of the lease agreements. Interest income is recognized as earned over the terms of the real estate mortgages. Additional rent and interest revenue is recognized as earned. Income Per Share. Income per share is computed using the weighted average number of shares outstanding during the period. The effect of the convertible debentures on fully diluted earnings per share is anti-dilutive. Supplemental income per share for the years ended December 31, 1995, and 1994 was $1.11 and $.93, respectively, based on the assumption that the issuance of shares in the Company's public offerings during 1995 and 1994, and the related repayment of outstanding bank borrowings, took place at the beginning of each year. Reclassifications. Certain reclassifications have been made to the prior years' financial statements to conform with the current year's presentation. Federal Income Taxes. The Company is a real estate investment trust under the Internal Revenue Code of 1986, as amended. Accordingly, the Company expects not to be subject to federal income taxes provided it distributes its taxable income and meets certain other requirements for qualifying as a real estate investment trust. Use of Estimates. Preparation of these financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that may affect the amounts reported in these financial statements and related notes. The actual results could differ from these estimates. F-8 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) Note 3. Real Estate Properties During the year ended December 31, 1996, the Company acquired five nursing properties, three retirement communities and twelve medical office buildings for an aggregated amount of approximately of $213,911 in nine separate transactions. In addition, the Company provided improvement financing at existing properties of approximately $11,517. The medical office buildings are managed by M&P Partners Limited Partnership ("M&P"), an affiliate of the Company. In January 1997, the Company acquired a medical office building for $5,375; this building is also managed by M&P. The Company's real estate properties are leased pursuant to noncancellable, fixed term operating leases expiring from 1997 to 2021. Generally, the Company's leases to a single tenant are cross-collateralized, cross-defaulted and cross-guaranteed. The leases generally provide for renewal terms at existing rates followed by several market rate renewal terms. The majority of the leases are triple net leases and generally require the lessee to pay minimum rent, additional rent based upon increases in net patient revenues, real estate taxes, and all operating costs associated with the leased property. Additional rent and interest for the years ended December 31, 1996, 1995 and 1994 were $3,222, $3,768 and $2,768, respectively. The future minimum lease payments to be received by the Company during the current terms of the leases as of December 31, 1996, are approximately $108,965 in 1997, $107,934 in 1998, $102,612 in 1999, $101,306 in 2000, $98,403 in 2001 and $871,523 thereafter. Note 4. Investment in Hospitality Properties Trust At December 31, 1996, the Company owned 4,000,000 common shares of beneficial interest of HPT with a carrying value of $103,062 and market value of $116,000. HPT is a real estate investment trust investing principally in income producing hotel real estate. The Company's percentage of ownership of HPT as of December 31, 1996, was 14.9%. The Company's investment in HPT has been accounted for using the equity method. During April 1996, HPT completed a public stock offering of 14,250,000 common shares of beneficial interest at a per share price of $26.625 for total consideration of approximately $379,406. As a result of this transaction, the Company's ownership percentage in HPT was reduced from 31.7% to 14.9% and the Company realized a gain of $3,603. Although the Company did not sell any shares, pursuant to the Company's accounting policy, gains and losses on the issuance of common shares of beneficial interest by HPT are recognized in the Company's income statement. Summarized financial data of HPT is as follows: December 31, ---------------------------- 1996 1995 -------------- -------------- Real estate $ 816,469 $ 326,752 properties, net Other assets, net 55,134 12,195 ----------------------------- $ 871,603 $ 338,947 ============================= Security deposits $ 81,360 $ 32,900 Other liabilities 145,035 8,096 Shareholders' equity 645,208 297,951 ----------------------------- $ 871,603 $ 338,947 ============================= February 7, 1995 Year Ended (inception) to December 31, December 31, 1996 1995 ---------------------------------------- Revenues $ 82,629 $ 23,642 Expenses 30,965 12,293 ---------------------------------------- Net Income $ 51,664 $ 11,349 ======================================== Average shares 23,170 4,515 ======================================== Net income per share $ 2.23 $ 2.51 ======================================== F-9 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) Note 5. Real Estate Mortgages and Notes Receivable, Net
December 31, ---------------------------- 1996 1995 ---------------------------- Mortgage notes receivable, net of discounts of $1,574 and $3,875, respectively, and net of reserves of $1,743 and $1,550, respectively, due January 1997 through December 2016 $58,750 $62,065 Mortgage note receivable due December 2010 19,358 19,500 Mortgage notes receivable due December 2016 15,444 14,582 Mortgage note receivable due December 2002 12,309 12,309 Mortgage note receivable due December 2010 11,500 11,500 Mortgage note receivable due April 2007 11,500 11,500 Mortgage note receivable due December 2008 10,000 - Mortgage note receivable due December 2016 8,634 7,792 Other collateralized notes receivable due July 1998 345 494 Loan to an affiliate due June 1997 2,365 1,565 ============================= $ 150,205 $ 141,307 =============================
During 1996, the Company provided debt financing totaling $15,000 secured by a retirement community and by properties under existing mortgages with the Company. The Company also provided improvement financing for existing properties of $2,191 and a loan to an affiliate of $800. In addition, the Company received principal payments on real estate mortgages of $1,493 and proceeds of $6,598, net of discounts, from the prepayment of mortgage loans. At December 31, 1996, the interest rates on the mortgages and notes receivable ranged from 8.1% to 13.75% per annum. Note 6. Shareholders' Equity In January 1996, the Company issued 475,000 common shares resulting in net proceeds of approximately $6,990 as a result of the underwriters' exercise of the over-allotment option granted pursuant to the Company's equity offering in December 1995. In January 1997, the Company declared a dividend of $.36 to be distributed on February 20, 1997. Dividends per share paid by the Company for 1996, 1995 and 1994 were $1.41, $1.37 and $1.32, respectively. The Company has reserved 1,000,000 shares of the Company's common shares under the terms of the 1992 Incentive Share Award Plan (the "Award Plan"). During 1996, 1995 and 1994, 7,250, 8,500 and 11,000 shares, respectively, were granted to officers of the Company and certain employees of HRPT Advisors, Inc. (the "Advisor"), an affiliate. The three independent Trustees, as part of their annual fee, are each granted 500 common shares annually. The shares granted to the Trustees vest immediately. The shares granted to the officers and certain employees of the Advisor vest over a three year period. At December 31, 1996, 900,790 shares of the Company's common shares remain reserved for issuance under the Award Plan. Note 7. Commitments and Contingencies At December 31, 1996, the Company had total commitments aggregating $16,024 to finance improvements to certain properties leased or mortgaged by the Company and to purchase a medical office building. The medical office building was purchased in January 1997. The Company is involved in litigation with a former tenant. The amounts claimed against the Company are material. The Company intends to defend itself and to pursue its claims and rights against the former tenant. The outcome of this pending litigation cannot be predicted. F-10 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) Note 8. Transactions with Affiliates The Company has an agreement with the Advisor whereby the Advisor provides investment, management and administrative services to the Company. The Advisor is owned by Gerard M. Martin and Barry M. Portnoy, who also serve as Managing Trustees of the Company. Messrs. Martin and Portnoy are principal shareholders of Connecticut Subacute Corporation ("CSC"), Connecticut Subacute Corporation II, New Hampshire Subacute Corporation and Vermont Subacute Corporation (collectively the "Subacute Entities") and were formerly directors of Horizon/CMS Healthcare Corporation ("Horizon") and Greenery Rehabilitation Group, Inc. ("Greenery"), which merged with Horizon in 1994. Horizon and the Subacute Entities are lessees of the Company. The Company has extended a $4,000 line of credit to CSC until June 30, 1997. At December 31, 1996, there was $2,365 outstanding under this agreement. The lease and mortgage transactions with the Subacute Entities and Horizon are based on market terms and are generally similar to the Company's lease and mortgage agreements with unaffiliated companies. The former president of the Company is the president of the Subacute Entities. Mr. Portnoy is a partner in the law firm which provides legal services to the Company. The Advisor is the general partner of M&P, which provides management services for some of the Company's recently acquired medical office buildings. The property management fees paid to M&P are generally equal to three percent of gross rents from the managed properties. The Advisor is compensated at an annual rate equal to .7% of the Company's real estate investments up to $250 million and .5% of such investments thereafter. The Advisor is entitled to an incentive fee comprised of restricted shares of the Company's common stock based on a formula. Incentive fees for the years ended December 31, 1996, 1995 and 1994 were $610, $580 and $239, which represent approximately 32,846, 35,560 and 17,400 common shares respectively. At December 31, 1996, the Advisor owned 1,049,210 common shares. Amounts resulting from transactions with affiliates included in the accompanying statements of income, shareholders' equity and cash flows are as follows:
Years Ended December 31, ------------------------------------ 1996 1995 1994 ------------------------------------ Investment advisory fees paid to the Advisor $ 5,349 $ 5,183 $ 3,839 Dividends paid to the Advisor 1,467 1,383 1,315 Rent from Greenery -- -- 2,689 Rent and interest income from Subacute Entities 12,981 12,015 8,481 Management fee paid to M&P 355 17 --
Note 9. Indebtedness
December 31, ----------------------------- 1996 1995 ----------------------------- $250,000 unsecured revolving bank credit facility, due March 2000, at LIBOR plus a premium $140,000 $ 53,000 Senior Notes, Series A, repaid in 1996 - 75,000 Senior Notes, Series B, due July 1999 at LIBOR plus 0.72% 125,000 125,000 Revenue Refunding Bonds, repaid in 1996 - 17,620 Convertible Subordinated Debentures, due 2003 at 7.50% 187,790 - Convertible Subordinated Debentures, due 2001 at 7.25% 40,000 - ----------------------------- 492,790 270,620 Less unamortized discount (615) (861) ----------------------------- $492,175 $269,759 =============================
In March 1996, the Company entered into a new credit facility to refinance its $250 million unsecured revolving bank credit facility. The restated credit facility matures in 2000 and bears interest at LIBOR plus 0.875% per annum. In connection with the refinancing, the Company recognized an extraordinary loss of $2,443 from the early extinguishment of debt. At December 31, 1996, the three month LIBOR was 5.56%. In April, 1996 the Company prepaid the outstanding secured Revenue Refunding Bonds totaling $17,620 by borrowing on the revolving bank credit facility and from available cash. F-11 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) Note 9. Indebtedness - continued In October 1996, the Company issued $200,000 of 7.5% and $40,000 of 7.25% Convertible Subordinated Debentures (the "Debentures") due 2003 and 2001, respectively. The Debentures are non-callable for three years but are convertible at any time prior to maturity into common shares of the Company at a price of $18 per share. The net proceeds were used in part to repay the then outstanding balance of $147,000 on the Company's revolving bank credit facility and $75,450 was placed in an irrevocable trust to complete an in-substance defeasance of the $75,000 Floating Rate Senior Notes, Series A, due 1999. The Company recognized an extraordinary loss of $1,467 as a result of the early extinguishment of this debt in the fourth quarter of 1996. At December 31, 1996, approximately $12,210 of the Debentures due 2003 had been converted into 679,441 common shares of the Company. At December 31, 1996, 12,653,893 of the Company's common shares were reserved for issuance for conversion of the Debentures. During January 1997, approximately $16,047 of the Debentures due 2003 had been converted into 891,496 common shares of the Company. At December 31, 1996, the Company had interest rate hedging agreements which cap interest rates on a maximum of $200,000 through 1997. The maximum average rates payable on such borrowings under these arrangements is 6.24% per annum. The required principal payments due during the next five years are $125,000 in 1999 and $40,000 in 2001. The Senior Notes Series B may be called at the Company's option prior to maturity. Note 10. Fair Value of Financial Instruments The Company's financial instruments include cash and cash equivalents, mortgage notes receivable, rents receivable, an equity investment, interest rate hedging agreements, senior notes, convertible debentures, accounts payable and other accrued expenses, and security deposits. Except as follows, the fair value of the financial instruments were not materially different from their carrying values at December 31, 1996.
Carrying Amount Fair Value -------------------------------------- Real estate mortgages and notes $150,205 $169,983 Investment in HPT 103,062 116,000 Interest rate hedging agreements 565 810 Senior notes and convertible debentures 352,175 352,349 Commitments - 16,024
The fair values of the real estate mortgages, senior notes, convertible debentures are based on estimates using discounted cash flow analysis and currently prevailing rates. The fair value of the investment in HPT is based on the per share price of $29.00 at December 31, 1996. Interest rate hedging agreements are based on quoted market prices. The fair value of the commitments represents the actual amounts committed. Note 11. Concentration of Credit Risk The Company's assets are primarily invested in income producing health care related real estate located throughout the United States. The Company's significant lessees, mortgagees and equity investment are as follows:
Equity Investment, Notes, Mortgages Equity Earnings, Rent and and Real Estate Properties, Net Mortgage Interest Revenue -------------------------------------- ----------------------------------- December 31, 1996 Year Ended December 31, 1996 -------------------------------------- ----------------------------------- Amount % of Total Amount % of Total ------------------------------------- ----------------------------------- Marriott International, Inc. $307,219 26% $30,524 24% Horizon/CMS Healthcare Corporation 114,008 10 16,180 13 Community Care of America, Inc. 106,306 9 11,239 9 Equity investment in HPT 103,062 9 8,860 7 GranCare, Inc. 87,184 7 15,491 13 Other 464,306 39 42,948 34 ------------------------------------- ----------------------------------- $1,182,085 100% $125,242 100% ===================================== ===================================
F-12 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) Note 11. Concentration of Credit Risk - continued
Equity Investment, Notes, Mortgages Equity Earnings, Rent and and Real Estate Properties, Net Mortgage Interest Revenue -------------------------------------- ----------------------------------- December 31, 1995 Year Ended December 31, 1995 --------------------------------------- ----------------------------------- Amount % of Total Amount % of Total -------------------------------------- ----------------------------------- Marriott International, Inc. $314,544 33% $29,482 26% Horizon/CMS Healthcare Corporation 117,698 12 16,149 14 Community Care of America, Inc. 76,155 8 8,790 8 Equity investment in HPT 99,959 10 12,455 11 GranCare, Inc. 89,180 9 15,408 14 Other 266,086 28 31,205 27 ------------------------------------- ----------------------------------- $963,622 100% $113,489 100% ===================================== ===================================
Note 12. Selected Quarterly Financial Data (Unaudited) The following is a summary of the unaudited quarterly results of operations of the Company for 1996 and 1995. The amounts are in thousands except for the per share amounts.
1996 ----------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter ------------------------------------------------------ Revenues $28,480 $29,624 $29,917 $32,162 Income before equity in earnings of HPT and gain on equity transaction of HPT 16,120 16,623 16,157 15,801 Equity in earnings and gain on equity 2,092 5,839 2,301 2,231 transaction of HPT Income before extraordinary items 18,212 22,462 18,458 18,032 Extraordinary items - early extinguishment of (2,443) - - (1,467) debt Net income 15,769 22,462 18,458 16,565 Per share data: Income before equity in earnings of HPT and gain on equity transaction of HPT .24 .25 .24 .24 Income before extraordinary items .28 .34 .28 .27 Net income .24 .34 .28 .25
1995 -------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter -------------------------------------------------------- Revenues $ 25,992 $ 30,498 $ 28,974 $ 27,858 Income before equity in earnings of HPT and gain on sale of property 15,832 15,668 15,154 11,987 Equity in earnings of HPT -- -- 898 2,221 Income before gain on sale of property 15,832 15,668 16,052 14,208 Net income 18,308 15,668 16,052 14,208 Per share data: Income before equity earnings and gain on sale of property .27 .26 .26 .20 Income before gain on sale of property .27 .26 .27 .25 Net income .31 .26 .27 .25
F-13 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) Note 13. Pro Forma Information (Unaudited) The following unaudited condensed Pro Forma Statements of Income assumes the transactions described in Notes 3, 4, 5, 6 and 9 had occurred on January 1, 1995 and give effect to the Company's borrowing rate throughout the periods indicated. These pro forma statements are not necessarily indicative of the expected results of operations for any future period. Differences could result from, but are not limited to, additional property investments, changes in interest rates and changes in the debt and/or equity structure of the Company. Condensed Pro Forma Statements of Income (unaudited)
Years Ended December 31, -------------------------------------- 1996 1995 -------------------------------------- Total revenues $140,186 $136,645 Total expenses 72,779 73,571 -------------------------------------- Income before equity earnings 67,407 63,074 Equity in earnings of HPT 8,860 8,938 -------------------------------------- Net income $76,267 $72,012 ====================================== Weighted average shares outstanding 68,888 68,888 ====================================== Net income per share $1.14 $1.08 ======================================
F-14 Report of Independent Auditors Board of Directors and Stockholders Government Property Investors, Inc. We have audited the accompanying consolidated balance sheets of Government Property Investors, Inc., (the "Company") as of December 31, 1996 and 1995 and the related consolidated statements of operations, stockholders' equity/(deficit), and cash flows for the years ended December 31, 1996 and 1995, and the combined statements of operations, owners' equity, and cash flows of GovProp Entities for the period from May 20, 1994 (inception) to December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Government Property Investors, Inc. at December 31, 1996 and 1995 and the consolidated results of their operations and their cash flows for the years ended December 31, 1996 and 1995, and the combined financial statements referred to above present fairly, in all material respects, the combined results of operations and cash flows of GovProp Entities for the period from May 20, 1994 (inception) to December 31, 1994, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that Government Property Investors, Inc. will continue as a going concern. As more fully described in Note 1, the Company has incurred recurring operating losses and has a working capital deficiency. In addition, the Company has not complied with certain loan convenants and a substantial portion of the Company's debt matures in 1997. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. ERNST & YOUNG LLP Washington, D.C. January 31, 1997, except for the last paragraphs of Note 1 and Note 12, as to which the date is February 18, 1997 F-15 Government Property Investors, Inc. Consolidated Balance Sheets
December 31, December 31, 1996 1995 ------------ ------------ Assets Rental property, at cost: Land $ 64,849,593 $ 24,726,708 Buildings and improvements 277,449,522 150,981,183 Furniture, fixtures and equipment 636,093 578,178 ------------- ------------- 342,935,208 176,286,069 Less: accumulated depreciation (8,026,580) (1,899,310) ------------- ------------- 334,908,628 174,386,759 Property under development 4,152,654 8,716,200 Cash and cash equivalents 775,823 591,633 Restricted cash 5,499,032 3,542,907 Accounts receivable 4,436,447 2,576,695 Deferred charges, net 8,733,508 9,335,361 Notes receivable and accrued interest - affiliates 767,833 947,956 Deposits on properties 840,000 550,000 Other assets 4,829,130 737,106 ------------- ------------- Total assets $364,943,055 $201,384,617 ============= ============= Liabilities and stockholders' equity/(deficit) Liabilities: Mortgages, notes loans payable and capital lease obligations $311,081,018 $145,033,120 Notes payable - affiliates 47,467,708 43,310,893 Accounts payable and accrued expenses 10,580,613 5,871,831 Accrued interest payable 1,437,231 761,618 Accrued interest payable - affiliates 52,083 52,083 ------------- ------------- Total liabilities 370,618,653 195,029,545 ------------- ------------- Commitments and contingencies Stockholders' equity/(deficit): Preferred stock: $.01 par value; 500,000 shares authorized, no shares issued and outstanding - - Common stock: Class A $.01 par value; 9,000,000 shares authorized; 1,957,879 shares issued and 19,579 19,579 outstanding Common stock: Class B $.01 par value; 500,000 shares authorized; 200,000 shares issued and 2,000 2,000 outstanding Additional paid-in capital 16,574,007 16,574,007 Note receivable - officer (260,000) (460,000) Treasury stock (219,108) - Retained deficit (21,792,076) (9,780,514) ------------- ------------- Total stockholders' equity/(deficit) (5,675,598) 6,355,072 ------------- ------------- Total liabilities and stockholders' equity/(deficit) $364,943,055 $201,384,617 ============= =============
See accompanying notes. F-16 Government Property Investors, Inc. Consolidated Statements of Operations and GovProp Entities Combined Statement of Operations
Government Property Investors, Inc. GovProp Entities --------------------------------------------- ------------------------ For the period from May Year ended Year ended 20 (Inception) to December 31, 1996 December 31, 1995 December 31, 1994 ----------------------- --------------------- ----------------------- Revenue: Rental income $36,523,081 $13,362,543 $ 1,604,260 Interest 780,208 571,402 40,748 ------------ ----------- ----------- Total revenues 37,303,289 13,933,945 1,645,008 ------------ ----------- ----------- Expenses: Property operating 8,657,140 3,177,843 507,568 General and administrative 3,684,449 3,675,000 535,564 Loss on impairment of rental - 2,793,462 - property Write-off of deferred offering 1,886,179 - - costs Interest - affiliates 6,373,062 4,217,243 788,878 Interest 22,356,746 5,669,919 813,410 Depreciation and amortization 6,357,275 2,556,614 340,683 ------------ ----------- ----------- Total expenses 49,314,851 22,090,081 2,986,103 ------------ ----------- ----------- Loss before extraordinary item (12,011,562) (8,156,136) (1,341,095) Extraordinary loss on early extinguishment of debt - (297,201) - ------------- ----------- ----------- Net loss $(12,011,562) $ (8,453,337) $(1,341,095) ============= =========== ===========
See accompanying notes. F-17 Government Property Investors, Inc. Consolidated Statement of Stockholders' Equity / (Deficit) and GovProp Entities Combined Statement of Owners' Equity
Common Stock Additional Total ---------------------- Paid-In Note Treasury Retained Stockholders' Shares Amount Capital Receivable Stock Deficit Equity --------------------------------------------------------------------------------------------- Balance at May 20, 1994 $ - $ - $ - $ - $ $ - - - Initial partnership contribution - - - - - 8,549,334 8,549,334 Issuance of common stock 1,000 10 320,527 - - - 320,537 Net loss - - - - - (1,341,095) (1,341,095) ------- - -------- -------- -------- --------- ----------- ----------- Balance at December 31, 1994 1,000 10 320,527 - - 7,208,239 7,528,776 Restructuring distribution (1,000) (10) 8,198,038 - - (8,535,416) (337,388) Issuance of Class A common stock 1,957,879 19,579 7,967,442 - - - 7,987,021 Issuance of Class B common stock 200,000 2,000 88,000 - - - 90,000 Note receivable - officer - - - (460,000) - - (460,000) Net loss - - - - - (8,453,337) (8,453,337) ------- - -------- -------- -------- --------- ----------- ----------- Balance at December 31, 1995 2,157,879 21,579 16,574,007 (460,000) - (9,780,514) 6,355,072 Purchase of Class A common stock - - - - (201,000) - (201,000) Purchase of Class B common stock - - - - (18,108) - (18,108) Reduction of note receivable - - - 200,000 - - 200,000 Net loss - - - - - (12,011,562) (12,011,562) ------- - -------- -------- -------- --------- ------------ ------------ Balance at December 31, 1996 2,157,879 $21,579 $16,574,007 $(260,000) $(219,108) $(21,792,076) $ (5,675,598) ========= ======= ========== ======== ========= =========== ============
See accompanying notes. F-18 Government Property Investors, Inc. Consolidated Statements of Cash Flows and GovProp Entities Combined Statement of Cash Flows
Government Property Investors, Inc. GovProp Entities -------------------------------------------------- ----------------------------- For the period from Year ended Year ended May 20 (Inception) to December 31, 1996 December 31, 1995 December 31, 1994 ----------------- ----------------- ----------------- Operating activities: Net loss $ (12,011,562) $ (8,453,337) $ (1,341,095) Adjustments to reconcile net loss to net cash (used in)/provided by operating activities: Depreciation and amortization 6,357,272 2,556,614 340,683 Amortization of deferred charges included in interest expense 4,816,199 1,125,442 523,539 Loss on impairment of rental property - 2,793,462 - Extraordinary loss on early extinguishment of debt - 297,201 - Changes in operating assets and liabilities: Increase in accounts receivable (1,859,752) (2,362,416) (365,637) Increase in other assets (4,092,027) (263,687) (135,126) Increase in accounts payable and accrued expenses 3,856,280 2,557,683 1,307,596 Increase in accrued interest payable 675,613 735,451 26,167 Increase in accrued interest payable -affiliates - 52,083 - ------------ ------------ ----------- Net cash (used in)/provided by operating activities (2,257,977) (961,504) 356,127 ------------ ------------ ----------- Investing activities: Purchases of land, buildings and improvements (166,591,221) (161,772,015) (16,271,476) Purchase of furniture, fixtures and equipment (57,915) (233,384) (344,794) Decrease/(increase) in property under development 4,563,546 (4,445,410) (4,270,790) Increase in accounts payable - property under development 852,504 1,281,977 - Investment in partnerships - - (216,313) (Increase)/decrease in deposits on properties (290,000) 50,000 (600,000) Decrease/(increase) in notes receivable -affiliates 380,123 (947,956) - Decrease/(increase) in organization - 122,433 (1,568,295) costs Increase in restricted cash (2,631,101) (1,956,125) (911,806) ------------ ------------ ----------- Net cash used in investing activities (163,099,088) (168,575,456) (24,183,474) ------------ ------------ -----------
Continued on next page F-19 Government Property Investors, Inc. Consolidated Statements of Cash Flows and GovProp Entities Combined Statement of Cash Flows (continued)
Government Property Investors, Inc. GovProp Entities ------------------------------------------------- --------------------------- For the period from Year ended Year ended May 20 (Inception) to December 31, 1996 December 31, 1995 December 31, 1994 ----------------- ----------------- ----------------- Financing activities: Capital contributions from shareholders/owners, net - 7,279,633 8,869,876 Purchase of treasury stock (219,108) - - Proceeds from notes, loans and mortgages payable 172,466,362 153,219,823 6,889,432 Proceeds from notes payable - affiliates 4,156,815 29,866,950 13,443,943 Repayment of notes, loans and mortgages payable (6,418,464) (14,285,234) (790,902) Additions to deferred financing costs (4,444,350) (9,490,504) (1,047,077) ----------- ----------- ---------- Net cash provided by financing activities 165,541,255 166,590,668 27,365,272 ----------- ----------- ---------- Net increase/(decrease) in cash 184,190 (2,946,292) 3,537,925 Cash and cash equivalents, beginning of period 591,633 3,537,925 - ----------- ----------- ---------- Cash and cash equivalents, end of period $ 775,823 $ 591,633 $ 3,537,925 =========== =========== ==========
See accompanying notes. F-20 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements 1. Organization Government Property Investors, Inc., and subsidiaries ("GPI" or the "Company") and the GovProp Entities were formed for the purpose of acquiring, owning, developing, leasing and operating a portfolio of U.S. Government-leased properties. As of December 31, 1996, the Company owned twenty-five office buildings, comprising approximately 2.9 million rentable square feet, occupied by various U.S. Government agencies. Seven office buildings, representing approximately 54 percent of the value of the Company's portfolio, are located in the greater metropolitan Washington, DC area of the United States. The Company intends to continue developing and acquiring additional properties as well as expanding properties within its existing portfolio. The GovProp Entities include Rosecliff Realty, Inc. ("RRI") and GovProp, L.P. ("GovProp"). RRI was formed on January 7, 1994 and commenced operations on May 20, 1994 ("Inception"). Its primary function was to manage the properties owned by GovProp. GovProp was formed and commenced operations on May 20, 1994. Its primary function was to acquire, own, lease and operate a portfolio of government-leased properties. During 1994, RRI carried out property management, development, acquisition and corporate management functions and GovProp held title to real property under development, fully developed real property and issued debt relating to such real property. Disclosures made herein, for the period from Inception to December 31, 1994 pertain to the GovProp Entities. Disclosures for periods subsequent to December 31, 1994, except those specifically identified as relating to transactions prior to the formation of the Company, pertain to GPI. The Company was incorporated in Delaware on January 13, 1995 and, after the merger transaction discussed below, commenced operations on February 7, 1995 (the date GovProp and RRI were merged with and into the Company). In connection with the merger, RRI distributed its one percent ownership interest in GovProp to its sole shareholder. On January 13, 1995, one share of Series A Common Stock (then representing 100% ownership interest in the Company) was issued to Rosecliff Realty L.P. ("RRLP"). In exchange for RRLP's ownership interests in the GovProp Entities, RRLP received a total of 995,999 additional shares of GPI Series A Common Stock; the GovProp Entities were concurrently merged with and into GPI. F-21 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 1. Organization (continued) At the merger date, the GovProp Entities owned 99% of GovProp Funding L.P. In conjunction with the merger transaction, RRLP acquired the remaining 1% interest in GovProp Funding L.P.; this remaining partnership interest was then exchanged by RRLP for 4,000 shares of GPI Series A Common Stock and GovProp Funding L.P. was concurrently merged with and into GPI's wholly owned subsidiary, Rosecliff Realty Funding, Inc. In addition to the merger transactions referred to above, the Company sold 944,559 shares of Series A Common Stock for $8.5 million and issued $25.3 million of subordinated debt to The 1818 Fund II, L.P. ("The 1818 Fund" - see Note 6). Fees of approximately $4.6 million were incurred in connection with this transaction; $3.4 million was allocated to deferred financing costs and $1.2 million was allocated to additional paid-in capital based on the dollar amount of each type of financing. Additionally, to attract and retain qualified management personnel and provide for continued sources of financing, Series A and Series B Common Stock has been issued for approximately $700,000 to additional equity investors and Company management personnel. Upon the occurrence of a valuation realization event (as defined in the Amended and Restated Certificate of Incorporation), which includes an initial public offering of stock and a change of control, and based upon specified terms, as defined, shares of Series B Common Stock convert to shares of Series A Common Stock. As of December 31, 1996, the Company was authorized to issue 9,000,000 shares of Series A Common Stock, 500,000 shares of Series B Common Stock, 500,000 shares of Preferred Stock, and 10,000,000 shares of Excess Stock. As of December 31, 1996, total Company shares issued and outstanding are as follows: F-22 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 1. Organization (continued) Number Ownership entity of shares Series of stock ---------------------------- ------------ ------------------ Rosecliff Realty L.P. 1,000,000 Series A Common The 1818 Fund II, L.P. 944,559 Series A Common Additional equity investors 13,320 Series A Common Company management 200,000 Series B Common ---------- Total shares 2,157,879 ========== During 1996, the Company repurchased 111 shares of Series A Common Stock from an additional equity investor, 22,176 shares of Series A Common Stock from Rosecliff Realty, L.P., and 40,242 shares of Series B Common Stock from the Company's former president (the "Former President") and the Company's former general counsel. The treasury stock has been recorded at its original issue price with the excess of repurchase cost over the original issue price charged to earnings in the current period. Going Concern During the years ended December 31, 1996 and 1995, and the period from May 20, 1994 (inception) to December 31, 1994, the Company has experienced losses of approximately $12.0 million, $8.5 million and $1.3 million, respectively. As of December 31, 1996, these losses have created an equity deficit of $21.8 million. Since inception, the Company has relied upon equity investments and loans from affiliated parties to meet operating and administrative requirements. Additional investments from existing stockholders is not currently anticipated. As of December 31, 1996, the Company does not have sufficient working capital to fully discharge all operating obligations and has not obtained additional financing to meet such obligations. The Company's long-term debt due in 1997, exclusive of debt due to affiliates, approximates $225 million. The Company has not obtained extensions on these obligations and, due to events described in Note 12, the Company is not in active negotiations to replace such debt at maturity. In the event existing debt is not extended or refinanced prior to maturity, the Company would be in default on such debt. F-23 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 1. Organization (continued) Going Concern (continued) Additionally, as discussed in Note 5, various of the Company's borrowing agreements contain covenants imposing restrictions on cash flow and the maintenance of certain ratios, as defined. As of January 31, 1997, debt totaling approximately $93 million was not in compliance with these requirements. These conditions raise substantial doubt about the Company's ability to continue as a going concern. As discussed in Note 12, in February 1997, the Company signed an agreement to sell substantially all of its assets and merge with Health and Retirement Properties Trust. The sale would result in the repayment or restructuring of a substantial portion of the Company's debt and result in lower interest expense. The Company believes that, until the sale is finalized, existing cash balances and anticipated cash receipts will be adequate to cover operating requirements, including interest and principal payments. There can be no assurance that the sale will be successfully accomplished on terms and conditions acceptable to the Company. In the event that the sale is not completed, the Company would endeavor to extend and refinance its debt. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying financial statements for the years ended December 31, 1996 and 1995 include the results of operations of the GovProp Entities and those of GPI and subsidiaries on a consolidated basis. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations of the GovProp Entities, prior to the merger transactions, and GPI have been presented for the year ended December 31, 1995 on a historical basis because of prior common ownership, management and control. F-24 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 2. Summary of Significant Accounting Policies (continued) Basis of Presentation (continued) The accompanying 1994 financial statements present the combined historical financial position and results of operations of RRI and GovProp, as the ultimate ownership and control of RRI and GovProp was held by the same group of investors and this control continued through the merger transaction discussed in Note 1. All significant intercompany transactions and accounts have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the associated amount of revenues and expenses during the reporting period; actual results could differ from those estimates. Rental Property Costs incurred for the acquisition, development and construction of rental property, which includes assets recorded under capital leases, are capitalized and depreciated or amortized on a straight-line basis over the estimated useful lives of the related assets, as follows: Buildings and improvements...............................40 years Furniture, fixtures and equipment.........................5 years Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. Significant renovations and improvements, which extend the useful lives of the assets, are capitalized and depreciated over their estimated useful lives. The Company's properties are carried at the lower of historical cost or fair value. The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. F-25 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 2. Summary of Significant Accounting Policies (continued) Rental Property (continued) Fair values are determined on a periodic basis, and include consideration of the assets' net operating income, comparable prices of other properties in the area, existing environmental and zoning restrictions and other factors effecting current economic conditions. In 1996, the Company adopted FASB No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed of". There was no effect on the Company's financial statements in 1996 as a result of this adoption. Property Under Development Project development costs, including related costs of architecture and engineering, construction, interest and real estate taxes incurred during the period of construction are capitalized. Upon completion of construction, all related costs are included in the basis of the real property and depreciated over its estimated useful life. Cash and Cash Equivalents Cash includes amounts on deposit with financial institutions. Cash equivalents include highly liquid investments with original maturities of three months or less from date of purchase. Restricted Cash Restricted cash includes amounts held in escrow for payment of insurance, property taxes and replacement reserve deposits. Deferred Financing and Organization Costs Deferred financing costs include fees and associated costs incurred to obtain financing. These costs, amortized on the interest method over the terms of the respective loans, are included in interest expense. Organization costs include primarily legal and other costs incurred in the formation of GPI and subsidiaries. These costs are amortized on a straight-line basis over a five year period. F-26 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 2. Summary of Significant Accounting Policies (continued) Fair Value of Financial Instruments The fair value of the Company's long-term debt has been estimated using available market information, including rates currently offered to the Company for debt of similar maturities. Revenue Recognition Minimum rent, including rental abatements and contractual fixed increases or decreases attributable to operating leases, is recognized on a straight-line basis over the term of the related lease. The excess amount of rental payments contractually due over rents recognized is included in deferred rents payable, a component of accounts payable and accrued expenses, in the accompanying balance sheets. Contractually due but unpaid rent payments are included in accounts receivable on the accompanying balance sheets. Most of the Company's leases provide for additional revenues in the form of operating expense reimbursements based on annual increases in the Consumer Price Index. These revenues are also recognized on the accrual basis. Stock Based Compensation In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock Based Compensation", which is effective for the Company's December 31, 1996 financial statements. SFAS No. 123 allows companies to account for stock based compensation either under the new provisions of SFAS No. 123 or under the provisions of APB Opinion No. 25, with further pro forma disclosures within the footnotes and financial statements as if the measurement provisions of SFAS No. 123 had been adopted. The Company intends to continue accounting for its stock based compensation in accordance with the provisions of APB No. 25. As such, the adoption of SFAS No. 123 will not impact the financial position or results of operations of the Company. F-27 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 2. Summary of Significant Accounting Policies (continued) Income Taxes For federal income tax purposes, the Company is a real estate investment trust ("REIT"). As a REIT, the Company is required to distribute at least 95% of its taxable income and meets certain other requirements. No provision for federal income taxes is recorded in the financial statements because the Company expects to distribute in excess of its taxable income to its shareholders. For the period prior to the mergers discussed in Note 1, taxable income or loss is reported on the owners' respective tax returns. Supplemental Disclosures of Cash Flow Information During the year ended December 31, 1996: (i) $18.1 million was paid for interest, net of amount capitalized, and (ii) accrued interest of $4.0 million was converted to subordinated debt and convertible debt. Additionally, the following significant non-cash transactions occurred during the year ended December 31, 1996: (i) reduction of $200,000 of the Former President's note receivable in exchange for 22,176 Series A Common Shares held by RRLP, and (ii) reduction of approximately $381,000 of the Former President's note receivable and accrued interest in exchange for an equal reduction in Subordinated Debt due to GovProp Sub-Debt Partners, L.P. During the years ended December 31, 1995 and the period from May 20, 1994 to December 31, 1994: (i) $4.8 million and $.3 million were paid for interest, net of amounts capitalized and (ii) accrued interest of $3.5 million and $0.8 million were converted to subordinated debt. Additionally, the following significant non-cash transactions occurred during the year ended December 31, 1995: (i) convertible subordinated debt of approximately $440,000 was issued as additional consideration in connection with a line of credit agreement (see Note 5) and subordinated debt (see Note 6), (ii) as a result of the reorganization of the Company, approximately $337,000 (consisting of certain ownership interests in the GovProp Entities) was distributed to the owners, and (iii) $90,000 of Series B Common Stock was issued under employee compensation agreements. During the years ended December 31, 1996 and 1995, and the period from May 20, 1994 (inception) to December 31, 1994, the Company capitalized approximately $859,000, $489,000, and $0, respectively, of interest incurred on outstanding debt to property under development. F-28 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 2. Summary of Significant Accounting Policies (continued) Reclassifications Certain reclassifications have been made to the 1995 and 1994 financial statements to conform with the current year's presentation. 3. Deferred Charges Deferred charges consist of the following (in thousands): December 31, 1996 1995 -------- ------------ Deferred financing costs $15,554 $10,240 Organization and other costs 1,590 1,103 -------- -------- 17,144 11,343 Less accumulated amortization (8,410) (2,008) -------- -------- Deferred charges, net $ 8,734 $ 9,335 ======== ======== In 1996, the Company incurred approximately $1.9 million in expenses from the write-off of costs associated with a proposed initial public offering of its common stock. F-29 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 4. Tenant Lease Agreements Future minimum rentals to be received under noncancelable tenant leases at December 31, 1996 are due as follows (in thousands): For the year ending December 31, Amount ----------------------------------------------- 1997 $ 52,822 1998 51,527 1999 50,643 2000 50,751 2001 36,927 Thereafter 147,559 -------- $390,229 ======== Certain of the Company's leases contain renewal options; these renewal options are primarily for five or ten year periods. 5. Mortgages, Notes and Loans Payable Mortgages, notes and loans payable consist of the following (in thousands): December 31, 1996 1995 ------------------------ Mortgages, notes, loans payable $ 88,811 $ 64,764 Capital lease obligation 13,025 - Lines of credit 208,856 79,916 Convertible debt 389 353 -------- --------- $311,081 $145,033 ======== ========= F-30 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 5. Mortgages, Notes and Loans Payable (continued) As of December 31, 1996, future maturities of mortgages, notes and loans payable are as follows (in thousands): For the year ending December 31, Amount -------------------------- --------- 1997 $224,546 1998 6,761 1999 7,290 2000 7,910 2001 8,495 Thereafter 56,079 -------- $311,081 ======== Secured Notes At December 31, 1996 and 1995, the Company had $55.8 million and $60.3 million, respectively, of fixed-rate debt backed by the securitization of the underlying government lease payments and issuing U.S. Government General Service Administration certificates of participation (the "Securitized Debt"). In December 1996, the Company entered into an agreement with a lender to provide funding to refinance $27.0 million of this fixed-rate debt (see Notes 8 and 12). At December 31, 1996 and 1995, the weighted average interest rate of funds borrowed under the Securitized Debt is 7.2 percent per annum. At December 31, 1996 and 1995, the Securitized Debt is collateralized by rental property totaling $78.1 million and $80.7 million, respectively. The Securitized Debt matures from 2002 through 2009. Additionally, all rents from the pledged properties are assigned for payment of debt service, operating expenses, taxes, insurance and reserves; remaining funds are remitted to the Company. At December 31, 1996 and 1995, the Company had a permanent loan (the "Bayerische Facility") with an outstanding balance of $4.2 million and $4.5 million, respectively. The Bayerische Facility bears interest at 6.86 percent per annum, and is collateralized by the underlying rental property totaling approximately $5.9 million and $6.0 million at December 31, 1996 and 1995, respectively. The Bayerische Facility matures in 2005. F-31 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 5. Mortgages, Notes and Loans Payable (continued) Additionally, all rents from the pledged property are assigned to the lender primarily for payment of debt service and reserves; remaining funds are remitted to the Company. At December 31, 1996, the Company had a loan (the "John Hancock Loan") with an outstanding balance of $19.5 million. The John Hancock Loan bears interest at 7.65 percent, matures in 2016, and is collateralized by the underlying rental property. Upon completion of construction in May 1996, the loan converted to a permanent loan and is collateralized by the underlying rental property with a completed cost of $20.5 million. Additionally, all rents from the pledged property are assigned for payment of debt service and reserves; remaining funds are remitted to the Company. In April, 1996 the Company entered into an agreement providing for loans up to $10.3 million for the purchase of land and construction of a building. These loans bear interest at LIBOR plus 1.9 percent and mature in April of 1997 and are collateralized by the underlying property and its rental income. As of December 31, 1996, this construction loan had an outstanding balance of $1.6 million, with $8.7 million available for future borrowing. In August, 1996, the Company entered into an agreement providing for loans up to $11.3 million for the purchase of land and building and construction of building improvements. These loans bear interest at LIBOR plus 1.75 percent, mature in December of 1996, and may be extended until February, 1997 and are collateralized by the underlying property and its rental income. In 1996, the Company extended this loan until February, 1997. As of December 31, 1996, this loan had an outstanding balance of $7.8 million, with $3.5 million available for future borrowing. Capital Lease In March, 1996, the Company entered into a capital lease with the Erie County Industrial Development Agency ("ECIDA"). The Company's obligations under the capital lease approximate ECIDA's obligations under a $13.5 million, fixed rate county revenue bond (the "ECIDA Bond"). The ECIDA Bond is backed by the securitization of the underlying lease payments, bears interest at 7.66 percent and matures in 2004. At December 31, 1996, the outstanding capital lease obligation and balance on the ECIDA Bond approximated $13.0 million. If the underlying tenant leases are extended, the term of the F-32 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 5. Mortgages, Notes and Loans Payable (continued) Capital Lease (continued) capital lease and the ECIDA Bond can be extended through the lease extension date, and will bear interest at the prevailing U.S. Treasury rate plus two percent. The ECIDA Bond is collateralized by rental property totaling approximately $21.3 million. Additionally, all rents from the pledged property are assigned for payment of debt service and reserves; remaining funds are remitted to the Company. Lines of Credit and Other During 1994, the GovProp Entities entered into an acquisition facility (the "Acquisition Facility") with the maximum principal amount of $112.5 million, to be used to finance up to 75 percent of the acquisition cost of properties purchased and to meet certain funding criteria as specified by the Lender, including closing costs and debt origination fees not to exceed to 3.5 percent of the purchase price. At December 31, 1994, the Acquisition Facility's $6.1 million balance was collateralized by three properties, totaling approximately $16.3 million. The Acquisition Facility had an initial maturity of June 1995, an interest rate 300 basis points over one-month LIBOR and an origination fee of 2 percent of the principal amount borrowed. All available cash flow from the properties acquired under the Acquisition Facility, after expenses, reserves and distributions for estimated taxes, are used to repay the loan. At December 31, 1994, the interest rate on this facility was 9 percent. During 1995, the Company negotiated an extension of the maturity date, reductions of the interest rate and origination fees and increased the amount available under the Acquisition Facility to $150 million. At December 31, 1995, the balance outstanding under the Acquisition Facility was $57.8 million; future borrowings of $92.2 million were available under this agreement. At December 31, 1995, the Acquisition Facility was collateralized by eleven properties, totaling $86.8 million. At December 31, 1995, the 30 day LIBOR rate was approximately 5.72 percent. In September 1996, the Acquisition Facility was renegotiated and extended to include maximum funding of $200 million, at a rate of LIBOR plus 2.95 percent, maturing in December 1996 and may be extended for two additional three month periods. In December 1996, the Company extended the Acquisition Facility for one additional three F-33 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 5. Mortgages, Notes and Loans Payable (continued) Lines of Credit and Other (continued) month period. At December 31, 1996, the balance outstanding under the Acquisition Facility was $158.9 million; future borrowings of $41.1 million are available under this agreement. At December 31, 1996, the Acquisition Facility is collateralized by sixteen properties, totaling $196.0 million. At December 31, 1996, the 30 day LIBOR rate was approximately 5.53 percent. In 1995, the Company entered into another line of credit agreement (the "BHF Facility"), totaling $50.0 million, to finance the balance of property acquisition costs not covered under the Acquisition Facility. At December 31, 1996 and 1995, the BHF Facility had an outstanding balance of $50.0 million and $22.1 million, respectively. The BHF Facility matures in October of 1997. Funding under the BHF Facility bears interest at a fixed rate of 10 percent per annum, is subordinated to the Company's other non-affiliated debt, and is collateralized by stock in the Company's subsidiaries, with a secondary security interest in all rents from the pledged properties. Convertible Debt At December 31, 1996, the Company had also issued approximately $390,000 of convertible subordinated debt to the lenders of the BHF Facility. At the holders' option, this debt is convertible, at $9.00 per share, into approximately 43,000 shares of Series A Common Stock. Conversion is dependent upon the occurrence of certain events, including an initial public offering of stock or a change in control, as defined. Additionally, this convertible subordinated debt is redeemable, at the option of either the holders or the Company, starting in 1998. In December, 1996, the Company entered into an interest rate protection agreement (the "Hedge Agreement") with a financial institution, protecting the Company from increases in interest rates effecting certain prepayment penalties which will be incurred in connection with $27.0 million of Securitized Debt that was refinanced in January, 1997 (see Notes 8 and 12). This transaction is accounted for as a hedge; gains or losses are deferred as adjustments to the carrying value of the $27.0 million of Securitized Debt as a component of the gain or loss in the period the debt is refinanced. F-34 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 5. Mortgages, Notes and Loans Payable (continued) Convertible Debt (continued) During 1995, the Company refinanced approximately $11.3 million of debt. In conjunction with this transaction, approximately $297,000 of deferred financing charges were written off and classified as an extraordinary item in the accompanying statement of operations. Various of the Company's borrowing agreements contain covenants imposing restrictions on cash flow and the maintenance of certain ratios, as defined. As of December 31, 1996, the Company is not in compliance with certain of these financial covenants. 6. Notes Payable - Affiliates At December 31, 1996 and 1995, the Company had $47.5 million and $43.3 million, respectively, of unsecured subordinated debt outstanding with equity partners (the "Subordinated Debt"). The Subordinated Debt provides funding for acquisitions and development properties, as defined, and for general corporate purposes. Under these credit agreements, as of December 31, 1996 and 1995, $18.5 million is payable to GovProp Sub-Debt Partners, L.P., a limited partnership whose partners are also partners in RRLP. Additionally, as of December 31, 1996 and 1995, $29.0 million and $26.8 million, respectively, in notes payable is due to The 1818 Fund, a shareholder of the Company. All funding under the Subordinated Debt agreements bears a fixed rate of interest; the weighted average interest rate is approximately 12.5 percent per annum. As of December 31, 1996, $12.5 million of Subordinated Debt matures in 1997; the remaining $35.0 million matures in years 2003 through 2005. At December 31, 1996 and 1995, $5.4 million and $4.6 million, respectively, of the Subordinated Debt (the "Subordinated Convertible Debt") contained conversion provisions. At the holders' option, the Subordinated Convertible Debt is convertible into approximately 478,000 shares of GPI Series A Common Stock at conversion prices ranging from $9.00 to $11.27 per share. Conversion is dependent upon the occurrence of certain events, including an initial public offering of stock or a change in control, as defined. F-35 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 6. Notes Payable - Affiliates (continued) Certain borrowing agreements contain covenants requiring the maintenance of ratios, as defined. As of December 31, 1996, the Company is not in compliance with certain of these financial covenants. 7. Leases The Company leases office space and equipment for its corporate offices under operating leases that terminate in 1997. For the years ended December 31, 1996 and 1995, and the period from May 20, 1994 (inception) to December 31, 1994, rental expenses for corporate office space and equipment under operating leases were $302,950, $201,040 and $58,917, respectively. Future minimum noncancelable rentals of approximately $226,000 are due in 1997. In 1996, the Company entered into a lease with the Erie County Industrial Development Agency. Based upon the terms of the lease, which include a bargain purchase option at the end of the lease, the Company has classified the lease as a capital lease. The underlying asset is included in real estate in the accompanying consolidated December 31, 1996 balance sheet as follows (in thousands): Description Amount -------------------------------- ------------ Land $ 889 Building 20,692 ------------ 21,581 Less accumulated amortization (431) ------------ Asset under capital lease, net $21,150 ============ F-36 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 7. Leases (continued) Capital lease obligations are summarized as follows (in thousands): For the year ending December 31, Amount ------------------------------------------ -------- 1997 $ 1,629 1998 1,629 1999 1,629 2000 1,629 2001 1,629 Thereafter 10,460 --------- 18,605 Less amount representing interest (5,580) --------- Present value of net minimum lease payments $13,025 ========= 8. Commitments and Contingencies At December 31, 1996, the Company had signed commitments to purchase or develop properties totaling approximately $27.9 million. In connection with these acquisitions, the Company has placed $725,000 on deposit. In addition, the Company is endeavoring to obtain the return of $115,000 of funds held in escrow for projects it is no longer actively pursuing. In December, 1996 the Company entered into a commitment with a lender for $31 million of financing to fund the refinancing of an existing property. In connection with this transaction, the Company has placed $600,000 on deposit and, as of December 31, 1996, is included in other assets in the accompanying financial statements. This refinancing transaction was consummated in 1997 (see Notes 5 and 12). In 1996, the Company entered into and extended employment contracts with certain management employees that expire in 1997 and 1998. These contracts provide that, if employment is terminated "without cause," these employees will be paid their base salaries and certain benefits through the remainder of the contract period. Additionally, the F-37 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 8. Commitments and Contingencies (continued) Company is obligated to pay its Former President a $275,000 fee, contingent upon an initial public offering of stock. In 1995, a property that is leased to the General Services Administration ("GSA") and was occupied by one of the agencies of the U.S. Government, was vacated by its occupant. GSA has continued to pay rent under its non-cancelable lease and is obligated to do so until May 1998, the lease expiration date. The Company has determined that, unless the Government renews its lease at similar rental rates in 1998, the carrying amount of the property will be impaired. Accordingly, at December 31, 1995, the Company recorded a $2.8 million impairment loss to write down the property to its estimated fair value of $6.5 million. Fair value was based on the estimated cash flow the property will generate over the remainder of the GSA lease term and from a replacement tenant. The Company's plan of action is to locate suitable replacement tenants to occupy the space at the end of the lease term. Additionally, GSA is currently evaluating other agencies for occupancy in the space. Purchase agreements with the prior owners of two properties, acquired by the Company during 1995, provide for contingent payments to the sellers. Pursuant to the purchase agreements, the sellers may earn additional purchase price consideration if the lessees exercise lease renewal options. The additional purchase price consideration for one of the properties totals $1.0 million, plus accrued interest at 10 percent per annum, accruing from the Company's original purchase date. The additional purchase price consideration for the second property could approximate $4.5 million; the final determination of the amount of additional purchase consideration is further dependent upon certain terms and conditions, as defined in the purchase agreement. Contingencies under these purchase agreements expire in 2005; no amounts have been accrued under the purchase agreements. 9. Employee Benefit Plan The Company has a 401(k) benefit plan (the "Plan") for all permanent, full-time employees. Starting on the first day of the month following commencement of employment, eligible employees may participate in the Plan. The Company matches 50% of all employee contributions (which are subject to statutory limitations); 100% of all employer contributions vest immediately. During the years ended December 31, 1996 and F-38 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 9. Employee Benefit Plan (continued) 1995, and the period from Inception to December 31, 1994, the Company's share of Plan contributions was approximately, $67,600, $45,000 and $9,100, respectively. 10. Related Party Transactions In November 1996, the Company entered into an agreement with its Former President (the "Termination Agreement"), providing for: (i) repurchase of 33,582 shares of the Former President's Series B Common Shares for $150,000 (of which approximately $135,000 is reflected as compensation expense in 1996 and approximately $15,000 is reflected as the cost of treasury stock), plus a contingent payment of approximately $350,000 if certain investment goals are met (such payment will be reflected as compensation expense when incurred), (ii) reduction of $200,000 of the Former President's note receivable in exchange for 22,176 Series A Common Shares held by RRLP, as such amounts approximate the original issue price, (iii) reduction of approximately $381,000 of the Former President's note receivable and accrued interest in exchange for an equal reduction in Subordinated Debt due to GovProp Sub-Debt Partners, L.P., an affiliate of RRLP, and (iv) compensation to the Former President of $200,000 for his continuing services as a member of the Company's Board of Directors through October, 1997. At December 31, 1996 the Company had notes receivable from its Former President aggregating $947,833 (including accrued interest at 10 percent per annum). During the years ended December 31, 1996 and 1995, interest income of approximately $130,000, and $122,000, respectively, was earned on these notes. At December 31, 1996, $260,000 of these notes receivable mature in May, 2001 and were used to purchase stock of the Company; this amount is classified as a reduction of stockholders' equity in the accompanying financial statements. Further, $687,833 of these notes receivable for advances to its Former President, and accrued interest on all notes receivable from its Former President, are reflected as affiliated notes receivable in the accompanying financial statements. As of December 31, 1996, approximately $586,000 of the funds advanced to the Company's Former President were used to fund a portion of the Subordinated Debt issued by the Company to GovProp Sub-Debt Partners, L.P., an affiliate of RRLP, which bears interest at 14% per annum and matures in March, 2003 (see Note 6). F-39 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 10. Related Party Transactions (continued) During the year ended December 31, 1995, the Company paid the Fund $1.9 million of transaction fees for its debt and equity raising efforts and paid an affiliate of RRLP $500,000 of transaction fees for its debt and equity raising efforts; of these amounts $2.0 million is classified as deferred financing costs and $0.4 million is classified as a reduction of additional paid-in capital in the accompanying financial statements. During the year ended December 31, 1995, an affiliate of RRLP entered into a consulting services agreement (the "Consulting Services Agreement") with the Company to provide management, strategic planning and financing services. The Company is required to pay certain fees upon achieving predetermined acquisition or financing goals, plus an annual consulting fee of approximately $350,000 (adjusted annually by the consumer price index). The Consulting Services Agreement expires in January, 2000. Under the Consulting Services Agreement, the Company incurred consulting fees of $1,550,000 during the year ended December 31, 1995. In connection with debt and equity raising efforts, during the year ended December 31, 1995, $900,000 was classified in the accompanying financial statements as deferred financing costs, and $300,000 was classified as a reduction of additional paid-in capital; the remaining $350,000 annual consulting fee was included in general and administrative expenses. In 1996, under the Consulting Services Agreement, the Company paid an annual consulting fee of approximately $359,000. As of December 31, 1996, the Company has a contingent obligation to pay approximately $554,000 in additional consulting fees upon the consummation of a value realization event, as defined. 11. Fair Value of Financial Instruments The following disclosures of estimated fair value were determined by management, using available market information and valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts. Cash equivalents, accounts receivable, notes receivable, accounts payable, accrued expenses and variable rate debt are carried at amounts which reasonably approximate their fair values. As of December 31, 1996 and 1995, fixed rate notes payable to nonaffiliated F-40 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 11. Fair Value of Financial Instruments (continued) entities with a carrying value of $142.5 million and $86.9 million, respectively, have an estimated aggregate fair value of $141.4 million and $86.9 million, respectively. Due to the interrelationship of the Company's equity funding, the estimated fair value of its Subordinated Debt at December 31, 1996 and 1995 is not readily determinable. Disclosure about fair values of financial instruments is based on pertinent information available to management as of December 31, 1996. Although management is not aware of any factors that would significantly affect the reasonable fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since December 31, 1996, and current estimates of fair value may differ from the amounts presented herein. 12. Subsequent Events In January, 1997, the Company repurchased $27.0 million of Securitized Debt with the proceeds of a $31.0 million term loan (the "Term Loan"). In connection with this transaction, the Company paid a premium of approximately $820,000 to redeem the Securitized Debt and incurred approximately $91,000 of associated redemption costs, for a total loss on refinancing of approximately $911,000. Additionally, under the related Hedge Agreement, the Company recognized gains of approximately $43,000. These amounts will be reflected as an extraordinary loss in the period subsequent to year-end. The Term Loan bears interest at the lender's prime rate, and initially matures in April of 1997 and is collateralized by an assignment of the Securitized Debt repurchased with the proceeds and a secondary security interest in the rental property and assignment of rents which collateralize the Securitized Debt. The Term Loan may be extended, at the Company's option, for two additional one month periods. All available cash flow from the underlying property, after expenses, reserves and distributions for estimated taxes, is used to repay the loan. In February 1997, the Company reached an agreement to sell substantially all of its assets and merge with Health and Retirement Properties Trust. The transaction is subject to various conditions, including completion of due diligence; however, the parties anticipate consummating this transaction on or around March 31, 1997. In connection with this transaction certain fees will be incurred, deferred financing fees will be written off and F-41 Government Property Investors, Inc. and GovProp Entities Notes to Financial Statements (continued) 12. Subsequent Events (continued) compensation expense attributable to the issuance and conversion of Series B Common Stock, settlement of employment contracts, associated severance and other costs will be incurred. The amount of these costs has not been finalized, but is expected to be material; these items will be charged against earnings in the period the transaction is consummated. F-42 HEALTH AND RETIREMENT PROPERTIES TRUST Unaudited Pro Forma Balance Sheet, Unaudited Pro Forma Statement of Income and Other Data The following unaudited pro forma balance sheet at December 31, 1996 and unaudited pro forma statement of income for the year ended December 31, 1996 are intended to present the financial position and results of operations of the Company as if the transactions described in the Notes were consummated on December 31, 1996 and January 1, 1996, respectively. These unaudited pro forma financial statements should be read in conjunction with the separate financial statements of the Company and of Government Property Investors, Inc. (the "Seller"), both for the year ended December 31, 1996, and both included elsewhere herein. These unaudited pro forma financial statements are not necessarily indicative of the expected financial position or results of operations of the Company for any future period. Differences would result from, among other considerations, future changes in the Company's portfolio of investments, changes in interest rates, changes in the capital structure of the Company, delays in the acquisition of certain properties, and changes in property level operating expenses. The following unaudited pro forma balance sheet and unaudited pro forma statement of income were prepared pursuant to the Securities and Exchange Commission's rules for the presentation of pro forma data. The pro forma and adjusted pro forma data give effect to the acquisition by the Company of the Government Office Properties (the "Transaction") from the Seller and an offering of common shares of beneficial interest ("Shares") to fund the payment of certain debt of the Seller and the Company. Certain properties expected to be acquired by the Company are currently under construction or development by the Seller or third parties. Other properties were under construction or renovation during 1996 when they were owned or under development by the Seller. The accompanying pro forma operating data does not give further effect to the completion of construction or the related lease commencement for any period prior thereto. Construction projects not completed by December 31, 1996 are likewise not reflected in the pro forma balance sheet data. Rather, the effect of completion of these construction projects is presented separately from the pro forma data as described in the accompanying notes. The Company believes that a display of such adjusted pro forma data is meaningful and relevant to the understanding of the Transaction and, accordingly has presented such data in the final two columns, labelled "Other Data," on the accompanying pages. F-43 Health and Retirement Properties Trust Balance Sheet and Other Data (dollars in thousands) (unaudited)
Pro Forma Data Other Data ----------------------------------------------------------------------------- ------------------------- HRPT Government Office --------------------------- ---------------------------- Historical Adjustments Historical Acquisitions Pro Forma Pro Forma Other Adjusted December 31, December 31, Adjustments Adjustments Pro Forma 1996 (A) (B) 1996 (C) (D) (M) -------------------------------------------------------------------------------------------------------- ASSETS Real estate properties, at cost: Land $ 93,522 $ 537 $ 64,850 $ 4,266 $ 8,438 $ 171,613 $ 6,111 $ 177,724 Buildings and improvements 912,217 4,838 278,085 18,292 37,293 1,250,725 25,095 1,275,820 ------------------------------------------------------------------------------------------------------- 1,005,739 5,375 342,935 22,558 45,731 1,422,338 31,206 1,453,544 Less accumulated depreciation 76,921 0 8,026 (8,026) 76,921 0 76,921 ------------------------------------------------------------------------------------------------------- 928,818 5,375 334,909 22,558 53,757 (E) 1,345,417 31,206 1,376,623 Real estate mortgages 150,205 0 0 0 0 150,205 0 150,205 Investment in HPT 103,062 0 0 0 0 103,062 0 103,062 Cash and cash equivalents 21,853 (5,375) 776 0 (5,212)(F) 12,042 0 12,042 Interest and rent receivables 11,612 0 4,436 0 0 16,048 0 16,048 Deferred interest and finance costs, net and other assets 13,972 0 24,822 0 (9,216)(G) 29,578 0 29,578 ------------------------------------------------------------------------------------------------------- $1,229,522 $0 $364,943 $22,558 $39,329 $1,656,352 $31,206 $1,687,558 ======================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Bank notes payable $ 140,000 0 $0 $20,240 ($81,101)(H) $79,139 $29,383 $108,522 Senior notes and bonds payable, net 124,385 0 0 0 0 124,385 0 124,385 Mortgages payable 0 0 311,081 0 (264,387)(I) 46,694 0 46,694 Convertible subordinated debentures 227,790 0 0 0 0 227,790 0 227,790 Accounts payable and accrued expenses 18,319 0 12,018 0 2,271 (J) 32,608 0 32,608 Security deposits 8,387 0 0 0 0 8,387 0 8,387 Due to affiliates 2,593 0 47,520 0 (47,520)(K) 2,593 0 2,593 Dividends payable 0 0 0 0 0 0 0 0 Shareholders' equity: Seller deficit 0 0 (5,676) 0 5,676 (K) 0 0 0 Preferred shares 0 0 0 0 0 0 0 0 Common shares of beneficial interest, $.01 par value 669 0 0 1 220 (L) 890 0 890 Additional paid-in capital 795,263 0 0 2,317 424,170 (L) 1,221,750 1,823 1,223,573 Cumulative net income 306,298 0 0 0 0 306,298 0 306,298 Distributions of cash available from operations (394,182) 0 0 0 0 (394,182) 0 (394,182) ------------------------------------------------------------------------------------------------------- Total shareholders' equity 708,048 0 (5,676) 2,318 430,066 1,134,756 1,823 1,136,579 ------------------------------------------------------------------------------------------------------- $1,229,522 $0 $364,943 $22,558 $39,329 $1,656,352 $31,206 $1,687,558 =======================================================================================================
F-44 Health and Retirement Properties Trust Pro Forma Statement of Income and Other Data (amounts in thousands, except share data) (unaudited)
Pro Forma Data Other Data ------------------------------------------------------------------------------------- ----------------------- HRPT Government Office -------------------------- --------------------------- 1996 1996 Pro Forma Other Adjusted Historical(N) Adjustments Historical(S) Acquisitions Adjustments Pro Forma Adjustments Pro Forma ------------- ----------- ---------- ------------ ----------- --------- ----------- -------- Revenues: Rental income $98,039 $20,399 (O) $36,523 $15,055 (T) -- $170,016 $8,391(Z) $178,407 Interest income 22,144 (396)(P) 780 -- -- 22,528 -- 22,528 ---------------------------------------------------------------------------------------------------------------- Total revenues 120,183 20,003 37,303 15,055 -- 192,544 8,391 200,935 ---------------------------------------------------------------------------------------------------------------- Expenses: Interest 22,545 11,624 (Q) 28,730 8,313 (U) (37,299)(V) 33,913 1,873(AA) 35,786 Operating expenses 3,776 328 (O) 8,657 5,605 (T) 1,073 (W) 19,439 1,107(Z) 20,546 Depreciation and amortization 22,106 4,402 (O) 6,357 1,174 (T) 932 (X) 34,971 627(Z) 35,598 General and administrative 7,055 943 (O) 5,570 -- (3,486)(W) 10,082 155(Z) 10,237 ---------------------------------------------------------------------------------------------------------------- Total expenses 55,482 17,297 49,314 15,092 (38,780) 98,405 3,762 102,167 ---------------------------------------------------------------------------------------------------------------- Net income before equity income and extraordinary item 64,701 2,706 (12,011) (37) 38,780 94,139 4,629 98,768 HPT equity income 8,860 -- -- -- -- 8,860 -- 8,860 Gain on HPT equity transaction 3,603 -- -- -- -- 3,603 -- 3,603 ---------------------------------------------------------------------------------------------------------------- Income before extraordinary item $77,164 $2,706 $(12,011) $(37) $38,780 $106,602 $4,629 $111,231 ---------------------------------------------------------------------------------------------------------------- Average shares outstanding 66,255 633 (R) -- -- 22,062 (Y) 88,950 90(BB) 89,040 ================================================================================================================ Per Share Data: Income before extraordinary item $1.16 $1.20 $1.25 ===== ===== =====
F-45 Health and Retirement Properties Trust Notes to Pro Forma Financial Data and Other Data (dollars in thousands except share amounts) Pro Forma Balance Sheet Adjustments A. Represents the historical balance sheet of the Company at December 31, 1996. B. Represents the acquisition by the Company of a medical office building in January 1997, purchased with cash on hand. C. Represents the historical balance sheet of the Seller at December 31, 1996. D. In connection with the Transaction, the Company expects to purchase two properties (the "Contract Properties") from third parties simultaneously with the consummation of the Transaction for an aggregate purchase price of approximately $22,558 consisting of approximately $20,240 in cash to such third parties and the remainder in Shares to the Seller. E. Represents the adjustment from the Seller's historical basis in existing assets to the new basis of the Company as a result of the Transaction. F. Represents the net use of cash on hand in connection with the Transaction. G. Represents adjustment to eliminate certain other assets (primarily deferred financing fees) of the Seller and to reflect certain assets acquired in connection with the Transaction including prepaid expenses ($1,750), minimum payment due to the Seller with respect to certain potential acquisitions ($8,000) and the value of one property held for future disposition ($5,856). H. Represents repayments under the Bank Credit Facility as a result of the assumed offering and the Transaction. I. Represents repayment of secured financing of the Seller with the exception of $46,694 that is not expected to be repaid as part of the Transaction. J. Represents adjustment to record accounts payable, accrued expenses and deferred minimum acquisition fees assumed by the Company as part of the Transaction. K. Represents the elimination of the Seller's historical net retained deficit and removal of Seller affiliate debt not assumed or paid by the Company as part of the transaction. L. Represents the following: Gross Proceeds from the assumed offering (18,000,000 Shares at $20.25/Share) $364,500 Estimated expenses from the assumed offering (20,048) ------- 344,452 Value of Transaction Shares (3,947,556 shares at $20.25/Share) 79,938 ------- $424,390 ======= Par value of Shares 220 Additional paid-in capital $424,170 ------- $424,390 ======= F-46 Health and Retirement Properties Trust Notes to Pro Forma Financial Data and Other Data (dollars in thousands except share amounts) Other Data - Balance Sheet Adjustments M. In connection with the Transaction, the Company expects to purchase three properties currently under construction and complete the construction of one additional property (the "Construction Properties"), all of which are expected to be substantially complete in 1997, subsequent to the closing of the Transaction, for an aggregate cost of approximately $31,206, consisting of approximately $29,382 in cash and $1,824 in Shares. Income Statement Adjustments N. Represents the historical income statement of the Company for the year ended December 31, 1996. O. Represents adjustments to rent and expenses arising from the Company's acquisitions completed during 1996 and 1997, assuming the current contractual rents were in effect since January 1, 1996. Property level expense adjustments represent the annualized historical operating expenses for one gross lease property acquired. Depreciation expense adjustements assume an average building life of 40 years. Also reflects adjustments to general and administrative expenses which would arise from the Company's 1996 and 1997 completed investment transactions. P. Represents reduction of interest income arising from the use of cash balances to fund a portion of the Company's 1996 acquisitions. Q. Represents pro forma effect on interest expense related to financing placed during 1996 to fund the Company's acquisitions at an average interest cost of 6.38%. R. Represents the impact of convertible debentures converted during 1996 as if such shares were issued on January 1, 1996. S. Represents the historical income statement of the Seller for the year ended December 31, 1996. T. Represents adjustments to rent and expenses arising from the Seller's acquisitions of operating properties completed during 1996 and, additionally, the acquisitions of the Contract Properties, assuming the current contractual rents were in effect since January 1, 1996. Property level expense adjustments are established for the purposes of this pro forma presentation as equal to the percentage of rents which is the same percentage of rents as was represented by property level operating expenses for the properties which were owned by the Seller during 1996. Depreciation expense adjustments assume an average building life of 40 years. U. Represents the effect on interest expense of the Seller's acquisition financing activity assuming such financing occured on January 1, 1996 at a weighted average interest rate of 7.42%. For purposes of interest expense related to the Contract Property acquisition, it has been assumed for purposes of this pro forma presentation that the cost of borrowing is equal to the cost of borrowing of the Company under its Bank Credit Facility at a weighted average interest rate of 6.38%. Such costs are believed to be less than the costs that could have been acheived by the Seller had the Seller undertaken to acquire such properties on a stand-alone basis. See Note D and Note H, above. F-47 Health and Retirement Properties Trust Notes to Pro Forma Financial Data and Other Data (dollars in thousands except share amounts) V. Represents the reduction of interest expense arising from the Company's repayment of all of the Seller's mortgage and affiliate debt, except $46,694 of mortgage debt that is not expected to be repaid as part of the Transaction, and the reduction of interest expense arising from expected net reductions in the balance of the Company's Bank Credit Facility with the use of proceeds from the assumed offering discussed in Note M, above. W. Represents the net reduction in administrative expenses arising from the differences in the Company's cost structure (which include the full year effect of general and administrative and property management services) and the cost structure of the Seller (which included the employment by the Seller of separate property management companies for certain of the Government Office Properties under separate fee arrangements and costs related to administrative, financial, acquisition and other activities performed by the Seller's management). X. Represents the effect on depreciation arising from the adjustment of the Seller's historical basis in existing assets to the new basis of the Company as a result of the Transaction. Y. Represents the impact on weighted average shares from the assumed offering and the Transaction as discussed in Note M above. Other Data--Income Statement Adjustments Z. Represents the adjustment to reflect current rents from existing leases for properties under construction during the 1996 period and the Construction Properties assuming such leases and related contractual rents were in effect as of January 1, 1996. Property level expense adjustments are established for the purposes of this adjusted pro forma presentation as equal to the percentage of rents which is the same percentage of rents as was represented by property level operating expenses for the properties which were owned by the Seller during 1996. Property level expense adjustments and general and administrative expense adjustments also include the full year impact of the Company's cost structure discussed in Note W, above. Depreciation expense adjustments assume an average building life of 40 years. AA. Represents interest expense related to increased borrowings necessary for the acquisition and completion of the properties under construction during 1996 (see Note Z) and the Construction Properties. BB. Represents balance of Transaction Shares to be issued in connection with the acquisition of the Construction Properties. F-48 EX-10.1 2 AGREEMENT OF MERGER AGREEMENT OF MERGER between HEALTH AND RETIREMENT PROPERTIES TRUST and GOVERNMENT PROPERTY INVESTORS, INC. February 17, 1997 AGREEMENT OF MERGER THIS AGREEMENT OF MERGER ("Agreement") is made and entered into February 17, 1997, between: HEALTH AND RETIREMENT PROPERTIES TRUST ("HRPT"), a Maryland real estate investment trust, with its principal office located in Newton, Massachusetts, and GOVERNMENT PROPERTY INVESTORS, INC. ("GPI"), a corporation organized and existing under the laws of the State of Delaware, with its principal office located in Washington, D.C. RECITALS: 1. The Trustees and/or Boards of Directors of HRPT and GPI are each of the opinion that the transactions described in this Agreement are in their respective best interests and of their respective shareholders and, accordingly, have agreed to effect the merger provided for in this Agreement upon the terms and subject to the conditions set forth in this Agreement; and 2. This Agreement provides for the merger (the "Merger") of Government Property Holdings Trust ("GPH"), a Maryland real estate investment trust, to be organized by GPI, with and into Hub Acquisition Trust ("Merger Sub"), a Maryland real estate investment trust, to be organized by HRPT, so that Merger Sub will be the surviving entity, and for GPI to receive common shares of beneficial interest of HRPT in exchange for its shares of beneficial interest of GPH, and following the Merger, for Merger Sub to conduct the business and operations of GPI; and 3. Pursuant to a plan of liquidation and dissolution to be adopted by the stockholders of GPI, GPI will liquidate and dissolve and as a result, the former stockholders of GPI shall become shareholders of HRPT; and 4. HRPT and GPI desire to make certain representations, warranties and agreements in connection with the Merger; and 5. The parties intend that the Merger and subsequent liquidation of GPI shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). In consideration of the foregoing, and the representations, warranties, covenants and agreements set forth in this Agreement, the parties agree as follows: SECTION 1 DEFINITIONS Except as otherwise provided in this Agreement, the capitalized terms set forth below (in their singular and plural forms as applicable) shall have the following meanings: 1.1 "1933 Act": the Securities Act of 1933, as amended. 1.2 "1934 Act": the Securities Exchange Act of 1934, as amended. 1.3 "Acquisition Proposal": defined in Section 6.3. 1.4 "Additional Properties": the land and improvements and fixtures, if any, described on Disclosure Schedule 1.4 together with personal property of the sellers of such Additional Properties used in connection therewith (other than personal property of any tenant). 1.5 "Additional Properties Acquisition Cost": the aggregate cost of acquiring Additional Properties including the purchase price, any contingent purchase price, the amount of any indebtedness assumed (but exclusive of transaction expenses and commissions paid by HRPT or any of its affiliates) that, prior to the Second Closing Date, HRPT or any of its affiliates have purchased or entered into a binding agreement to purchase. 1.6 "Aggregate Closing Consideration": $436,000,000 minus (a) the total debt of GPI and the GPI subsidiaries on a consolidated basis (exclusive of the GPI Affiliate Debt), plus (b) for GPH and the other GPI Subsidiaries cash and cash equivalents, restricted cash, utility deposits, prepaid expenses (including real estate and other ad valorem tax expense, rent expense and insurance expense related to insurance policies set out on Disclosure Schedule 4.18), accounts receivable (less reserves for doubtful accounts) for rent or for tenant improvement work performed, and other assets (excluding (1) deposits for the LA MEPS Premises, Waco Premises and Phoenix Premises, (2) acquisition deposits relating to any other property not included in Premises, (3) accruals related to straight-line rents, (4) intercompany receivables, (5) capitalized leasing or brokers commissions, (6) deferred or capitalized costs of any kind) less (c) for GPH and the other GPI Subsidiaries, accounts payable and accrued expenses (including (1) payments due for goods and services to be made to vendors, contractors and the like, (2) payments due or accruals for payroll, vacation, insurance and other benefits of employees and related taxes, (3) accruals or payments due for real estate, personal property or other ad valorem taxes, state or local income, sales, revenue, franchise or net worth taxes, reimbursements to employees for business-related expenses (4) contractors retention, (5) future rent abatements, if any, (6) prepaid rents if any, (7) leasing commissions earned but not paid on space listed as "vacant" on Disclosure Schedule 4.22(c) or for replacement of tenants other than tenants on Material Leases, (8) debt prepayment penalties related to debt other than that secured solely by the Premises identified on Disclosure Schedule 1.71 as Properties Nos. 13, 14, 19 and 20, (9) Transaction Expenses, (10) expected payments due to insurance carriers for retropremiums, if any, and (11) an amount equal to $167,021; and excluding straight-line rent accruals), and accrued interest payable (exclusive of accrued interest related to GPI Affiliate Debt), all in accordance with GAAP, collectively referred to as "working capital" for GPI and the GPI Subsidiaries on a consolidated basis. GPI and HRPT shall prepare, by March 15, 1997, a Pro Forma Balance Sheet as of March 31, 1997 (the "Pro Forma Balance Sheet") based on the Consolidated Balance Sheet of GPI and its Subsidiaries as of February 28, 1997, in accordance with GAAP. Within 30 days of the Closing Date, GPI and HRPT shall prepare a consolidated balance sheet as of March 31, 1997, comparative -2- to the Pro Forma Balance Sheet. Ernst & Young LLP, independent accountants, shall perform agreed upon procedures as set forth on Disclosure Schedule 1.6. Any difference between the Pro Forma Balance Sheet and the consolidated balance sheet of GPI and its Subsidiaries as of March 31, 1996, confirmed by Ernst & Young LLP which would have affected the determination of the Aggregate Closing Consideration shall be an adjustment to the Second Closing Consideration. The Aggregate Closing Consideration may also be subject to adjustment as provided in Sections 7.3, 8.2, 8.3, and 8.4. 1.7 "Agreement": this Agreement of Merger and, for purposes of Sections 4.2, 4.5, 5.2 and 5.4, each of this Agreement of Merger, the Registration Rights Agreement, the Indemnification Agreement, the Non-Solicitation Agreement, the Service Agreement, the Consulting Agreement and the Representation Letter to which the Person making the representation is a party. 1.8 "Articles of Merger": the Articles of Merger to be executed by Merger Sub and GPH and delivered to the Department of Assessments and Taxation of the State of Maryland relating to the merger of GPH with and into Merger Sub as contemplated by Section 2.1. 1.9 "Aurora Premises": the premises identified on Disclosure Schedule 1.25 as Subject Property No. 1. 1.10 "Certificate": defined in Section 3.3. 1.11 "Charter Documents": with respect to a Person which is a corporation or a real estate investment trust, its certificate or articles of incorporation or organization or its declaration of trust and its by-laws and, with respect to a Person which is a partnership, its agreement and certificate of partnership. 1.12 "Closing": the closing of the Merger which will take place as described in Section 3.1. 1.13 "Closing Date": the date on which the Closing occurs. 1.14 "COBRA": the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, as set forth in Section 4980B of the Internal Revenue Code and Part 6 of Title I of ERISA. 1.15 "College Park Premises": the premises identified on Disclosure Schedule 1.71 as Subject Property No. 17. 1.16 "Company Benefit Arrangement": any benefit arrangement maintained by GPI or any GPI Subsidiary, or any ERISA Affiliates of GPI or any GPI Subsidiary, covering any employees, former employees, directors or former directors of GPI or any GPI Subsidiary or any of their respective ERISA Affiliates, and the beneficiaries of any of them. 1.17 "Company Employee Benefit Plan": any Employee Benefit Plan that is sponsored or contributed to by GPI or any GPI Subsidiary or any of their ERISA Affiliates -3- covering the employees or former employees of GPI or any GPI Subsidiary or any of their ERISA Affiliates. 1.18 "Company Plan": any Company Employee Benefit Plan or Company Benefit Arrangement. 1.19 "Consulting Agreement": defined in Section 7.2(d). 1.20 "Contract": any contract, agreement, indenture, note, bond, loan agreement, instrument, lien, conditional sales contract, lease, ground lease, Tenant Lease, mortgage, license, franchise, insurance policy, commitment or other arrangement or agreement, including, without limitation, the Development Partnership Agreements. 1.21 "Contract Properties": the land and improvements and fixtures, if any, described on Disclosure Schedule 1.21, together with any personal property of the sellers of such Contract Properties to be sold pursuant to the applicable purchase and sale agreement and used in connection therewith. 1.22 "Contract Property Leases": all leases of the Contract Properties listed on Disclosure Schedule 1.22. 1.23 Intentionally Deleted. 1.24 "Development Partnership Agreements": the agreements with third parties identified on Disclosure Schedule 1.24. 1.25 "Development Properties": the properties described on Disclosure Schedule 1.25. 1.26 "Development Property Leases": all leases of the Development Properties listed on Disclosure Schedule 1.26. 1.26A "Disclosure Schedule": the disclosure schedules delivered by HRPT and GPI to each other prior to the execution of this Agreement. 1.27 "Effective Time": the date and time at which the Merger becomes effective pursuant to Maryland Law and as provided in Section 3.2 of this Agreement. 1.28 "Employee Benefit Plan": any employee benefit plan, as defined in Section 3(3) of ERISA. 1.29 "Environmental Laws": any and all applicable federal, state and local environmental statutes, laws and ordinances, all regulations and rules of all governmental agencies, bureaus or departments and all applicable judicial, administrative and regulatory decrees, judgments and orders, including common law rulings, relating to injury to, or the protection of, the environment, or the impact of the environment on human health, including, without limitation, all requirements pertaining to reporting, licensing, permitting, investigation, remediation and removal of emissions, discharges, releases or threatened -4- releases of Hazardous Materials into the environment or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials. 1.30 "Environmental Reports": defined in Section 4.24(e). 1.31 "ERISA": the Employee Retirement Income Security Act of 1974, as amended. 1.32 "ERISA Affiliate": a Person and/or such Person's Subsidiaries or any trade or business (whether or not incorporated) which is under common control with such Person or such Person's Subsidiaries or which is treated as a single employer with such Person or any Subsidiary of such Person under Section 414(b), (c), (m) or (o) of the Internal Revenue Code or Section 4001(b)(1) of ERISA. 1.33 "Escrow Agreement": the escrow agreement in the form attached as Schedule 1.33. 1.34 "Financial Statements": defined in Section 4.8. 1.35 "GAAP": generally accepted accounting principles as in effect on the date of the financial statements, taxes or other item being referenced. 1.36 "Golden Premises": the premises identified on Disclosure Schedule 1.25 as Subject Property No. 2. 1.37 "GPH Common Shares": the shares of beneficial interest, par value $.01 per share, of GPH. 1.38 "GPI Affiliate Debt": certain notes of GPI in the principal amounts and payable to the persons listed on Disclosure Schedule 1.38. 1.39 "GPI Common Stock": the common stock, par value $0.01 per share of GPI, including the Series A and Series B Common Stock of GPI. 1.40 "GPI Property Debt": the indebtedness of certain of the GPI Subsidiaries listed on Disclosure Schedule 1.40. 1.41 "GPI Subsidiaries": the Subsidiaries of GPI listed on Disclosure Schedule 4.4, each of which is a "GPI Subsidiary." 1.42 "GPI Third Party Debt": the notes of GPI held by the Persons listed on Disclosure Schedule 1.42 in the principal amounts set forth opposite their names. 1.43 "Hazardous Materials": any substance defined as a "hazardous substance", "hazardous material", "hazardous" or "dangerous waste" or similar term under the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section -5- 6901 et seq.) or any similar or analogous state or local statute, law or regulation or which contains or consists of gasoline, diesel fuel or other petroleum products or natural gas, natural gas liquids, liquefied natural gas or synthetic gas usable for fuels. 1.44 "Houston Premises": the Premises identified on Disclosure Schedule 1.71 as Subject Property No. 1. 1.45 "HRPT Common Shares": the common shares of beneficial interest, par value $0.01 per share, of HRPT of the same class and series as that traded on the NYSE on the date of this Agreement. 1.46 "HRPT Merger Shares": a number of HRPT Common Shares equal to the quotient obtained by dividing the Aggregate Closing Consideration by the Merger Price, provided the fractional portion of the quotient, if any, shall be disregarded. 1.47 "HRPT Second Closing Shares": a number of HRPT Common Shares equal to the quotient obtained by dividing the Second Closing Consideration by the Second Closing Price. 1.48 "HRPT SEC Reports": collectively, (a) HRPT's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with the SEC, (b) proxy and information statements relating to (i) all meetings of HRPT's shareholders (whether annual or special) and (ii) actions by written consent in lieu of a shareholders' meeting, if any, from December 31, 1995 until the date hereof, and (c) all other reports, including quarterly reports, and registration statements filed by HRPT with the SEC since December 31, 1995. 1.49 "HRPT Terminating Event": any of the occurrences set forth in Section 10.1(e). 1.50 "HRPT Subsidiaries": the Subsidiaries of HRPT, each of which is an "HRPT Subsidiary." 1.51 "HSR Act": the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. 1.52 "Internal Revenue Code": defined in the Recitals. 1.53 "IRS": the Internal Revenue Service. 1.54 "Knowledge": the terms "GPI's knowledge" and "to the knowledge of GPI" mean the knowledge of those officers and directors of GPI and the GPI Subsidiaries listed on Disclosure Schedule 1.54; the terms "HRPT's knowledge" and "to the knowledge of HRPT," and the terms "Merger Sub's knowledge" and "to the knowledge of Merger Sub" mean the knowledge of any of their respective officers or trustees. 1.55 "LA MEPS Premises": the premises identified on Disclosure Schedule 1.21 as Subject Property No. 3. -6- 1.56 "Lien": any interest in property, whether such interest is based on common law, statute, court decision or contract and including, without limitation, any mortgage, pledge, security interest, lease, encumbrance (including any easement, exception, reservation or limitation, right of way or the like), lien, purchase option, call or right, or charge of any kind (including any agreement to give or permit any of the foregoing), any conditional sale or other title retention agreement, any lease of property (whether real, personal or mixed) which is required, in accordance with GAAP, to be recorded by the lessee as the acquisition of an asset and the incurrence of a liability, and the filing of any financing statement under the Uniform Commercial Code or personal property security legislation of any jurisdiction. 1.57 [Intentionally omitted.] 1.58 "Maryland Law": Title 8 of the Corporations and Associations Article of the Annotated Code of Maryland and the Maryland General Corporation Law. 1.59 "Material Adverse Effect": (i) any material adverse effect on the business, assets, liabilities, financial condition or results of operations of GPI and its Subsidiaries, taken as whole; or, (ii) with respect to any of the Premises, any event which gives any U.S. Government tenant under a Material Lease a right to terminate such lease or abate or offset any rental payments thereunder in accordance with the terms of such lease. 1.60 "Material Leases": all of the Tenant Leases identified on Disclosure Schedule 1.60. 1.61 "Merger": the merger of GPH with and into Merger Sub as provided in Section 2.1 of this Agreement. 1.62 "Merger Price": $17.291. 1.63 "Multiemployer Plan": a multiemployer plan, as defined in Sections 3(37) and 4001(a)(3) of ERISA. 1.64 "NYSE": The New York Stock Exchange, Inc. 1.65 "Party": HRPT or GPI and "Parties" shall mean HRPT or GPI. 1.66 "Pension Plan": any employer pension benefit plan, as defined in Section 3(2) of ERISA. 1.67 "Permits": defined in Section 4.11. 1.68 "Permitted Liens": Liens set forth on Disclosure Schedule 1.68 and (i) any Liens for real estate Taxes not yet due or delinquent; (ii) any imperfection of title or similar Lien that, individually or in the aggregate with other such Liens, do not materially and adversely interfere with the current use of such Premises or Development Properties; (iii) statutory liens of mechanics, materialmen and other similar liens arising by operation of law which arise in the ordinary course of construction in accordance with the approved plans -7- and specifications relating to the Development Properties, or which are incurred pursuant to any of the Development Partnership Agreements, in all cases which Liens are not yet delinquent; (iv) applicable zoning regulations and ordinances, provided that the same do not prohibit or impair in any material respect the use of any Premises or Development Properties as currently used; (v) the ground lease with respect to the Premises located in Buffalo, New York; (vi) any other Liens approved by HRPT; and (vii) Liens listed as exceptions on Schedule B to any title reports and policies with respect to real property provided to or otherwise obtained by HRPT prior to the date hereof (for purposes of the Aurora Premises and the Golden Premises, the Liens listed on Disclosure Schedule 1.68 in lieu of this clause (vii)). 1.69 "Person": an individual, partnership, joint venture, corporation, limited liability company, trust and any other form of business organization. 1.70 "Phoenix Premises": the premises identified on Disclosure Schedule 1.21 as Subject Property No. 2. 1.71 "Premises": the land, improvements and fixtures described in Disclosure Schedule 1.71 together with all personal property owned by GPI or any of the GPI Subsidiaries and used in connection therewith. 1.72 "Prohibited Transaction": a transaction that is prohibited under Section 4975 of the Internal Revenue Code or Section 406 of ERISA and not exempt under Section 4975 of the Internal Revenue Code or Section 408 of ERISA, respectively. 1.73 "Proprietary Data": defined in Section 4.23. 1.74 "Registration Rights Agreement": defined in Section 2.6. 1.75 "Reportable Event": a "reportable event", as defined in Section 4043 of ERISA, whether or not the reporting of such event to the Pension Benefit Guaranty Corporation has been waived. 1.76 "Representation Letter": that certain letter, dated the date hereof, from GPI to HRPT with respect to certain matters concerning the College Park Premises. 1.77 "San Diego Premises": the premises identified on Disclosure Schedule 1.25 as Subject Property No. 3. 1.78 "SEC": the United States Securities and Exchange Commission. 1.79 "Second Closing": the closing which will take place as described in Section 9. 1.80 "Second Closing Consideration": the greater of $8,000,000 or an amount equal to 3% of the Additional Properties Acquisition Cost. The Second Closing Consideration may be subject to adjustment as provided in Sections 1.6, 8.3 and 8.10. -8- 1.81 "Second Closing Date": the one year anniversary of the Closing Date. 1.82 "Second Closing Price": the arithmetic average of the closing sale prices for an HRPT Common Share as reported by NYSE for the 20 trading days immediately prior to the Second Closing Date. 1.83 "Second Closing Recipient": the successor to GPI designated in its plan of liquidation to be adopted prior to the Closing. 1.84 "Subsidiaries": all corporations, associations or other entities of which a person owns, directly or indirectly, 50% or more of the voting stock or other voting equity interests of such corporation, association or other entity. 1.85 "Survivor": defined in Section 2.1. 1.86 "Taxes": defined in Section 4.16. 1.87 "Tax Returns": defined in Section 4.16. 1.88 "Tenant Leases": all leases of the Premises listed on Disclosure Schedule 1.88. 1.89 "Transaction Expenses": the expenses of GPI incurred in connection with the transactions contemplated by this Agreement set forth on Disclosure Schedule 1.89. 1.90 "Waco Premises": the premises identified on Disclosure Schedule 1.21 as Subject Property No. 1. SECTION 2 TRANSACTIONS AND TERMS OF MERGER 2.1 Merger. Subject to the terms and conditions of this Agreement, at the Effective Time, GPH shall be merged with and into Merger Sub in accordance with the provisions of and with the effect provided in Maryland Law. The separate existence of GPH shall thereupon cease, and Merger Sub shall be the surviving entity of the Merger (sometimes referred to as the "Survivor") and shall continue to be governed by Maryland Law. The Merger shall be consummated pursuant to the terms of this Agreement, which has been approved and adopted by the Boards of Directors and/or Trustees of HRPT, Merger Sub and GPI and GPH. 2.2 Declaration of Trust of the Survivor. The Declaration of Trust of Merger Sub in effect immediately prior to the Effective Time shall be the Declaration of Trust of the Survivor, until amended in accordance with Maryland Law. -9- 2.3 Bylaws of the Surviving Corporation. The Bylaws of Merger Sub in effect immediately prior to the Effective Time shall be the Bylaws of the Survivor, until amended in accordance with Maryland Law. 2.4 Directors and Officers of the Survivor. The directors and officers of Merger Sub immediately prior to the Effective Time shall be the directors and officers of the Survivor as of the Effective Time. 2.5 Manner of Converting Shares. All of the HRPT Common Shares and all shares of beneficial interest of Merger Sub issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding after the Effective Time and shall be unaffected by the Merger. The manner and basis of converting the shares of beneficial interest of GPH upon consummation of the Merger shall be as follows: (a) GPH Common Shares. Except as otherwise provided in this Section 2.5, each GPH Common Share issued and outstanding immediately prior to the Effective Time shall, as of the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive one percent of (i) the HRPT Merger Shares, (ii) any HRPT Common Shares issued to pursuant to Sections 8.3 and 8.4 and (iii) HRPT Common Shares issued pursuant to Section 9.2. (b) Anti-Dilution Provisions. If HRPT changes the number of HRPT Common Shares issued and outstanding, after the determination of the Merger Price and prior to the Effective Time, as a result of a stock split, stock dividend, recapitalization, reclassification, redemption, exchange, self-tender or exchange offer, or any action by HRPT similar to any of the foregoing, or affects the value of the HRPT Common Shares as a result of any dividend or distribution of cash, securities or other property (other than regular cash dividends declared and paid in a manner and amount consistent with recent past practice and other than the issuance of HRPT Common Shares in connection with business combination transactions) and the record date therefor shall be after the date of this Agreement and prior to the Effective Time, the numbers of HRPT Common Shares to be issued pursuant to this Agreement shall be appropriately adjusted. (c) Treasury Shares. Any and all GPH Common Shares held as treasury shares by GPH shall be cancelled and retired at the Effective Time, and no consideration shall be issued in exchange therefor. (d) Fractional Shares. No fractional HRPT Common Shares will be issued as a result of the Merger. In lieu of the issuance of fractional shares pursuant to this Agreement, cash adjustments (without interest) will be paid to GPI in respect of any fraction of an HRPT Common Share that would otherwise be issuable to GPI, and -10- the amount of such cash adjustment shall be determined by multiplying the fraction of an HRPT Common Share otherwise issuable times the Merger Price. 2.6 Investment and Registration Rights Agreement. The issuance of the HRPT Merger Shares pursuant to this Agreement will not be registered under the 1933 Act or any state securities laws in reliance upon certain exemptions from registration contained therein. The transfer of the HRPT Merger Shares will, accordingly, be subject to certain restrictions as set forth in the Investment and Registration Rights Agreement, in the form attached as Schedule 2.6 (the "Registration Rights Agreement"). GPI shall have certain rights to require the registration of an offering of the HRPT Merger Shares pursuant to the Registration Rights Agreement. SECTION 3 CLOSING, EFFECTIVE TIME AND DELIVERY OF CONSIDERATION 3.1 The Closing. Following the day on which the last of the conditions set forth in this Agreement shall be fulfilled or waived in accordance herewith (other than those conditions which are to be fulfilled contemporaneously with the Closing), subject to the terms and conditions of this Agreement, the closing of the Merger shall take place (a) at the offices of Sullivan & Worcester LLP, at Boston, Massachusetts at 9:00 a.m. (local time), on the day set forth in a notice from HRPT to GPI which shall not be sooner than 3 business days following the date of such notice and not later than March 31, 1997 (unless delayed as permitted by Section 10.2), or (b) at such other time, date or place as the Parties may agree. 3.2 Effective Time. If all of the conditions to the Merger set forth in this Agreement shall have been fulfilled or waived and this Agreement shall not have been terminated, on the Closing Date the Parties shall deliver to the Department of Assessments and Taxation of the State of Maryland the Articles of Merger in accordance with Maryland Law. The Merger shall become effective at the time of filing of the Articles of Merger. 3.3 Issuance of HRPT Merger Shares. At the Closing, HRPT shall authorize the transfer agent for the HRPT Common Shares to issue the number of whole HRPT Common Shares to which GPI is entitled pursuant to Section 2.5. As promptly as possible after the Effective Date, GPI, as the sole record holder of all of the outstanding certificates which immediately prior to the Effective Time represented GPH Common Shares (collectively, the "Certificates" and each a "Certificate") shall surrender such Certificates (together with a stock power, duly executed in blank) to HRPT and shall thereupon be entitled to receive in exchange therefor (i) one or more certificates as requested by GPI (properly issued, executed and counter-signed, as appropriate) representing, in the aggregate, the HRPT Merger Shares to which GPI shall have become entitled pursuant to the provisions of Section 2.5 and (ii) as to any fractional -11- share, a check representing the cash consideration to which GPI shall have become entitled pursuant to Section 2.5. The Certificates so surrendered shall forthwith be cancelled. No interest will be paid or accrued on the cash payable upon the surrender of the Certificates. From the Effective Time until surrender in accordance with the provisions of this Section 3.3, each Certificate shall represent for all purposes only the right to receive the consideration provided in Section 2.5. No dividends that are otherwise payable on HRPT Common Shares will be paid GPI until GPI surrenders the Certificates. After such surrender, there shall be paid GPI any dividends on such HRPT Common Shares that shall have a record date on or after the Effective Time and prior to such surrender. If the payment date for any such dividend is after the date of such surrender, such payment shall be made on such payment date. In no event shall the persons entitled to receive such dividends be entitled to receive interest on such dividends. SECTION 4 REPRESENTATIONS AND WARRANTIES OF GPI GPI represents and warrants to HRPT and acknowledges that HRPT is relying upon such representations and warranties in connection with the transactions provided for in this Agreement: 4.1 Organization, etc. GPI and each of the GPI Subsidiaries is duly organized, validly existing and in good standing as a corporation, real estate investment trust, limited liability company or partnership, as the case may be, and has all requisite power and authority (i) to conduct its business as it is now conducted, (ii) to own or lease all of the properties owned or leased by it, (iii) in the case of GPI, to enter into and perform this Agreement and (iv) to otherwise consummate the transactions contemplated by this Agreement. True, correct and complete copies of the Charter Documents of GPI and each of the GPI Subsidiaries as of the date of this Agreement have been previously delivered or made available to HRPT. The records and minute books of GPI and each of the GPI Subsidiaries contain complete and accurate, in all material respects, minutes of all meetings of the directors and/or trustees and shareholders of GPI and each of the GPI Subsidiaries held since their respective dates of organization, all such meetings were duly called and held, and the share certificate books and register of shareholders of GPI and each of the GPI Subsidiaries are complete and accurate. GPI and each of the GPI Subsidiaries is duly qualified to do business and is in good standing in all jurisdictions in which the ownership or lease of property by it or the conduct of its business makes such qualification necessary, except where the failure to be so qualified would not have a Material Adverse Effect. 4.2 Authorization; Execution; Binding Effect. The execution, delivery and performance of this Agreement, and the consummation of the transactions provided for in this Agreement, have been duly authorized by all necessary action on the part of GPI and this Agreement constitutes the legal, valid and binding obligation of GPI, enforceable against GPI in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or other laws -12- affecting creditors' rights and remedies generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 4.3 Capitalization. The authorized capital stock of GPI and the number of shares outstanding on the date of this Agreement is set forth in Disclosure Schedule 4.3. Except as set forth on Disclosure Schedule 4.3, GPI has no shares of capital stock or any other voting or equity securities or interests outstanding. All outstanding shares of GPI Common Stock are duly authorized, validly issued and fully paid and non-assessable. Except for this Agreement or as set forth in Disclosure Schedule 4.3, there is no existing subscription, option, warrant, call, right, commitment or other agreement to which GPI is a party requiring, and there are no convertible securities of GPI outstanding which upon conversion would require, directly or indirectly, the issuance of any additional GPI Common Stock or other securities convertible into GPI Common Stock or any other equity security of GPI, and there are no outstanding contractual obligations of GPI to repurchase, redeem or otherwise acquire any outstanding GPI Common Stock. Except as set forth on Disclosure Schedule 4.3, there are no preemptive rights nor any rights to demand or require registration under the 1933 Act or any state securities laws in respect of shares of GPI Common Stock. The holders of GPI Common Stock set forth in Disclosure Schedule 4.3 are the record and beneficial owners of such number of shares set forth opposite their respective names on such schedule, which shares represent all of the issued and outstanding capital stock of GPI. 4.4 Share Holdings. Except as set forth in Disclosure Schedule 4.4, GPI is the sole record and beneficial owner of such number of shares of each of the GPI Subsidiaries as set forth opposite such Subsidiary's name on such schedule, which shares represent all of the outstanding capital stock/equity of each such Subsidiary, such shares are held free and clear of any and all Liens and there are no existing options, warrants, calls, rights or commitments with respect to such shares. The Subsidiaries of GPI which are listed on Disclosure Schedule 4.4(A) have no assets and are not engaged in any trade or business. The Subsidiaries of GPI which are listed on Disclosure Schedule 4.4(B) hold only interests related to the Aurora Premises. 4.5 No Conflicting Agreements or Charter Provisions. Except as set forth on Disclosure Schedule 4.5, the execution, delivery and compliance with and performance of the terms and provisions of this Agreement will not conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, (i) the Charter Documents of GPI or any of the GPI Subsidiaries or any resolutions adopted by the shareholders or the Board of Directors and/or Trustees of GPI or any of the GPI Subsidiaries, (ii) any provision of any material Contract to which GPI or any of the GPI Subsidiaries is a party or by which it or any of the GPI Subsidiaries or any part of its or any of the GPI Subsidiaries' assets may be bound, or (iii) any order, judgment, decree, license, permit, statute, law, rule or regulation to which GPI or any of the GPI Subsidiaries is subject, which conflict, breach, default or violation -13- has or could reasonably be expected to have a Material Adverse Effect. The execution, delivery and performance of this Agreement will not result in the creation of any Lien (other than a Lien in favor of GPI or HRPT) upon or any preferential arrangement with respect to the business or any material part of the assets or properties of GPI or any of the GPI Subsidiaries. 4.6 Litigation. Except as set forth in Disclosure Schedule 4.6, there is (whether insured or uninsured) no action, suit, proceeding or investigation pending or, to the knowledge of GPI, threatened, at law or in equity, in any court or before or by any federal, state, municipal or other governmental authority, department, commission, board, agency or other instrumentality (i) against GPI or any of the GPI Subsidiaries, (ii) to the knowledge of GPI, affecting GPI or any of the GPI Subsidiaries or any of their properties, except for litigation that would not have a Material Adverse Effect, (iii) to the knowledge of GPI, against or adversely affecting any director, trustee or officer of GPI or any of the GPI Subsidiaries with respect to which such director, trustee or officer would be entitled to indemnification from GPI or any of the GPI Subsidiaries, or (iv) adversely affecting this Agreement or any action taken or to be taken or documents executed or to be executed pursuant to or in connection with the provisions of this Agreement. 4.7 Names. Schedule 4.7 sets forth a preliminary listing of each name under which each of GPI and each of the GPI Subsidiaries has conducted business at any time as well as any entity with or into which any of them has merged. A complete listing of such names will be provided on or before February 27, 1997. 4.8 Financial Statements. GPI has delivered to HRPT copies of GPI's consolidated balance sheet and consolidated statements of income and of cash flows of and for the years ended December 31, 1995 and December 31, 1996, audited by Ernst & Young LLP, independent certified public accountants ("Financial Statements"). Each of the Financial Statements (i) has been prepared from the books and records of GPI and the GPI Subsidiaries, which in all material respects account for transactions, assets and liabilities consistent with good business and accounting practice and (ii) fairly present the financial position, results of operations and cash flows of GPI and the GPI Subsidiaries, in accordance with GAAP, applied on a consistent basis. 4.9 No Undisclosed Liabilities. As of December 31, 1996, neither GPI nor any of the GPI Subsidiaries had any material obligations, indebtedness or liabilities of any nature which would have been required by GAAP to be reflected in the Financial Statements that are not shown in the Financial Statements or the notes thereto or disclosed in this Agreement. Except as set forth in the Financial Statements or as set forth on Disclosure Schedule 4.9, neither GPI nor any of the GPI Subsidiaries, on the date of this Agreement, has outstanding any -14- material obligation, indebtedness or liability, and GPI does not know of any basis for the assertion against GPI or any of the GPI Subsidiaries of any such material obligation, indebtedness or liability, other than those incurred since December 31, 1996 in the ordinary course of business. 4.10 Default. Except for defaults, events or occurrences, the consequences of which, individually or in the aggregate, would not have a Material Adverse Effect, neither GPI nor any of the GPI Subsidiaries is in default or, to GPI's knowledge, alleged to be in default with respect to any judgment, order, writ, injunction or decree of any court or any federal, state, municipal or other governmental authority, department, commission, board or agency or other governmental entity. Except for defaults, events or occurrences, the consequences of which, individually or in the aggregate, would not have a Material Adverse Effect, neither GPI nor any of the GPI Subsidiaries is in breach or default or alleged to be in breach or default under any Contract and GPI does not know of any condition or state of facts which is likely to cause or create a default or defaults under any such Contract (other than as set forth on Disclosure Schedule 4.5). Neither GPI nor any GPI Subsidiary has received written notice that any of them is in breach or default or alleged to be in breach or default under any of the agreements evidencing the indebtedness secured by the Premises identified on Disclosure Schedule 1.71 as Properties Nos. 13, 14, 19 and 20 and to GPI's knowledge there exists no condition or state of facts which constitutes or which with the giving of notice and/or lapse of time would constitute an event of default under any such agreement. Except as set forth on Disclosure Schedule 4.10, GPI does not know of any other party to any Contract to which GPI or any of the GPI Subsidiaries is a party and which is material to the business of GPI and the GPI Subsidiaries, that is in material default thereunder and, to the knowledge of GPI, there exists no condition or event which, after notice or lapse of time or both, would constitute a material default of any other party to any such Contract. 4.11 Compliance with Law. (a) Except as may have been disclosed to HRPT by a third party in writing or orally disclosed to HRPT by its local counsel in connection with HRPT's zoning due diligence, prior to the date of this Agreement, GPI and each of the GPI Subsidiaries (A) has complied with all laws, regulations and orders which are applicable to their respective businesses as presently conducted, (B) possesses all permits, licenses and other governmental approvals, accreditations, participation agreements, consents, authorizations and orders specifically applicable to, or necessary for the conduct of, its business as currently conducted (collectively, "Permits"), and (C) except as set forth on Disclosure Schedule 4.5, has obtained all governmental approvals and all other approvals, consents, certifications and waivers and has made all filings, given all notices and otherwise complied with all governmental laws, rules and regulations which are required on the part of GPI to enter into and perform this Agreement, and to otherwise consummate the transactions contemplated by this Agreement, except in each case, where the failure to have acted in accordance with clauses (A), (B) and (C) has not and would not reasonably be expected to have a Material Adverse Effect. -15- (b) Except as may have been disclosed to HRPT by a third party in writing or orally disclosed to HRPT by its local counsel in connection with HRPT's zoning due diligence, prior to the date of this Agreement, to GPI's knowledge, (i) the Premises and the use and operation thereof do not violate any material federal, state, municipal and other governmental statutes, ordinances, by-laws, rules, regulations or any other legal requirements, including, without limitation, those relating to construction, occupancy, zoning, adequacy of parking, environmental protection, occupational health and safety and fire safety applicable thereto; and (ii) there are presently in effect all material licenses, permits and other authorizations necessary for the current use, occupancy and operation thereof, except, in each case, where the failure to comply with clauses (i) and (ii) preceding has not and would not reasonably be expected to have a Material Adverse Effect. Except as set forth on Disclosure Schedule 4.11(b), GPI has not received written notice of any request, application, proceeding, plan, study or effort which would materially adversely affect the current use of any of the Premises or the Waco Premises or the proposed use of any of the Development Properties or zoning of any of the Premises or which would modify or realign any adjacent street or highway. 4.12 No Adverse Changes; Acquisitions, Disposition and Commitments. (a) Except as set forth on Disclosure Schedule 4.12, since December 31, 1996, there has not been, occurred or arisen (i) any change in, or agreement to change the character or nature of the business of GPI or any of the GPI Subsidiaries, (ii) any change in the financial condition, results of operations, business, properties, assets or liabilities of GPI and the GPI Subsidiaries, which would have a Material Adverse Effect, (iii) any damage or destruction in the nature of a casualty loss, whether covered by insurance or not, adversely affecting any property of GPI or any of the GPI Subsidiaries in a manner that would have a Material Adverse Effect, (iv) to GPI's knowledge, any new or proposed legislation or regulation relating, in either case, to the business of leasing real property to agencies of the United States, which would reasonably be expected to have a Material Adverse Effect, (v) any termination of any Tenant Lease (other than a scheduled expiration of the term thereof), (vi) except in the ordinary course of business consistent with past practice, any material increase in the compensation payable or to become payable by GPI or any of the GPI Subsidiaries to any of its directors, officers, management, personnel, consultants or agents or any material increase in benefits under any bonus, insurance, pension or other benefit plan made for or with any of such persons, (vii) any actual or threatened strike or other labor trouble or dispute which has or might have a Material Adverse Effect, (viii) any direct or indirect redemption, purchase or other acquisition by GPI or any of the GPI Subsidiaries of any shares of GPI or any of the GPI Subsidiaries, any declaration, setting aside or payment of any dividend or other distribution by GPI or any of the GPI Subsidiaries in respect of shares of GPI or any of the GPI Subsidiaries whether in cash, shares or property, or any loan to any stockholder other than advances for expenses in the ordinary course of business to any stockholder in his capacity as an officer, director or employee of GPI or any of the GPI Subsidiaries, (ix) any extraordinary item (as defined by GAAP) resulting in a loss suffered by GPI or any of -16- the GPI Subsidiaries, which, individually or in the aggregate, would have a Material Adverse Effect, (x) any waiver by GPI and the GPI Subsidiaries of any material right or rights, except for waivers in the ordinary course of business consistent with past practices, (xi) any Lien on any of the assets of GPI or any of the GPI Subsidiaries, except Liens incurred in the ordinary course of business and consistent with past practice or Permitted Liens, (xii) any obligation incurred by GPI or any of the GPI Subsidiaries other than any incurred in the ordinary course of business or which, individually or in the aggregate, with all other obligations so incurred, is or are not material in amount to GPI and the GPI Subsidiaries, taken as a whole, or (xiii) any other event, condition or state of facts of any character peculiar to GPI or any of the GPI Subsidiaries or to their operations and not generally applicable to private enterprises in the same business as GPI or any of the GPI Subsidiaries which has, or might reasonably be expected in the future to have, a Material Adverse Effect. (b) Since December 31, 1996, except as set forth in Disclosure Schedule 4.12, neither GPI nor any GPI Subsidiary has acquired, sold, leased or disposed of any property or assets or entered into any commitment or agreement to do any of the foregoing. 4.13 Patents, etc. GPI and each of the GPI Subsidiaries owns or has the right to use all rights under any patent, trademark, trade name, or copyright (or any application or registration respecting any thereof), discovery, improvement, process, formula, know-how, data, plan, specification, drawing or the like, necessary or required for the conduct of its business as such business is currently being conducted and, to the knowledge of GPI, is not infringing or alleged to be infringing upon the rights of any third party with respect to any of the foregoing, and GPI does not know of any basis for the assertion against GPI or any of the GPI Subsidiaries of a claim for such infringement. 4.14 Certain Transactions. Except as set forth in Disclosure Schedule 4.14, there are no contracts or business or financial arrangements between GPI or any of the GPI Subsidiaries and any officer or director of GPI or any of the GPI Subsidiaries, nor, to the knowledge of GPI, are there any such contracts or business or financial arrangements with a holder of the outstanding shares of GPI or any of the GPI Subsidiaries, nor, to the knowledge of GPI, are there any such contracts or business or financial arrangements with any such person's family members or affiliates, involving or affecting the business, properties, or assets of GPI or any of the GPI Subsidiaries or creating a potential conflict of interest. Disclosure Schedule 4.14 sets forth a list of all of the directors, trustees, officers and employees of GPI and each of the GPI Subsidiaries together with the salaries of all officers and employees of GPI and each of the GPI Subsidiaries. -17- 4.15 Pension and Benefit Plans. (a) Company Employee Benefit Plans and Company Benefit Arrangements. Schedule 4.15(a) lists each Company Employee Benefit Plan and Company Benefit Arrangement. GPI and the GPI Subsidiaries have delivered to HRPT with respect to each such Company Employee Benefit Plan and Company Benefit Arrangement true and complete copies of (i) all written documents comprising such plans and arrangements (including amendments and individual, trust or insurance agreements relating thereto); (ii) the most recent Federal Form 5500 series (including all schedules thereto) filed with respect to each such Company Employee Benefit Plan; (iii) the two most recent financial statements and actuarial reports, if any, pertaining to each such plan or arrangement; (iv) the summary plan description currently in effect and all material modifications thereto, if any, for each such Company Employee Benefit Plan; and (v) written communications to employees to the extent the substance of any Company Employee Benefit Plan described therein differs materially from the other documentation furnished under this Section. (b) Multiemployer Plans. Neither GPI nor any GPI Subsidiary nor any ERISA Affiliate of GPI or any GPI Subsidiary has at any time during the 6-year period preceding the date hereof participated in or been required to make or accrue a contribution to any Multiemployer Plan. Neither GPI nor any GPI Subsidiary nor any of their respective ERISA Affiliates has incurred or reasonably expects to incur any material withdrawal liability (within the meaning of Section 4201 of ERISA) or any other material current, contingent or potential liability with respect to any Multiemployer Plan. (c) Welfare Benefits Plans. Except as set forth in Disclosure Schedule 4.15(c) and pursuant to the provisions of COBRA, no Company Employee Benefit Plan provides benefits described in Section 3(1) of ERISA to any former employees or retirees of GPI or any GPI Subsidiary. Except as set forth in Disclosure Schedule 4.15 (c), no condition exists that would prevent GPI or any GPI Subsidiary from amending or terminating any Company Employee Benefit Plan or Company Benefit Arrangement providing health or medical benefits in respect of any active or retired employee other than limitations imposed by law. (d) Company Employee Benefit Plans. None of the Company Employee Benefit Plans is a Pension Plan which is subject to Title IV of ERISA and neither GPI nor any GPI Subsidiary nor any ERISA Affiliate has at any time maintained or sponsored a Pension Plan which is subject to Title IV of ERISA. Neither GPI nor any GPI Subsidiary nor any ERISA Affiliate has incurred any material liability under Section 4062 of ERISA to the Pension Benefit Guaranty Corporation or to a trustee appointed under Section 4042 of ERISA. All Company Employee Benefit Plans that are Pension Plans intended to be qualified under Section 401 of the Internal Revenue Code are so qualified and have been so qualified during the period since their adoption; each trust created under any such plan is exempt from tax under Section 501(a) of the Internal Revenue Code and has been so exempt since its creation. A true and correct copy of the most recent determination letter from the IRS regarding such qualified status for each such plan has been delivered to HRPT. -18- (e) Additional Benefits. Except as set forth on Disclosure Schedule 4.15(e), no employee of GPI or of any ERISA Affiliate of GPI will receive or be entitled to, and neither GPI nor any GPI Subsidiary shall be liable for, any additional benefits, bonuses, service or accelerated rights to payment of benefits under any Company Plan, including the right to receive any parachute payment, as defined in Section 280G of the Internal Revenue Code, or become entitled to any severance, termination allowance or similar payments as a result of the transactions contemplated by this Agreement. (f) Compliance with Laws; Contributions. Each Company Plan has at all times prior hereto been maintained, in all material respects, in accordance with all applicable laws. Other than claims for benefits in the ordinary course, there is no claim pending or, to the knowledge of GPI, threatened involving any Company Plan by any Person against such plan or GPI or any GPI Subsidiary. There is no pending or, to the knowledge of GPI, threatened proceeding involving any Company Plan before the IRS, the United States Department of Labor or any other governmental authority. Each of GPI and the GPI Subsidiaries and their respective ERISA Affiliates have made full and timely payment of all amounts required to be contributed under the terms of each Company Plan and applicable law or required to be paid as expenses under such Company Plan. To the extent it might give rise to any material liability: (i) no Prohibited Transaction has occurred with respect to any Company Employee Benefit Plan or any other employee benefit plan or arrangement maintained by GPI or any GPI Subsidiary or any of their respective ERISA Affiliates which is covered by Title I of ERISA; (ii) no Reportable Event that was not waived by regulation of the Pension Benefit Guaranty Corporation, and no event described in Section 4062 or 4063 of ERISA, has occurred in connection with any Company Employee Benefit Plan; and (iii) neither GPI nor any GPI Subsidiary nor any of their current or former ERISA Affiliates (while an ERISA Affiliate) has engaged in, or is a successor or parent corporation to any entity that has engaged in, a transaction described in Section 4069 of ERISA. 4.16 Tax Matters. (a) GPI and each of the GPI Subsidiaries have (x) filed when due with local, foreign and other governmental agencies all tax returns, estimates, information and reports ("Tax Returns") required to be filed by them with respect to all federal, state, local or foreign taxes, levies, imposts, duties, licenses and registration fees, and charges of any nature whatsoever including, without limitation, income taxes, unemployment and social security withholding taxes, interest, penalties, and additions to tax with respect thereto ("Taxes"), and (y) paid when due and payable or, to the extent of Taxes not yet due and payable, have accrued or otherwise adequately reserved in accordance with GAAP for the payment of all Taxes. All such Tax Returns are correct and complete in all respects excluding defects which, individually and in the aggregate, will not have a Material Adverse Effect. Complete and accurate copies of all such Tax Returns have been furnished or made available to HRPT. Neither GPI nor any of the GPI Subsidiaries has obtained an extension of the time within which to file any Tax Return. Neither GPI nor any of its Subsidiaries -19- has received written notice from any governmental agency in a jurisdiction in which such entity does not file a Tax Return stating that such entity is or may be subject to taxation by that jurisdiction. (b) No Taxes have been assessed or asserted in writing in respect of any Tax Returns filed by GPI or any of the GPI Subsidiaries or claimed in writing to be due by any taxing authority or otherwise that are not accrued or adequately reserved for in accordance with GAAP. No Tax Return of GPI or any of the GPI Subsidiaries has been or, to GPI's knowledge, is currently being audited by the IRS or other taxing authority (whether foreign or domestic). Neither GPI nor any of the GPI Subsidiaries has executed or filed with the IRS or any other taxing authority (whether foreign or domestic) any agreement, waiver, or other document extending, or having the effect of extending, the period for assessment or collection of any Taxes, which extension or waiver is still in effect, and neither GPI nor any of the GPI Subsidiaries has entered into any tax allocation or sharing agreement with any other entity. GPI has delivered to HRPT correct and complete copies of all examination reports, statements of deficiencies and similar documents prepared by the IRS or any other taxing authority that have been received by GPI or any GPI Subsidiary. All final adjustments made by the IRS with respect to any Tax Return of GPI or any of the GPI Subsidiaries have been reported to the relevant state, local, or foreign taxing authorities to the extent required by law. No requests for ruling or determination letters filed by GPI or any of the GPI Subsidiaries are pending with any taxing authority. Neither GPI nor any GPI Subsidiary has any liability to any Person, with respect to Taxes paid, owed or to be paid for periods of time during which GPI or any GPI Subsidiary or any predecessor thereof were members of a consolidated group other than a consolidated group of which GPI is the common parent. (c) At all times that it has been in existence, GPI has qualified as a "real estate investment trust" under Section 856 of the Internal Revenue Code, and each GPI Subsidiary (other than general or limited partnerships or limited liability companies) has qualified as a "qualified REIT Subsidiary" under Section 856(i) of the Internal Revenue Code. GPI has at all times satisfied Section 857(a)(3) of the Internal Revenue Code and does not have any "non-REIT earnings and profits" within the meaning of Treasury Regulation ss. 1.857-11. The assets of GPI as of the Effective Time fulfill the "substantially all" requirement as it is set forth in IRS Revenue Procedure 77-37, ss. 3.01. Neither GPI nor any of the GPI Subsidiaries has filed a consent pursuant to Section 341(f) of the Internal Revenue Code, or agreed to have Section 341(f)(2) of the Internal Revenue Code apply to any disposition of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the Internal Revenue Code) owned by it. No property of GPI or any of the GPI Subsidiaries is property that such entity is or will be required to treat as being owned by another person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986. Neither GPI nor any of the GPI Subsidiaries has agreed to or is required to make any adjustment pursuant to Section 481(a) of the Internal Revenue Code by reason of a change in the accounting method initiated by GPI or any of the GPI Subsidiaries, and GPI has no knowledge that the IRS has proposed any such -20- adjustment or change in accounting method. Neither GPI nor any of the GPI Subsidiaries has executed or entered into a closing agreement pursuant to Section 7121 of the Internal Revenue Code or any predecessor provision thereof or any similar provision of state, local or foreign law. 4.17 Contracts. (a) Except as set forth in Disclosure Schedule 4.17, neither GPI nor any of the GPI Subsidiaries is a party to or bound by any (A) Contract not made in the ordinary course of business and not terminable on thirty (30) days notice without payment of premium or penalty; (B) advertising, public relations, franchise, distributorship or sales agency Contract; (C) Contract involving the commitment or payment of in excess of $100,000, at any one time or annually for the future purchase or sale by GPI or any of the GPI Subsidiaries of property improvements, services or equipment that is not otherwise reimbursable; (D) Contract among shareholders or granting a right of refusal or for a partnership or for a joint venture or for the acquisition, sale or lease (other than the Tenant Leases and Development Property Leases) of any material assets of GPI or any of the GPI Subsidiaries; (E) mortgage, pledge, conditional sales contract, security agreement, factoring agreement or other similar Contract with respect to any real or tangible personal property of GPI or any of the GPI Subsidiaries; (F) loan agreement, credit agreement, promissory note, guarantee, indenture, subordination agreement, letter of credit or any other similar type of Contract; or (G) retainer Contract with attorneys, accountants, actuaries, appraisers, investment bankers or other professional advisers (other than those referred to in Section 4.28). GPI and each of the GPI Subsidiaries has delivered or otherwise made available to HRPT true, correct and complete copies of the Contracts listed in Disclosure Schedule 4.17, together with all amendments, waivers, modifications, supplements or side letters affecting the obligations of any party thereunder. (b) Except as set forth in Disclosure Schedule 4.17, GPI is not a party to or bound by any employment, consulting, non-competition, severance or indemnification Contract and no GPI Subsidiary is a party to or bound by any employment, consulting, non-competition, severance or indemnification Contract. (c) Except as set forth opposite the description of a Contract in Disclosure Schedule 4.17: (i) Each of the Contracts which is material to any of GPI or any of the GPI Subsidiaries is valid and enforceable in accordance with its terms, assuming the validity and enforceability thereof against the other parties thereto in all material respects, and subject to applicable bankruptcy, insolvency, reorganization and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). -21- (ii) No previous or current party to any such Contract which is material to any of GPI or any of the GPI Subsidiaries has given to GPI or any of the GPI Subsidiaries written notice of or made a claim with respect to any breach or default under any such Contract which breach or default has not been cured or waived. 4.18 Insurance. (a) Schedule 4.18 sets forth a true and correct list of all insurance policies of any kind or nature whatsoever which are in force and to which GPI or any of the GPI Subsidiaries is a named party or beneficiary, specifying the insurance carrier, the type of insurance coverage, the policy number, the date through which premiums have been paid, the aggregate amount of insurance coverage per claim or per occurrence, as the case may be, applicable self-retention limits and/or self- or co-insurance requirements, and describing in reasonable detail each pending claim under each such policy. Such insurance provides coverage against, among other matters, property damage and other casualty loss, personal injury, workers' compensation claims, general liability, and other similar risks and matters incident to the conduct of the business of GPI and each of the GPI Subsidiaries and similarly situated businesses and in a manner and in an amount that is consistent with industry practice. GPI and each of the GPI Subsidiaries regularly accrues, and the financial statements of GPI reflect the accrual of, adequate reserves against loss contingencies, in accordance with GAAP, arising from known and incurred claims against GPI and each of the GPI Subsidiaries. Based on the past claims experience of GPI and each of the GPI Subsidiaries, such insurance together with such reserves is reasonably likely to adequately cover any loss contingencies and, to GPI's knowledge, all policies of such insurance are binding and effective upon the issuers (each of whom is reputable and creditworthy) in accordance with their respective terms. (b) Neither GPI nor any of the GPI Subsidiaries has received written notice from any insurance carrier of defects or inadequacies in the Premises which, if uncorrected, would result in a termination of insurance coverage or a material increase in the premiums charged therefor. 4.19 Bank Accounts. Schedule 4.19 contains a correct and complete list of every bank account or lock box that GPI or any of the GPI Subsidiaries has or maintains with any bank, savings and loan association or other financial institution, the account identification number, if any, and the names of persons authorized to make withdrawals or have access to each such account or lock box. 4.20 Accounts. (a) The accounts receivable of GPI and each of the GPI Subsidiaries as reflected in the Financial Statements or arising after the date thereof are the result of bona fide transactions in the ordinary course of business. -22- (b) All accounts payable of GPI and each of the GPI Subsidiaries as reflected in the Financial Statements or arising after the date thereof are the result of bona fide transactions in the ordinary course of business and have been paid or are not yet due and payable (giving due regard to payment practices prevailing in the industry and GPI's and such GPI Subsidiary's historical course of dealing with its vendors and suppliers). 4.21 Labor Matters. (a) No employees of GPI or any of the GPI Subsidiaries are represented by any labor organization, and no labor organization or group of employees of GPI or any of the GPI Subsidiaries have made a pending demand for recognition or have filed a petition seeking a representation proceeding with the National Labor Relations Board within the last two years; and (b) There are no strikes, grievances or other labor disputes pending against GPI or any of the GPI Subsidiaries and, to the knowledge of GPI, there are no such strikes, grievances and disputes threatened. There are no unfair labor practice charges or complaints pending or, to the knowledge of GPI, threatened by or on behalf of any employee or group of employees of GPI or any of the GPI Subsidiaries. 4.22 Title to Properties. (a) Schedule 4.22 identifies (i) the real property comprising the Premises and the Development Properties which, as of the date hereof, constitute all of the real property owned by GPI and the GPI Subsidiaries (based on surveys and title insurance policies issued in favor of GPI or the GPI Subsidiaries with respect to such Premises and Development Properties) and (ii) the leases of all real property which is leased by any of them, and of the nature of GPI's and the GPI Subsidiaries' interest therein. (b) Except as otherwise set forth in Disclosure Schedule 4.22, the GPI Subsidiaries have marketable title to all real property constituting the Premises and Development Properties and title to all other property and assets, tangible and intangible, owned by them, in each case free and clear of all Liens, except: (i) the Tenant Leases and Development Property Leases, (ii) Permitted Liens, and (iii) Liens reflected in the Financial Statements. (c) Other than the Tenant Leases, neither GPI nor any GPI Subsidiary has entered into any contract or agreement with respect to the occupancy of the Premises and, to GPI's knowledge, other than the Development Property Leases, there are no contracts or other agreements with respect to the occupancy of the Development Properties, which will be binding after the Closing. To GPI's knowledge, other than the Contract Property Leases, there is no contract or agreement with respect to the occupancy of the Contract Properties which will be binding after the Closing with respect thereto. The copies of the Tenant Leases, the Development Property Leases and the Contract Property Leases heretofore delivered -23- or made available by GPI to HRPT are true, correct and complete copies thereof; the Tenant Leases have not been amended except as evidenced by amendments similarly delivered or made available and constitute the entire agreement between GPI or the GPI Subsidiaries and the tenants thereunder. Disclosure Schedule 4.22 includes a true, correct and complete rent-roll with respect to each of the Premises and, except as otherwise set forth in Disclosure Schedule 4.22: (i) to GPI's knowledge, each of the Tenant Leases is in full force and effect on the terms set forth therein in all material respects and each tenant thereunder is bound by its obligations in accordance with the terms set forth therein and has no currently exercisable rights of abatement, offsets, defenses or other basis for relief or adjustment as a result of any default of any GPI Subsidiary; (ii) no tenant under a Tenant Lease has asserted in writing or, to GPI's knowledge, has any defense to, offsets or claims against, rent payable by it or the performance of its other obligations under its Tenant Lease; (iii) neither GPI nor any GPI Subsidiary has any material overdue outstanding obligation to provide any tenant under a Tenant Lease with an allowance to construct, or to construct at its own expense, any tenant improvements; (iv) no tenant under a Tenant Lease is in arrears in the payment of any sums or in the performance of any material obligation required of it under its Tenant Lease beyond any applicable grace period, and no tenant under a Tenant Lease has prepaid any rent or other charges, except for one month's rent and related charges; (v) no Tenant has filed a petition in bankruptcy or for the approval of a plan of reorganization or management under the Federal Bankruptcy Code or under any other similar state law, or made an admission in writing as to the relief therein provided, or otherwise become the subject of any proceeding under any federal or state bankruptcy or insolvency law, or has admitted in writing its inability to pay its debts as they become due or made an assignment for the benefit of creditors, or has petitioned for the appointment of or has had appointed a receiver, trustee or custodian for any of its property; (vi) no tenant under a Tenant Lease or, to the knowledge of GPI, under a Development Property Lease has requested in writing a modification of its Tenant Lease, or a release of its obligations under its Tenant Lease in any material respect or has given written notice terminating its Tenant Lease, or has been released of its obligations thereunder in any material respect prior to the normal expiration of the term thereof; (vii) no guarantor of any tenant's obligations has been released or discharged, voluntarily or involuntarily, or by operation of law, from any obligation under or in connection with any Tenant Lease or any transaction related thereto; (viii) all security deposits paid by tenant under Tenant Leases are as set forth in Disclosure Schedule 4.22; and (ix) all tenant finish and lease commissions due with respect to each of the Tenant Leases have been paid. (d) To GPI's knowledge, all warranties, certifications and representations of the landlords under the Tenant Leases (including in any solicitations or requests for offers delivered in connection with such landlords' entering into the Tenant Leases) and in any collateral documentation are true and correct in all material respects as of the relevant date thereof. All covenants and agreements of the GPI Subsidiaries as landlords under the Tenant Leases required to be performed as of the date hereof have been performed in all material respects. -24- (e) No Person other than GPI, the GPI Subsidiaries and tenants under Tenant Leases has any interest in the Premises, except as set forth in Disclosure Schedule 4.22 or pursuant to Permitted Liens. 4.23 Proprietary Information. GPI and each of the GPI Subsidiaries owns, or has a right to use without material limitations or restrictions adversely affecting the use of the same in the ordinary conduct of its business, subject to all applicable laws, rules and regulations, including without limitation, directives, orders or similar actions of any applicable state regulatory authority, all technology, know-how, processes and other proprietary information now used in the conduct of its business (collectively, "Proprietary Data"), and the consummation of the transactions contemplated by this Agreement will not alter or impair any such rights or breach any agreements with third party vendors or require payments of additional sums thereto. No claims have been asserted by any person to use or obtain access to any such Proprietary Data and no person has challenged or questioned (i) the validity or effectiveness of any license or agreement relating to the same in accordance with the terms thereof or (ii) the right of GPI or any of the GPI Subsidiaries to copy, modify, use or distribute the same, nor to the best of GPI's knowledge, is there any basis for any such claim, challenge or question. The manner in which GPI or any of the GPI Subsidiaries has actually used or copied such Proprietary Data does not infringe on the rights of any persons. 4.24 Environmental Matters. (a) Except as disclosed in Disclosure Schedule 4.24(a) or the Environmental Reports, GPI and each of the GPI Subsidiaries: (i) is in compliance in all material respects with all Environmental Laws, has not received any written notification of potential liability under, or any written request for information pursuant to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the Resource Conservation Recovery Act, as amended ("RCRA"), or any similar state law; (ii) has not entered into and is not a party under any consent decree, compliance order, or administrative or judicial order, injunction or judgment pursuant to any Environmental Law; and (iii) except where such would not reasonably be expected to result in a Material Adverse Effect, has obtained all permits, licenses and other authorizations and made all filings which are required to be obtained by GPI and each GPI Subsidiary for the ownership of its property, facilities and assets and the operation of its businesses under all Environmental Law, is and at all times since its organization has been in compliance with the terms and conditions of all such required permits, licenses and other authorizations, and is not the subject of any pending or, to GPI's knowledge, threatened -25- with any legal action involving a demand for damages or other potential liability arising under or relating to any Environmental Law. (b) Except as disclosed in Disclosure Schedule 4.24(b) or the Environmental Reports: (i) except where such would not reasonably be expected to have a Material Adverse Effect, no disposal, release, burial or placement of Hazardous Materials has occurred on any property or facility owned, leased, operated or occupied by GPI or any GPI Subsidiary during the period that such facilities and properties were owned, leased, operated or occupied by GPI or any of the GPI Subsidiaries or, to the knowledge of GPI and the GPI Subsidiaries, at any prior time or, to the knowledge of GPI and the GPI Subsidiaries, at any other facility or site listed on the National Priorities List or otherwise listed or subject to pending investigation or remediation under CERCLA, RCRA or any analogous state statute to which Hazardous Materials from or generated by GPI or any GPI Subsidiary may have been taken at any time in the past; (ii) there has been no disposal, release, burial or placement of Hazardous Materials on any other property which has resulted in contamination of or beneath any properties or facilities currently or, to the knowledge of GPI and the GPI Subsidiaries, formerly owned, leased, operated or occupied by GPI or any GPI Subsidiary during the period that such facilities and properties were owned, leased, operated or occupied by it (or, to the knowledge of GPI, at any prior time) which would reasonably be expected to result in any material liability for the removal or remediation of such contamination; and (iii) no Lien has been imposed on any GPI or any of the GPI Subsidiaries' properties or facilities under any Environmental Law. (c) Except as disclosed in Disclosure Schedule 4.24(c) or in the Environmental Reports, to GPI's knowledge, there are no above-ground or underground storage tanks; no friable asbestos; no polychlorinated biphenyls in excess of legally permissible concentrations; and no insulating material containing urea formaldehyde on any property currently owned, leased, operated or occupied by GPI or any GPI Subsidiary; (d) Neither GPI nor any GPI Subsidiary has received written notice of any claim or allegation of injury to human health as a result of the quality of air within the buildings at any of the properties owned, leased, operated or occupied by GPI or any of the GPI Subsidiaries; and (e) GPI and each of the GPI Subsidiaries has delivered to HRPT a true and complete copy of all written reports of environmental audits, evaluations, assessments, studies or tests in their possession, custody or control relating to GPI -26- and each of the GPI Subsidiaries, their business and their assets and properties (collectively, "Environmental Reports"). 4.25 Utilities, Etc. All utilities and services necessary for the use and operation of the Premises (including, without limitation, road access, gas, water, electricity and telephone) are available thereto, are of sufficient capacity to meet adequately all needs and requirements necessary for the current use and operation of such Premises and for their respective intended purposes. To GPI's knowledge, no fact, condition or proceeding exists which would result in the termination or material impairment of the furnishing of such utilities to any of the Premises. 4.26 Substantial Completion. GPI reasonably anticipates that substantial completion of the Development Properties will occur on or before the dates specified in Disclosure Schedule 4.26 in accordance with the Development Budgets attached to Disclosure Schedule 4.26 and in accordance with all applicable material requirements of the Development Property Leases for such Development Properties. 4.27 GPH. (a) GPH will be organized prior to the Closing Date to act as a holding company for all of GPI's Subsidiaries. Between the date of its organization and the Closing Date, GPH will conduct no business, have no employees and will not be a party to any lease, license, contract, agreement, commitment, instrument or obligation. (b) The authorized equity of GPH will be one hundred (100) GPH Common Shares. On the Closing Date: (i) GPH will have no other voting or equity securities or interests outstanding except for one hundred (100) GPH Common Shares; (ii) all outstanding GPH Common Shares will be duly authorized, validly issued and fully paid and non-assessable and will be owned, beneficially and of record, by GPI; (iii) there will be no existing subscription, option, warrant, call, right, commitment or other agreement to which GPH is a party requiring, and (iv) there will be no convertible securities of GPH outstanding which upon conversion would require, directly or indirectly, the issuance of any additional GPH Common Shares or other securities convertible into GPH Common Shares or any other equity security of GPI, and there are no outstanding contractual obligations of GPH to repurchase, redeem or otherwise acquire any outstanding GPH Common Shares. On the Closing Date, GPI will be the record and beneficial owner of all of the issued and outstanding shares of beneficial interest of GPH. (c) On the Closing Date, GPH will be a real estate investment trust, duly organized, validly existing and in good standing under the laws of the state of Maryland with all requisite trust power and authority (i) to conduct its business as it -27- is then conducted, (ii) to own or lease all of the properties owned or leased by it, (iii) to consummate the transactions contemplated by this Agreement. (d) The consummation of the transactions provided for in this Agreement will, on the Closing Date, have been duly authorized by all necessary action on the part of GPH. 4.28 Fees. No person acting on behalf of GPI is, or will be, entitled to any commission, broker's, finder's or investment banking fees from any of the Parties or from any Person controlling, controlled by or under a common control with any Party, in connection with the transactions contemplated by this Agreement except Merrill Lynch & Co. and Donaldson, Lufkin & Jenrette Securities. SECTION 5 REPRESENTATIONS AND WARRANTIES OF HRPT HRPT represents and warrants to GPI and acknowledges that GPI is relying on such representations and warranties in connection with the transactions provided for in this Agreement: 5.1 Organization, etc. HRPT is a real estate investment trust, duly organized, validly existing and in good standing under the laws of the state of Maryland and each has all requisite trust power and authority (i) to conduct its business as it is now conducted, (ii) to own or lease all of the properties owned or leased by it, (iii) to enter into and perform this Agreement and (iv) to otherwise consummate the transactions contemplated by this Agreement. 5.2 Authorization: Execution: Binding Effect. The execution, delivery and performance of this Agreement and the consummation of the transactions provided for in this Agreement have been duly authorized by all necessary action on the part of HRPT. This Agreement constitutes the legal, valid and binding obligations of HRPT, enforceable against it in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors' rights and remedies generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 5.3 Capitalization. The authorized shares of beneficial interest of HRPT and the number of shares of beneficial interest outstanding on the date of this Agreement is set forth in the HRPT SEC Reports. All outstanding shares of beneficial interest are duly authorized, validly issued and fully paid and non-assessable. HRPT has no shares of beneficial interest or any other -28- voting or equity securities or interests outstanding except for such shares. Except for this Agreement and as set forth in Disclosure Schedule 5.3, there is no existing subscription, option, warrant, call, right, commitment or other agreement to which HRPT is a party requiring, and there are no convertible securities of HRPT outstanding which upon conversion would require, directly or indirectly, the issuance of any additional HRPT equity securities or other securities convertible into any equity security of HRPT and there are no outstanding contractual obligations of HRPT to repurchase, redeem or otherwise acquire any outstanding HRPT equity securities. Except as described in Disclosure Schedule 5.3, there are no preemptive rights nor any rights to demand or require registration under the 1933 Act or any state securities laws in respect of any equity securities. 5.4 No Conflicting Agreements or Trust/Charter Provisions. Except as described in Disclosure Schedule 5.4, the execution, delivery and compliance with and performance of the terms and provisions of this Agreement will not conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default (or an event which, with notice, lapse of time, or both, would constitute a default) under, or result in any violation of, (A) the Charter Documents of HRPT or any resolutions adopted by the shareholders or trustees of HRPT or (B) any provision of any Contract to which HRPT or any of the HRPT Subsidiaries is a party or by which it or any of the HRPT Subsidiaries or any part of it or any of the HRPT Subsidiaries' assets may be bound or (C) any order, judgment, decree, license, permit, statute, law, rule or regulation to which HRPT or any of the HRPT Subsidiaries is subject. The execution, delivery and performance of this Agreement will not result in the creation of any lien, charge or encumbrance upon or any preferential arrangement with respect to the business or any part of the assets or properties of HRPT. 5.5 Litigation. Except as set forth in the HRPT SEC Reports, there is (whether insured or uninsured) no action, suit, proceeding or investigation pending or, to the knowledge of HRPT, threatened, at law or in equity, in any court or before or by any federal, state, municipal or other governmental authority, department, commission, board, agency or other instrumentality (i) against HRPT or any of the HRPT Subsidiaries, (ii) to the knowledge of HRPT, affecting HRPT or any of the HRPT Subsidiaries or any of their properties, except for private civil litigation involving claims which will not have a material adverse effect on the business, assets, liabilities, financial condition, results of operations or business prospects of HRPT and its subsidiaries, taken as a whole, (iii) to the knowledge of HRPT, against or adversely affecting any officer of HRPT or any of the HRPT Subsidiaries, or (iv) adversely affecting this Agreement or any action taken or to be taken or documents executed or to be executed pursuant to or in connection with the provisions of this Agreement. 5.6 No Undisclosed Liabilities. Except as set forth in the HRPT SEC Reports, as of September 30, 1996, neither HRPT nor any of the HRPT Subsidiaries had any obligations, indebtedness or liabilities of any nature which would have been required by GAAP to be reflected on the consolidated -29- balance sheet of HRPT as of September 30, 1996, that are not shown on such balance sheet or the notes to such balance sheet. Except as set forth in such balance sheet, neither HRPT nor any of the HRPT Subsidiaries, on the date of this Agreement, has outstanding any material obligation, indebtedness or liability, and HRPT does not know of any basis for the assertion against HRPT or any of the HRPT Subsidiaries of any such obligation, indebtedness or liability, other than those incurred since September 30, 1996, in the ordinary course of business or disclosed in Disclosure Schedule 5.6 or in the HRPT SEC Reports. 5.7 Default. Except for events or occurrences, the consequences of which, individually or in the aggregate, would not have a material adverse effect on the business, assets, liabilities, financial condition, results of operations or business prospects of HRPT and its Subsidiaries, taken as a whole, neither HRPT nor any of the HRPT Subsidiaries is in default or, to HRPT's knowledge, alleged to be in default with respect to any judgment, order, writ, injunction or decree of any court or any federal, state, municipal or other governmental authority, department, commission, board or agency or other governmental entity. Except for events or occurrences, the consequences of which, individually or in the aggregate, would not have a material adverse effect on the business, assets, liabilities, financial condition, results of operations or business prospects of HRPT and its Subsidiaries, taken as a whole, neither HRPT nor any of the HRPT Subsidiaries is in breach or default or alleged to be in breach or default under any lease, license, contract, agreement, commitment, instrument or obligation and HRPT does not know of any condition or state of facts which is likely to cause or create a default or defaults under any such lease, license, contract, agreement, commitment, instrument or obligation. Except as set forth in Disclosure Schedule 5.7, HRPT does not know of any other party to any lease, license, contract, agreement, commitment, instrument or obligation to which HRPT or any of the HRPT Subsidiaries is a party and which is material to the business of HRPT and the HRPT Subsidiaries taken as a whole, that is in default thereunder and, to the knowledge of HRPT, there exists no condition or event which, after notice or lapse of time or both, would constitute a default of any other party to any such lease, license, contract, agreement, commitment, instrument or obligation. 5.8 Compliance with Law. HRPT and each of the HRPT Subsidiaries (A) has complied with all laws, regulations and orders which are applicable to their respective businesses as presently conducted, (B) possesses all Permits, and (C) has obtained all governmental approvals and all other approvals, consents, certifications and waivers and has made all filings, given all notices and otherwise complied with all governmental laws, rules and regulations which are required on the part of HRPT to enter into and perform this Agreement, and to otherwise consummate the transactions contemplated by this Agreement, except in each case, where the failure to have acted in accordance with clauses (A), (B) and (C) has not and will not have a material adverse effect on the business, assets, liabilities, financial condition, results of operations or business prospects of HRPT and its Subsidiaries, taken as a whole. 5.9 Securities Filings. -30- All reports and statements filed with respect to HRPT pursuant to the 1934 Act since December 31, 1995, conform in all material respects to the applicable requirements of the 1934 Act and the rules and regulations promulgated thereunder and did not include at the time of filing such documents any untrue statement of a material fact or omit to state any material fact required to be stated or necessary to make the statements made, in light of the circumstances under which they were made, not misleading. Since December 31, 1995, HRPT has not failed to make any filing required by the 1934 Act on a timely basis. 5.10 Merger Shares. As of their respective dates of issuance, the HRPT Common Shares to be issued pursuant to this Agreement will have been duly authorized, validly issued and fully paid and non-assessable, free and clear of any Lien created by or attributable to HRPT and there are no preemptive rights with respect to such issuance. 5.11 Tax Matters. At all times after December 31, 1986, HRPT has qualified as a "real estate investment trust" under Section 856 of the Internal Revenue Code ("REIT"), and each HRPT Subsidiary (other than general or limited partnerships) has qualified either as a "qualified REIT subsidiary" under Section 856(i) of the Internal Revenue Code or as a REIT. HRPT has at all times after December 31, 1986, satisfied Section 857(a)(3) of the Internal Revenue Code and does not have any "non-REIT earnings and profits" within the meaning of Treasury Regulation ss. 1.857-11. Neither HRPT nor any of the HRPT Subsidiaries has filed a consent pursuant to Section 341(f) of the Internal Revenue Code, or agreed to have Section 341(f)(2) of the Internal Revenue Code apply to any disposition of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the Internal Revenue Code) owned by it. No property of HRPT or any of the HRPT Subsidiaries is property that such entity is or will be required to treat as being owned by another person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986. Neither HRPT nor any of the HRPT Subsidiaries has agreed to or is required to make any adjustment pursuant to Section 481(a) of the Internal Revenue Code by reason of a change in the accounting method initiated by HRPT or any of the HRPT Subsidiaries, and HRPT has no knowledge that the IRS has proposed any such adjustment or change in accounting method. Neither HRPT nor any of the HRPT Subsidiaries has executed or entered into a closing agreement pursuant to Section 7121 of the Internal Revenue Code or any predecessor provision thereof or any similar provision of state, local or foreign law. 5.12 Merger Sub. (a) Merger Sub will be organized prior to the Closing Date. (b) On the Closing Date HRPT will be the record and beneficial owner of all of the issued and outstanding shares of beneficial interest of Merger Sub. -31- (c) On the Closing Date, Merger Sub will be a real estate investment trust, duly organized, validly existing and in good standing under the laws of the state of Maryland with all requisite trust power and authority (i) to conduct its business as it is then conducted, (ii) to own or lease all of the properties owned or leased by it and (iii) to consummate the transactions contemplated by this Agreement. (d) The consummation of the transactions provided for in this Agreement will, on the Closing Date, have been duly authorized by all necessary action on the part of Merger Sub. SECTION 6 CERTAIN COVENANTS AND AGREEMENTS 6.1 Conduct of Business by GPI. From the date of this Agreement to the Effective Time, except as required in connection with the Merger and the other transactions contemplated by this Agreement or as set forth on Disclosure Schedule 6.1 and unless GPI obtains HRPT's prior written consent (provided, if HRPT shall fail to respond within five business days of a written request for consent, or such shorter period as may be reasonably required under the circumstances, (GPI agreeing to identify the response period and any circumstances requiring a response period of fewer than five business days in its written request) such consent shall be deemed to have been given) in each instance, GPI will, and will cause each GPI Subsidiary to: (a) Carry on its business as currently conducted and only in the usual and ordinary course; (b) Use its best efforts to preserve its business organization intact, to continue to operate the Premises in a good and businesslike fashion consistent with past practices and to maintain the Premises in good working order and condition in a manner consistent with past practice, to retain the services of its present employees and to preserve the goodwill of its tenants; (c) Maintain insurance coverage of the types and in the amounts carried by it prior to the execution of this Agreement and promptly report all known claims within the applicable claims period; (d) Not purchase, sell, lease or dispose of any property or assets and not incur any liability or make any material commitment or enter into any other transaction, except, in each case, in the ordinary and usual course of business or pursuant to Contracts existing on the date hereof; provided (x) in the case of Additional Properties, neither GPI nor any GPI Subsidiary will enter into an agreement to acquire such Additional Property and (y) in the case of the Contract Properties, neither GPI nor any GPI Subsidiary will enter into an amendment to the agreement to acquire any Contract Property or waive any diligence contingencies (except for such diligence contingencies that expire with the passage of time) -32- without HRPT's consent, which may be withheld in HRPT's sole discretion, in the case of contracts to acquire Additional Properties, and which may be withheld by HRPT in the case an amendment to an agreement to acquire any Contract Property, in its reasonable discretion provided if the amendment would have an adverse effect on HRPT's expected yield with respect to the particular Contract Property such withholding shall be deemed reasonable; (e) Not issue any shares of capital stock or other securities or options or rights to purchase shares of capital stock or other securities, not purchase any of its capital stock and not pay any dividend on its capital stock; (f) Not increase the compensation of any officer, employee or agent other than in the usual and ordinary course of business, and not create any additional employee benefit plan or amend any existing employee benefit plan; (g) Not organize any new Subsidiary, and not acquire or enter into an agreement to acquire, by merger, consolidation or purchase of stock or assets, any business or entity; (h) Not (i) create, incur or assume any long-term debt (including obligations in respect of capital leases) or, except in the ordinary course of business under existing lines of credit, create, incur or assume any short-term debt for borrowed money, (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person, (iii) except in the ordinary course of business and consistent with past practice, make any loans or advances to any other person, or (iv) make any capital contributions to, or investments in, any person (other than a GPI Subsidiary); (i) Not enter into, modify, amend or terminate any of the Material Leases or other material agreement with respect to any of the Premises, which would encumber or be binding upon the Premises from and after the Closing Date; (j) Not amend or modify its charter documents; (k) Whether or not in the ordinary course of business, unless GPI elects to cause the Houston Premises to be transferred pursuant to Section 8.2, not enter into a lease of the Houston Premises; provided that GPI will cause GPH not to engage in any trade or business, and not to enter into any lease, license, contract, agreement, commitment, instrument or obligation from the date of this Agreement to the Effective Time, except as required in connection with the Merger and the other transactions contemplated by this Agreement. In connection with the continued operation of the business of GPI between the date of this Agreement and the Effective Time, GPI shall confer in good faith with one or more representatives of HRPT as often as HRPT shall reasonably request to report operational matters of materiality and the general status of ongoing operations including, without limitation, the status of Development Properties, and the Contract Properties and -33- negotiations with respect to Additional Properties and the Contract Properties. GPI acknowledges that HRPT does not and will not waive any rights it may have under this Agreement as a result of such consultations nor shall HRPT be responsible for any decisions made by GPI's officers and directors with respect to matters which are the subject of such consultation unless HRPT so consents in writing or unless its consent is deemed to have been given as provided above. 6.2 Inspection of and Access to Information. Between the date of this Agreement and the Effective Time, GPI will, and will cause each of the GPI Subsidiaries to: (i) provide HRPT and its accountants, counsel and other authorized representatives full access, during usual business hours to any and all of its premises, properties, contracts, commitments, books, records and other information (including tax returns filed and those in preparation); (ii) cause its respective officers to provide to HRPT and its authorized representatives any and all financial, technical and operating data and other information pertaining to its business as HRPT shall from time to time reasonably request; and (iii) subject to such reasonable limitations as GPI shall deem necessary, permit HRPT to discuss, and cooperate in discussions, with the GPI Subsidiaries, employees, architects, contractors and tenants. 6.3 No Solicitation. From the date of this Agreement until the Effective Time or until this Agreement is terminated or abandoned as provided in Section 10, neither GPI nor any of the GPI Subsidiaries shall directly or indirectly (i) solicit or initiate (including by way of furnishing any information) discussions with or (ii) enter into negotiations with, or furnish any information that is not publicly available to, any corporation, partnership, person or other entity (other than HRPT pursuant to this Agreement) concerning any proposal for a merger, sale of assets, sale of shares of stock or securities or other takeover or business combination transaction (an "Acquisition Proposal") involving GPI or any GPI Subsidiary, and GPI will instruct its officers, directors, advisors and other financial and legal representatives and consultants not to take any action contrary to the foregoing provisions of this sentence. 6.4 Best Efforts: Further Assurances: Cooperation. Each of the Parties shall use its best efforts to perform its obligations under this Agreement and to take, or cause to be taken or do, or cause to be done, all things necessary, proper or advisable under applicable law to obtain all regulatory approvals and satisfy all conditions to the obligations of the Parties under this Agreement and to cause the Merger and the other transactions contemplated in this Agreement to be carried out promptly in accordance with the terms of this Agreement and shall cooperate fully with each other and their respective officers, directors, employees, agents, counsel, accountants and other designees in connection with any steps required to be taken as a part of its obligations under this Agreement. Upon the execution of this Agreement and thereafter, each Party shall do such things as may be reasonably requested by the other Parties in order more effectively to consummate the Merger and the other transactions contemplated by this Agreement, including without limitation: -34- (a) GPI and HRPT shall promptly make their respective filings and submissions and shall take, or cause to be taken, all actions and do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to (i) comply with the provisions of the HSR Act, if applicable, and (ii) obtain any other required consent or approval of any third party or any other federal, state or local governmental agency or regulatory body with jurisdiction over the transactions contemplated by this Agreement. GPI and HRPT agree to cooperate and keep each other reasonably informed regarding any required HSR filings and the process for obtaining HSR clearance, if required. (b) If any claim, action, suit, investigation or other proceeding by any governmental body or other person is commenced which questions the validity or legality of the Merger or any of the other transactions contemplated by this Agreement or seeks damages in connection therewith, the Parties agree to cooperate and use all reasonable efforts to defend against such claim, action, suit, investigation or other proceeding and, if an injunction or other order is issued in any such action, suit or other proceeding, to use best efforts to have such injunction or other order lifted, and to cooperate reasonably regarding any other impediment to the consummation of the transactions contemplated by this Agreement. (c) Each Party shall give prompt written notice to the other of (i) the occurrence, or failure to occur, of any event which occurrence or failure would be likely to cause any representation or warranty of GPI or HRPT, as the case may be, contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date of this Agreement to the Effective Time or that will or may result in the failure to satisfy any of the conditions specified in Section 7 and (ii) any failure of GPI or HRPT, as the case may be, to comply with covenant, condition or agreement to be complied with or satisfied by it by this Agreement. 6.5 Expenses. If the Merger is consummated, each Party shall pay its own attorneys' and accountants' fees and costs and costs of its internal personnel in connection with the transactions contemplated hereby, HRPT shall pay all title insurance premiums and charges, local and special regulatory counsel fees, surveyor charges, environmental consultant charges, transfer taxes, recording fees and the like, and the cost of the Ernst & Young LLP confirmation of the Pro Forma Balance Sheet referred to in Section 1.6 and GPI shall pay the fees referred to in Section 4.28. If the Merger is not consummated, each Party shall pay all costs and expenses incurred by it in connection with the transactions contemplated hereby including its own attorneys' and accountants' fees and costs and the costs of its internal personnel, GPI shall pay the fees referred to in Section 4.28 and HRPT shall pay all title insurance premiums and charges, local and special regulatory counsel fees, surveyor charges and environmental consultant charges. -35- 6.6 Public Announcements. The timing and content of all announcements regarding any aspect of this Agreement or the Merger to the financial community, government agencies, employees or the public generally shall be mutually agreed upon in advance (unless HRPT or GPI is advised by counsel that any such announcement or other disclosure not mutually agreed upon in advance is required to be made by law or NYSE rule in which case HRPT shall use commercially reasonable efforts to consult with GPI prior to any such announcement). 6.7 Interim Financial Statements. Prior to the Effective Time, (a) GPI shall deliver to HRPT, as soon as available but in no event later than 45 days after the end of each fiscal quarter, a consolidated balance sheet as of the last day of such fiscal period and the consolidated statements of income, stockholders' equity and cash flows of GPI and its Subsidiaries for the fiscal period then ended, each prepared in accordance with GAAP and (b) HRPT shall deliver, promptly after filing, a copy of any report or statement pursuant to the 1934 Act. GPI shall deliver to HRPT monthly statements of income and/or financial position for any periods after the date of this Agreement within 30 days of the end of each month. 6.8 Supplements to Schedules. From time to time prior to the Effective Time, GPI and HRPT will each promptly supplement or amend the respective schedules which they have delivered pursuant to this Agreement with respect to any matter arising which, if existing or occurring at the date of this Agreement, would have been required to be set forth or described in any such disclosure schedule or which is necessary to correct any information in any such schedule which has been rendered inaccurate. The delivery of any supplement or amendment to the respective disclosure letters of the parties pursuant to this Section 6.8 shall not in any matter constitute a waiver by any party of any of the conditions contained in Section 7; provided, however, that the disclosure by any party in any such supplement or amendment to its disclosure letter of any matter arising or occurring after the date hereof (which did not exist on the date hereof) shall not form the basis of a claim against the disclosing party for misrepresentation or breach of a representation, warranty, covenant or agreement. 6.9 Contribution to GPH. On the Closing Date, GPI shall contribute all of its interest in the other Subsidiaries of GPI and the contracts and other agreements listed on Disclosure Schedule 6.9, to GPH, in each case free and clear of all Liens, in consideration of the GPH Common Shares, the assumption of the GPI Third Party Debt and Transaction Expenses. 6.10 Reorganization. From and after the date of this Agreement and until the Effective Time, neither HRPT nor GPI nor any of their Subsidiaries or other affiliates shall take any action, or fail to take any action, with the intention of jeopardizing qualification of the Merger as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. Each of -36- the Parties agrees to treat the Merger as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code for purposes of filing all federal, state and local income tax returns. 6.11 Change of Name. As soon as reasonably practicable after the Closing Date, HRPT will use its best efforts to change the name of each of the GPI Subsidiaries to remove "Rosecliff". 6.12 REIT Status. GPI will take all action required in connection with its liquidation and dissolution to (i) ensure that GPI will continue to be qualified as a "real estate investment trust" and (ii) that each GPI Subsidiary will continue to be qualified as a "qualified REIT subsidiary" through the Effective Time. 6.13 Substitute Guarantor. To facilitate GPI's obtaining the consent of lenders under Section 7.3(k), HRPT will make an affiliate of HRPT with a net worth of not less than $100,000,000 available to assume any guarantees by GPI of indebtedness relating to the Premises identified on Disclosure Schedule 1.71 as Properties Nos. 13, 14, 19 and 20. 6.14 Names. Within 10 days after the date of this Agreement, GPI will provide HRPT additional information required to make Schedule 4.7 complete and correct. 6.15 GPI Shareholders. Contemporaneously with the delivery of this Agreement by GPI, each of Rosecliff Realty L.P. and The 1818 Fund II, L.P. shall deliver an agreement to vote their shares of GPI Common Stock in favor of the transactions contemplated by this Agreement and on or before February 27, 1997, GPI will deliver the certificate of its secretary confirming that the Merger and the transactions contemplated by this Agreement have been approved by its stockholders pursuant to Section 228 of the Delaware General Corporation Law. 6.16 Co-Manager Letter. Contemporaneously with the delivery of this Agreement by HRPT, HRPT shall have executed and delivered a letter agreement relating to underwriting of any equity offering the proceeds of which will be used to satisfy HRPT's obligations under this Agreement. 6.17 Arbitration. The Parties agree that any and all disputes or disagreements arising out of or relating to this Agreement, other than actions or claims for injunctive or other equitable relief or claims raised in actions or proceedings brought by third parties, shall be resolved -37- through negotiations or, if the dispute is not so resolved, through mediation and if necessary binding arbitration conducted by a private mediator to be agreed upon by the Parties and in accordance with rules and procedures to be agreed upon by the Parties. If, within ten (10) business days after the date of this Agreement, the Parties shall not have agreed upon the identity of the private mediator or the rules and procedures governing the mediation and/or arbitration, such mediation and/or arbitration shall be conducted by the American Arbitration Association in accordance with the rules and procedures of the American Arbitration Association. Any such mediation and/or arbitration, whether by an agreed upon mediator or by the American Arbitration Association, shall be conducted in Boston, Massachusetts, and the decision of the mediator shall be binding on all parties and not appealable. SECTION 7 CONDITIONS 7.1 Conditions to Each Party's Obligations. The respective obligations of each Party to effect the Merger shall be subject to the fulfillment at or prior to the Closing of each of the following conditions: (a) HSR Act. Early termination shall have been granted or applicable waiting periods shall have expired under the HSR Act, if applicable. (b) Injunction. At the Effective Time there shall be no effective injunction, writ or preliminary restraining order or any order of any nature issued by a court or governmental agency of competent jurisdiction that the transactions provided for in this Agreement or any of them not be consummated as provided in this Agreement and no proceeding or lawsuit shall have been commenced or threatened by any governmental or regulatory agency with respect to any other transactions contemplated by this Agreement, which proceeding or lawsuit in the reasonable opinion of HRPT or GPI makes it inadvisable to consummate such transactions. (c) Consents. All consents, authorizations, orders and approvals of (or filing or registration with) any governmental commission, board or other regulatory body required in connection with the execution, delivery and performance of this Agreement shall have been obtained, except to the extent that any such consent, authorization, order or approval (or filing or registration) is required due to any governmental commission, board or other regulatory body's status as a payor of GPI, in which case such consent, authorization, order or approval shall have been obtained (or filing or registration shall have been made) except where the failure to obtain the same would not have a Material Adverse Effect. 7.2 Conditions to Obligations of GPI. The obligations of GPI to effect the Merger shall be subject to the fulfillment at or prior to the Closing of each of the following conditions: -38- (a) Representations and Warranties. The representations and warranties of HRPT set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Effective Time as though made on and as of the Effective Time (except where such representation or warranty specifically relates to an earlier date). (b) Performance of Obligations By HRPT. HRPT shall have performed in all material respects all covenants and agreements required to be performed by it under this Agreement. (c) Registration Rights Agreement. HRPT shall have executed and delivered the Registration Rights Agreement to GPI and such agreement shall be in full force and effect at the Effective Time. (d) Information Access Agreement and Voting Agreement. Merger Sub shall have executed and delivered an Information Access Agreement and Voting Agreement to The 1818 Fund II, L.P. and Rosecliff Inc. in the forms attached as Schedule 7.2(d), and such agreements shall be in full force and effect at the Effective Time. (e) Opinions of HRPT Counsel. GPI shall have received an opinion of Sullivan & Worcester LLP, dated the Closing Date, in form and substance reasonably satisfactory to GPI, with respect to the transactions contemplated by this Agreement. (f) Authorization of Merger. All corporate action necessary to authorize the execution, delivery and performance of this Agreement by HRPT and the consummation of the transactions contemplated by this Agreement shall have been duly and validly taken. (g) Certificates. HRPT shall furnish GPI with a certificate of its appropriate officers as to compliance with the conditions set forth in Section 7.2. (h) Conduct of Business and No Material Adverse Change. The fundamental character of the business of HRPT and its Subsidiaries as investors in healthcare related real estate shall not, except for the transactions contemplated by this Agreement, have changed between the date hereof and the Effective Date. HRPT and its Subsidiaries, taken as a whole, shall not have suffered a material adverse change in their financial condition, business, assets, liabilities or operations from the date hereof to the Effective Time; provided, however, that a decline in the price of HRPT Common Shares or a change in any rating assigned to any debt of HRPT by Moody's Investors Service, Inc., Standard & Poor's Ratings Group or Fitch Investors Services, L.P. shall not in and of itself be deemed a material adverse change. (i) Indemnification Agreement. HRPT shall have executed and delivered an Indemnification Agreement (the "Indemnification Agreement") in the form of Schedule 7.2(i), and such agreement shall be in full force and effect at the Effective Time. -39- (j) Service Contract. HRPT and/or its nominee shall have executed and delivered a Service Contract (the "Service Contract") in the form of Schedule 7.2(j), and such contract shall be in full force and effect at the Effective Time. (k) Prepayments. HRPT shall prepay all GPI Third Party Debt and all GPI Property Debt (except for that GPI Property Debt secured solely by Premises identified on Disclosure Schedule 1.71 as Properties Nos. 13, 14, 19 and 20) on the Closing Date. 7.3 Conditions to Obligations of HRPT. The obligations of HRPT to effect the Merger shall be subject to the fulfillment at or prior to the Closing of each of the following conditions: (a) Representations and Warranties. The representations and warranties of GPI set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and, except as otherwise permitted under Sections 6.1 and 8.2, as of the Effective Time as though made on and as of the Effective Time (except where such representation or warranty specifically relates to an earlier date). (b) Performance of Obligations of GPI. GPI shall have performed in all material respects all covenants and agreements required to be performed by it under this Agreement. (c) Registration Rights Agreement. GPI shall have executed and delivered the Registration Rights Agreement to HRPT and such agreement shall be in full force and effect at the Effective Time. (d) Opinion of GPI's Counsel. HRPT shall have received an opinion of Willkie Farr & Gallagher, dated the Closing Date, in form and substance reasonably satisfactory to HRPT, with respect to the transactions contemplated by this Agreement and an opinion of Kilpatrick Stockton LLP, dated the Closing Date, subject to customary assumptions, qualifications and conditions, and otherwise in form and substance reasonably satisfactory to HRPT, and stating in substance (i) that the Development Partnership Agreements (x) do not violate applicable federal law relating to the acquisition and administration of federal contracts, including leases, or (y) give rise to a right on the part of the U.S. Government to terminate the Development Property Lease and (ii) that, under circumstances similar to those contemplated by the Development Partnership Agreements, the U.S. Government would customarily grant a novation in favor of the general partner acquiring the interest of the developer general partner. (e) Authorization of Merger. All corporate action necessary to authorize the execution, delivery and performance of this Agreement by GPI and the consummation of the transactions contemplated by this Agreement shall have been duly and validly taken. -40- (f) Shareholder Approval. The Merger shall have been approved by GPI, as the sole shareholder of GPH, in accordance with Maryland Law and shall also have been approved by the stockholders of GPI in accordance with the Delaware General Corporation Law.. (g) No Material Adverse Effect. No change which has a Material Adverse Effect shall have occurred from the date hereof to the Effective Time. (h) Certificates. GPI shall furnish HRPT with a certificate of its appropriate officers as to compliance with or satisfaction of the conditions set forth in Section 7.3. (i) Nonsolicitation Agreements. At or prior to the Closing, the persons listed on Disclosure Schedule 1.54 shall have each executed and delivered a Nonsolicitation Agreement (the "Nonsolicitation Agreements"), in the form of Schedule 7.3(i), and such agreement shall be in full force and effect at the Effective Time. (j) Indemnification Agreement. GPI shall have executed and delivered the Indemnification Agreement in the form of Schedule 7.2(i), and such agreement shall be in full force and effect at the Effective Time. (k) Consents and Prepayment. All consents and waivers required under any agreements identified in Section 4.5 including, without limitation, the agreements evidencing the indebtedness secured solely by the Premises identified on Disclosure Schedule 1.71 as Properties Nos. 13, 14, 19 and 20, shall have been obtained. If on the Closing Date, the borrower shall not have the right to prepay, without premium or penalty, all amounts owed to each lender identified on Disclosure Schedule 7.3(k), the Aggregate Closing Consideration shall be reduced by an amount equal to the aggregate premium and penalty which the borrower would be obliged to pay if it prepaid all such indebtedness in full on the Closing Date, provided there will be no such reduction with respect to indebtedness secured solely by Premises identified on Disclosure Schedule 1.71 as Properties Nos. 13, 14, 19 and 20. HRPT shall have the right to prepay all GPI Third Party Debt and all GPI Property Debt on the Closing Date other than the indebtedness secured solely by the Premises identified on Disclosure Schedule 1.71 as Properties Nos. 13, 14, 19 and 20. (l) Mortgagee Estoppel Certificates. HRPT shall have received estoppel certificates dated within thirty (30) days prior to the Closing Date, executed by the lenders holding the indebtedness secured by the Premises identified on Disclosure Schedule 1.71 as Properties Nos. 13, 14, 19 and 20, which estoppel certificates shall specify the principal balance outstanding and the date of the most recent interest payment received thereunder and shall confirm whether such lender has sent any written notice of any default by the applicable borrower (GPI agreeing also to use reasonable efforts to cause the certifying party to identify all material documents setting forth (provided, however, that the delivery by GPI to the -41- certifying party of a request for such identification together with follow up telephone calls shall be deemed to constitute reasonable efforts) the terms and conditions with respect to such indebtedness). (m) Tenant Certificates. HRPT shall have received estoppel certificates, satisfactory in form (HRPT agreeing to accept such form as is required to be delivered by a tenant under its lease and provided HRPT will accept, from any tenant under a Material Lease, a statement that (i) the lease is in full force and effect, (ii) there are no prepayments of rent or other charges due under the Lease in excess of one month and (iii) no notice of default has been issued by tenant under the lease), and substance to HRPT and dated within thirty (30) days prior to the Closing Date, executed by all tenants under Material Leases; provided, however, if GPI shall fail, after using commercially reasonable efforts, to obtain any tenant estoppel certificate required under this Section 7.3(m) as to Premises representing, in the aggregate, no more than 840,500 square feet, GPI's certification as to such material may be substituted for the tenants'. (n) Partner Estoppel Certificates. HRPT shall have received estoppel certificates, in the form attached hereto as Schedule 7.3(n), executed by the third party partner to the Development Partnership Agreement relating to the San Diego Premises and Golden Premises. (o) Condition of the Premises. All of the Premises, including all improvements located thereon, shall be in substantially the same physical condition as on the date of this Agreement, ordinary wear and tear excepted and except for construction of Development Properties in accordance with the approved plans and specifications therefor, subject to Section 8.3(a) and (b), in all material respects. (p) No Condemnation. No action shall be pending or, to the knowledge of GPI, threatened for the condemnation or taking by power of eminent domain of any of the real properties comprising the Premises which has had or would be reasonably expected to result in a Material Adverse Effect. (q) Title Insurance. With respect to the Golden Premises, a title insurance company satisfactory to HRPT or the title insurance company insuring the existing title policy shall be prepared, subject only to payment of the applicable premiums and charges, to issue a title insurance policy, to the applicable GPI Subsidiary, insuring title to the Golden Premises is vested in the applicable GPI Subsidiary, pursuant to an ALTA (or such other form if ALTA is not available in such jurisdiction) title insurance policies in the form attached hereto as Schedule 7.3(q) and a title insurance company reasonably acceptable to HRPT or the existing title insurance company shall be prepared, to amend the existing title insurance policy with respect to the San Diego DFAS to provide affirmative coverage against any violation of the matters described in Schedule B, item 3 thereof if available. (r) Survey. HRPT shall have received an ALTA survey of the Premises located in Richland, Washington (or, if any ALTA survey is not available in the applicable jurisdiction, such other form of survey in accordance with the customary -42- standards for such State), together with a certificate of such surveyor, such survey and certification to be in form and substance reasonably satisfactory to HRPT. (s) Information Access Agreement and Voting Agreement. The 1818 Fund II, L.P. and Rosecliff Inc. shall have executed and delivered to Merger Sub an Information Access Agreement and Voting Agreement in the forms attached as Schedule 7.2(d), and such agreements shall be in full force and effect as of the Effective Time. (t) Service Contract. GPI shall have executed and delivered to M&P Partners, L.P. the Service Contract in the form of Schedule 7.2(j) and such agreement shall be in full force and effect at the Effective Time. (u) Termination of Agreements. The contracts and agreements listed on Disclosure Schedule 7.3(u) shall have been terminated without liability or recourse to any of the GPI Subsidiaries and HRPT shall have received such evidence thereof as it shall reasonably request. (v) GPH. The contribution of assets of GPI to GPH in accordance with Section 6.9 shall have occurred and HRPT shall have received such evidence thereof as it shall reasonably request. (w) Resignations. All officers and directors of GPH and each of the GPI Subsidiaries shall have delivered their resignations effective upon the Effective Date. SECTION 8 OTHER AGREEMENTS 8.1 Deposit. Within three business days following the execution of this Agreement, HRPT shall deposit $5,000,000 with Paul, Weiss, Rifkind, Wharton & Garrison ("PW") or if PW shall decline, within ten business days of the date the Parties agree on another escrow agent, to be held pursuant to the terms of the Escrow Agreement. On the Closing Date, upon compliance with and performance of the conditions set forth in Section 7.2, or upon any termination of this Agreement pursuant to Section 10.1(a) (b) or (c) or by HRPT pursuant to Section 10.1(e), upon notice from HRPT to the escrow agent, the Escrow Agreement shall terminate and all funds held thereunder shall be paid to HRPT. If this Agreement is terminated by GPI pursuant to Section 10.1(d)(ii), all funds then held pursuant to the Escrow Agreement shall be paid to GPI, as liquidated damages and GPI shall have no further recourse against HRPT, the HRPT Subsidiaries or any of their respective officers, trustees, directors, employees or stockholders. 8.2 Houston Premises. Anything to the contrary contained herein notwithstanding, GPI may elect to cause the Houston Premises to be transferred to GPI, an affiliate of GPI or a third party, provided -43- such election is made not later than the business day following the notice from HRPT to GPI provided for in Section 3.1 and the transfer is completed not later than the Closing Date. If GPI elects to transfer the Houston Premises, the Aggregate Closing Consideration shall be reduced by $5,000,000 and all representations and warranties contained in this Agreement shall be deemed not to include the Houston Premises. If GPI elects to transfer the Houston Premises and the proceeds thereof increase "working capital" (as defined in Section 1.6), although the Aggregate Closing Consideration shall be reduced as provided in the next prior sentence, HRPT shall issue GPI a number of HRPT Common Shares on the Closing Date with an aggregate value (based upon a price for an HRPT Common Share of $19.2125) equal to such increase in working capital. 8.3 Development Properties. (a) Golden Premises. If completion of the Golden Premises in accordance with the plans and specifications therefor shall not have occurred and the obligation to pay rent of the tenant under the Development Property Lease in effect with respect to the Golden Premises shall not have commenced by the Closing Date, the Aggregate Closing Consideration shall be reduced by $9,046,823. Upon (x) the 30th day after substantial completion of the Golden Premises in accordance with the plans and specifications therefor, (y) the transfer to HRPT of the third party developer partner's interest and (z) the novation of the Development Property Lease in effect with respect to the Golden Premises in favor of an HRPT Subsidiary, HRPT will issue GPI a number of HRPT Common Shares with an aggregate value (with each such HRPT Common Share valued at the Merger Price) equal to $9,046,823, less all amounts funded at or subsequent to Closing, exclusive of HRPT Common Shares issued at Closing, or anticipated to be funded in connection with the punch list items by HRPT to complete the Golden Premises in accordance with the plans and specifications therefor as set forth in the related guaranteed maximum price construction contract, including, without limitation, any amounts paid to retire indebtedness or to third party partner, together with interest thereon from the date advanced by HRPT through the date of issuance of the HRPT Common Shares pursuant to this Section 8.3(a) at an annual rate equal to 7.4%. If the aggregate amount so funded, exclusive of HRPT Common Shares issued at Closing, or so anticipated to be funded by HRPT (including the interest thereon) exceeds $9,046,823, one-half such excess shall be deducted from the Second Closing Consideration. (b) San Diego Premises. If completion of the San Diego Premises in accordance with the plans and specifications therefor shall not have occurred and the obligations to pay rent of both tenants under the Development Property Leases in effect with respect to the San Diego Premises shall not have commenced by the Closing Date, the Aggregate Closing Consideration shall be reduced by $1,530,954. Upon (x) the 30th day after substantial completion of the San Diego Premises in accordance with the Plans and specifications therefor, (y) the transfer to HRPT of the developer partner's interest and (z) the novation of the Development Property Leases in effect with respect to the San Diego Premises in favor of an HRPT Subsidiary, HRPT will issue GPI a number of HRPT Common Shares with an aggregate value (with each such HRPT Common Share valued at the Merger Price) equal to $1,530,954 less all amounts funded or anticipated to be funded in connection with the punch list items by HRPT at or subsequent to Closing to complete the San Diego Premises in accordance with the plans and specifications therefor, including, -44- without limitation, any amounts paid to retire indebtedness or to third party partners, together with interest thereon from the date advanced by HRPT through the date of issuance of the HRPT Common Shares pursuant to this Section 8.3(b) at an annual rate equal to 7.4%. If the aggregate amount so funded by HRPT (including the interest thereon) exceeds $1,530,954, one-half such excess shall be deducted from the Second Closing Consideration. (c) Aurora Premises. Notwithstanding the provisions of Section 6.1(d) or 6.3 on or before the Closing Date, GPI will cause the partnership interests in Rose Aurora, L.P. held by a GPI Subsidiary to be transferred to GPI or an affiliate of GPI other than a GPI Subsidiary and the Aggregate Closing Consideration shall be reduced by $11,647,101. If, at any time on or before July 31, 1997, the Aurora Closing Conditions (as defined below) shall have been satisfied, HRPT will issue GPI a number of HRPT Common Shares with an aggregate value (with each such HRPT Common Share valued at the Merger Price) equal to $11,647,101 less the sum of (x) $1,000,000, (y) the amount of any indebtedness or funding obligations assumed by HRPT with respect to the Aurora Premises, and (z) the cost to complete construction of the Aurora Premises in accordance with the plans and specifications therefor and as set forth in the guaranteed maximum price construction contract referred to below and including, without limitation, any amounts required to be paid to buy out the third party partner and interest imputed on amounts advanced by HRPT with respect to the Aurora Premises, from the date advanced until the date the obligation to pay rent of the tenant under the Development Lease in effect with respect to the Aurora Premises shall commence, at the Construction Rate (as defined below), in consideration for the transfer of all GPI and GPI affiliate ownership interests in the entity holding title to the Aurora Premises. Within thirty (30) days after the last to occur of (x) completion of the Aurora construction, (y) the novation of the Development Lease in effect with respect to the Aurora Premises to an HRPT Subsidiary and (z) the commencement of the obligation of the tenant under the Aurora Development Lease to pay rent, HRPT will issue GPI additional HRPT Common Shares with an aggregate value (with each such HRPT Common Share valued at the Merger Price) equal to the amount, if any, by which $11,647,101 exceeds the actual aggregate amounts funded by HRPT (including HRPT Common Shares issued under the next prior paragraph) with respect to the Aurora Premises (including, without limitation, interest imputed at the Construction Rate and third party buy-out costs. As used herein, "Aurora Closing Conditions" shall mean the following: (i) A title insurance company reasonably satisfactory to HRPT or the title insurance company which issued the existing policy shall be prepared, subject only to payment of the applicable premium and charges, to issue a title insurance policy, to the applicable GPI Subsidiary, in the form attached to Disclosure Schedule 1.68, to the extent the attached endorsements thereto are available in Colorado except for the addition of Permitted Liens. -45- (ii) HRPT shall have received such assurances as HRPT may reasonably require confirming that, upon completion, the Aurora Premises will comply in all material respects with all applicable zoning and land use requirements. (iii) HRPT shall have approved the aggregate development budget with respect to the Aurora Premises (which budget shall include all costs of completion and acquisition, including, without limitation, interest imputed at the Construction Rate, and the cost to buy out the third party partner), which approval shall not be unreasonably withheld, provided that HRPT shall determine that the Development Lease in effect with respect to the Aurora Premises will, upon the commencement of the obligation of the tenant to pay rent thereunder, provide HRPT with an annual yield on the aggregate amounts funded (including, without limitation, interest imputed at the Construction Rate) with respect to the Aurora Premises of not less than 10.3%. (iv) HRPT and the tenant under the Development Lease with respect to the Aurora Premises shall have approved the complete construction drawings and/or final plans and specifications with respect thereto (HRPT agreeing not unreasonably to withhold, delay or condition its approval). (v) There shall be executed and delivered a guaranteed maximum price construction contract with respect to the Aurora Premises, such contract to be in form and substance reasonably satisfactory to HRPT and to comply with the applicable Development Lease requirements. (vi) The contractor under the above-described construction contract shall have, in HRPT's reasonable determination, adequate financial resources to ensure completion of the project as contemplated by such construction contract or shall have provided a completion bond in form and substance reasonably satisfactory to HRPT; and such contractor shall have obtained such insurance as HRPT may reasonably require. (vii) HRPT shall have received an estoppel certificate, in the form attached hereto as Schedule 7.3(n), executed by the third party partner to the Development Partnership Agreement relating to the Aurora Premises. (viii) HRPT shall reasonably determine that (x) completion of construction can occur within the deadlines applicable thereto pursuant to the Aurora Development Lease, as the same may be amended as herein provided, and (y) a novation of the lease can be obtained and a buy-out of the third party partner consummated not less than 120 days prior to the date set forth in Section 18.2 of the Aurora Partnership Agreement for expiration of the purchase option. (ix) The representations and warranties set forth in Sections 4.1, 4.6, 4.9, 4.10, 4.11, 4.17, 4.22, 4.24 and 4.26 shall be true and correct in all material respects with respect to the Aurora Premises as a Development Property or the Aurora Development Partnership, as the case may be; provided, -46- however, that, GPI may, by written notice to HRPT, modify such representations and warranties to reflect changes in circumstances and HRPT shall not have the right to object to such modifications unless the same shall materially and adversely affect the contemplated development or use of Aurora Premises or such Development Partnership. As used herein, "Construction Rate" shall mean (x) one hundred seventy-five (175) basis points in excess of the per annum rate of interest reported in The Wall Street Journal as the London Interbank Offered Rate for United States dollar deposits for a ninety (90) day term in the amount outstanding as of the date of determination or (y), in the event the rate described in clause (x) shall cease to be published, two (2) percentage points in excess of the per annum rate of interest, from time to time, of the 14-day moving average closing trading price of the 180-day Treasury Bills. (d) Liquidation. If any payments due GPI under Sections 8.3 (a), (b) or (c) become payable after GPI has liquidated, the payments shall be made to the Second Closing Recipient. (e) Fractional Shares. If the Second Closing Recipient would receive a fraction of a HRPT Common Share pursuant to Section 8.3(a), (b) or (c), a check representing an amount determined by multiplying such fractional share by the Merger Price shall be delivered to the Second Closing Recipient. (f) Control. Notwithstanding 6.1(d), HRPT will permit GPI to control negotiations with the developer partners' and others and supervision of construction in connection with any of the Development Properties which are not completed on or before the Closing Date until July 31, 1997, provided any modification or amendment of agreements relating thereto will be subject to the reasonable approval of HRPT. After July 31, 1997, HRPT will control negotiations with the development partners' and others and supervision of construction, provided that any modification or amendment of any agreements relating thereto will be subject to the reasonable approval of GPI. In the case of HRPT's refusal to give approval, if the proposed modification or amendment would have an adverse effect on HRPT's expected yield with respect to the particular Development Property HRPT's refusal shall be deemed reasonable. In the case of GPI's refusal to give approval, if the proposed modification or amendment would have an adverse effect on GPI's expected profit with respect to the particular Development Property, GPI's refusal shall be deemed reasonable. HRPT agrees to comply in all material respects with the terms of the Development Partnership Agreements. 8.4 Contract Properties. (a) Waco Premises. If the Waco Premises have not been acquired by Rosecliff Realty Funding, Inc. (a GPI Subsidiary) from McCord Government Properties-Waco, Ltd. pursuant to the terms of an Agreement of Purchase and Sale of Real Property and Escrow Instructions dated April 1, 1996, as amended by the First Amendment thereto, dated as of April 1, 1996, and further amended by the Tri-Party Agreement and Amendment of Purchase and Sale of Real Property and Escrow Instructions, dated as of "________", 1996, among Mellon Bank, N.A., McCord Government Properties - Waco, Ltd. and Rosecliff -47- Realty Funding, Inc. (the "Waco Agreement") prior to the Closing Date, the Aggregate Closing Consideration shall be reduced by $8,514,714. At such time as the Waco Premises are acquired in accordance with the terms of the Waco Agreement, HRPT shall issue GPI a number of HRPT Common Shares with an aggregate value (with each such HRPT Common Share valued at the Merger Price) equal to $253,936 plus a number of HRPT Common Shares with an aggregate value (with each such HRPT Common Share valued at the Merger Price) equal to the deposit under the Waco Agreement. If the Waco Premises are not acquired by the Second Closing Date, or at such earlier time as the Waco Agreement is terminated solely as a result of a default by the seller thereunder, HRPT shall pay GPI an amount equal to the deposit under the Waco Agreement in HRPT Common Shares as calculated above promptly upon receipt thereof or shall assign the rights of Rosecliff Realty Funding, Inc. to receive the deposit under the Waco Agreement to GPI. (b) LA MEPS Premises. If the LA MEPS Premises have not been acquired by Rosecliff Realty Funding, Inc. (a GPI Subsidiary) from Stamford Holdings No.2, Inc. pursuant to the terms of an Agreement of Purchase and Sale of Real Property and Escrow Instructions dated October 4,1996 (the "LA MEPS Agreement") prior to the Closing Date, the Aggregate Closing Consideration shall be reduced by $10,060,162. At such time as the LA MEPS Premises are acquired in accordance with the terms of the LA MEPS Agreement, HRPT shall issue GPI a number of HRPT Common Shares with an aggregate value (with each such HRPT Common Share valued at the Merger Price) equal to $10,060,162, less the costs of acquisition (net of any deposit) including closing costs. If the LA MEPS Premises are not acquired by the Second Closing Date, or at such earlier time as the LA MEPS Agreement is terminated, HRPT shall pay GPI an amount equal to the deposit under the LA MEPS Agreement in HRPT Common Shares as calculated above promptly upon receipt thereof or shall assign the rights of Rosecliff Realty Funding, Inc. to receive the deposit under the LA MEPS Agreement to GPI. (c) Phoenix Premises. If the Phoenix Premises have not been acquired by Rosecliff Realty Funding, Inc. (a GPI Subsidiary) from Chen & Fei Corp. pursuant to the terms of an Agreement of Purchase and Sale of Real Property and Escrow Instructions dated July 25, 1996 as amended by the First and Second Amendments thereto, each dated as of October 15, 1996 (the "Phoenix Agreement") prior to the Closing Date, the Aggregate Closing Consideration shall be reduced by $12,159,106. At such time as the Phoenix Premises are acquired in accordance with the terms of the Phoenix Agreement, HRPT shall issue GPI a number of HRPT Common Shares with an aggregate value (with each such HRPT Common Share valued at the Merger Price) equal to $12,159,106, plus the amount of any increase in the purchase price for the Phoenix Premises pursuant to any amendment to the Phoenix Agreement to which HRPT shall have consented in writing less the costs of acquisition (net of any deposit) including closing costs. If the Phoenix Premises are not acquired by the Second Closing Date, or at such earlier time as the Phoenix Agreement is terminated, HRPT shall pay GPI an amount equal to the deposit under the LA MEPS Agreement in HRPT Common Shares as calculated above, promptly upon receipt thereof or shall assign the rights of Rosecliff Realty Funding, Inc. to receive the deposit under the Phoenix Agreement to GPI or its designee. -48- (d) Liquidation. If any payments due GPI under Sections 8.4 (a), (b) or (c) become payable after GPI has liquidated, the payments shall be made to the Second Closing Recipient. (e) Fractional Shares. If the Second Closing Recipient would receive a fraction of a HRPT Common Share pursuant to Section 8.4(a), (b) or (c), a check representing an amount determined by multiplying such fractional share by the Merger Price shall be delivered to the Second Closing Recipient. (f) Control. Notwithstanding the Closing, if HRPT will permit GPI to control negotiations with the sellers and others in connection with any of the Contract Properties which were not purchased prior to the Closing Date until July 31, 1997, provided any modification, amendment or termination of agreements relating thereto will be subject to the reasonable approval of HRPT. After July 31, 1997, HRPT will control negotiations with the sellers and others, provided that any modification or amendment of any agreements relating thereto will be subject to the reasonable approval of GPI. In the case of HRPT's refusal to give approval, if the proposed modification, amendment or termination would have an adverse effect on HRPT's expected yield with respect to the particular Contract Property HRPT's refusal shall be deemed reasonable. In the case of GPI's refusal to give approval, if the proposed modification or amendment would have an adverse effect on GPI's expected profit with respect to the particular Contract Property GPI's refusal shall be deemed reasonable. HRPT agrees to comply in all material respects with the terms of the purchase and sale agreements relating to the Contract Properties. 8.5 College Park. If any payment is due or claimed to be due pursuant to Section 2.B or 2.C of the Purchase Agreement (as defined in the Representation Letter), the amount thereof together with any diminution in value of the College Park Premises resulting from the extension of the term shall be "Losses" (as defined in the Indemnification Agreement) for which the Indemnified Parties (as defined in the Indemnification Agreement) shall be entitled to indemnification under the Indemnification Agreement, without regard to any minimum loss threshold and regardless of whether the same results from any breach of representation or warranty. HRPT agrees that GPI shall have the right to participate in any negotiations with the Sellers named in the Purchase Agreement with respect to the matters contemplated by Section 2.B and 2.C of the Purchase Agreement and HRP shall give GPI notice of any information obtained by HRP with respect thereto. 8.6 Tax Returns. GPI will, and will cause each GPI Subsidiary and the Subsidiaries of GPI listed on Disclosure Schedule 4.4(B) to, prepare and file all Tax Returns and other tax reports, filings and amendments thereto required to be filed by any of them (provided with respect to the GPI Subsidiaries the obligation will be only with respect to periods ending on or before the Effective Time), and provide HRPT, at its request, with copies for HRPT's review, of all such returns, reports, filings and amendments at GPI's offices prior to filing. -49- 8.7 Employee Matters. As of the Effective Time, GPI will have assumed all past, present and future liabilities and responsibilities as plan sponsor, within the meaning of Section 3(16)(B) of ERISA, of any Company Employee Benefit Plan, and any past, present and future liabilities and responsibilities as employer under any Company Benefit Arrangement. On or before the Closing Date, HRPT or its designee will enter into the Service Contract with GPI in the form attached as Schedule 7.2(j). 8.8 Liquidation and Dissolution. Prior to the Effective Time, the directors and the GPI Stockholders shall adopt a plan of liquidation and dissolution. GPI shall distribute the HRPT Merger Shares pursuant to such plan of liquidation. 8.9 Stock Purchase. If at any time prior to the Closing Date HRPT shall determine that it requires the consent of its lenders to permit the transactions contemplated by this Agreement to be consummated as a merger between Merger Sub and GPH and if HRPT shall not have obtained such consent, HRPT may fulfill its obligations under this Agreement by causing an HRPT Subsidiary to purchase the GPH Common Shares for the Aggregate Closing Consideration and the Second Closing Consideration on the terms and conditions set forth in this Agreement and the parties agree to make such conforming changes as may be reasonably required as a result thereof. 8.10 Service Contract Adjustment. If (a) the amounts actually paid to GPI or its successor as reimbursement for office expenses (including rent) and salaries (including federal, state and local employment taxes payable by an employer (including, without limitation, FICA and FUTA), but not including severance costs) from the Closing Date through July 31, 1997 pursuant to the Service Contract are less than (b) the lesser of (i) the aggregate amount of such office expenses (including rent), salaries (including severance costs) and other operating expenses incurred by GPI or its successor for such period or (ii) $947,935, then the excess, if any, of the amount described in clause (b) above over the amount described in clause (a) above shall be added to the Second Closing Consideration. SECTION 9 SECOND CLOSING AND DELIVERY OF CONSIDERATION 9.1 Second Closing. The Second Closing shall take place (a) at the office of Sullivan & Worcester, LLP, at Boston, Massachusetts, at 9:00 a.m. (local time) on the Second Closing Date, or (b) at such other time, date or place as the Parties may agree. -50- 9.2 Issuance of Second Closing Shares. At the Second Closing, HRPT shall deliver to the Second Closing Recipient a certificate (properly issued, executed and counter-signed, as appropriate) representing that whole number of shares of HRPT Common Shares as is determined by dividing the Second Closing Consideration by the Second Closing Price and as to any fractional share, a check representing an amount determined by multiplying such fraction of a share of HRPT Common Shares otherwise issuable by the Second Closing Price. If, on or before the Second Closing Date, an "Indemnified Party" (as defined in the Indemnification Agreement) shall have made a claim for payment which has not been satisfied or otherwise resolved prior to the Second Closing Date, a number of HRPT Common Shares with an aggregate value (with each such HRPT Common Share valued at the Merger Price), equal to the sum of all pending claims, shall be deposited with a mutually acceptable escrow agent to be held pursuant to the terms of an escrow agreement substantially in the form of Schedule 9.2. SECTION 10 TERMINATION AND EXTENSION 10.1 Termination. This Agreement may be terminated at any time (subject to the provisions of this Section 10.1) prior to the Effective Time: (a) by mutual agreement of the Board of Directors of GPI and the trustees of HRPT; (b) by either HRPT or GPI, in writing, without liability, if for any reason the Closing has not occurred by March 31, 1997, except that no party shall have the right to terminate under this Section 10.1(b) if the conditions precedent to such Party's obligation to close have been or at Closing would be satisfied or have been waived by such Party and such Party has nonetheless failed or refused to close; (c) by either HRPT or GPI in writing, without liability, if there shall be any order, writ, injunction or decree of any court or governmental or regulatory agency binding on HRPT and/or GPI, which prohibits or restrains HRPT and/or GPI from consummating the transactions contemplated by this Agreement, provided that HRPT and GPI shall have used their best efforts to have any such order, writ, injunction or decree lifted and the same shall not have been lifted within 90 days after entry, by any such court or governmental or regulatory agency; (d) by GPI in writing, without liability: (i) if the conditions set forth in Sections 7.1 and 7.2 shall not have been complied with or performed and such noncompliance or nonperformance shall not have been cured or eliminated (or by its nature cannot be cured or eliminated) by HRPT or otherwise by March 31, 1997; or -51- (ii) if HRPT shall (i) fail to perform in any material respect its agreements contained in this Agreement required to be performed by it on or prior to the Closing Date, or (ii) breach any of its representations or warranties contained in this Agreement, which failure or breach is not cured within ten days after GPI has notified HRPT of its intent to terminate this Agreement pursuant to this Section 10.1(d)(ii); (e) by HRPT, in writing, without liability: (i) if the conditions set forth in Sections 7.1 and 7.3 shall not have been complied with or performed and such noncompliance or nonperformance shall not have been cured or eliminated (or by its nature cannot be cured or eliminated) by GPI or otherwise by March 31, 1997; or (ii) if GPI shall (i) fail to perform in any material respect its agreements contained in this Agreement required to be performed on or prior to the Closing Date, or (ii) breach any of its representations or warranties contained in this Agreement, which failure or breach is not cured within ten days after HRPT has notified GPI of its intent to terminate this Agreement pursuant to this Section 10.1(e)(ii); provided if GPI shall breach a representation or warranty which would have a Material Adverse Effect as defined in Section 1.59(ii), HRPT shall not terminate this Agreement and shall consummate the transactions on the Closing Date without adjustment to the Aggregate Closing Consideration on account of such breach and shall have recourse under the Indemnification Agreement, it being agreed that HRPT's failure to exercise its right to terminate this Agreement shall not be deemed a waiver of such breach. 10.2 Extension. (a) Notwithstanding anything contained in Section 10.1 to the contrary, if GPI shall be unable to satisfy a closing condition prior to March 31, 1997, GPI shall have the right to delay the Closing Date and extend the date for termination of the rights and obligations of the parties under Section 10.1 until the date which is 10 business days following notice from GPI to HRPT that such closing condition(s) are satisfied but not later than May 31, 1997. (b) If the Closing Date is delayed pursuant to Section 10.2(a), the Aggregate Closing Consideration shall be determined based upon a Pro Forma Balance Sheet as of the Closing Date which shall be prepared not later than 5 business days prior to the Closing Date and confirmed as provided in the definition of Aggregate Closing Consideration. -52- SECTION 11 MISCELLANEOUS PROVISIONS 11.1 Notices. All notices, communications and deliveries required or permitted by this Agreement shall be made in writing signed by the Party making the same, shall specify the Section of this Agreement pursuant to which it is given or being made, and shall be deemed given or made (i) on the date delivered if delivered by telecopy or in person, (ii) on the third business day after it is mailed if mailed by registered or certified mail (return receipt requested) (with postage and other fees prepaid), or (iii) on the day after it is delivered, prepaid, to an overnight express delivery service that confirms to the sender delivery on such day, as follows: To HRPT or Merger Sub: Health and Retirement Properties Trust 400 Centre Street Newton, Massachusetts 02158 Attn: David J. Hegarty, President Telecopy No.: 617. 332.2261 with a copy to: Sullivan & Worcester LLP One Post Office Square Boston, Massachusetts 02109 Attn: Alexander A. Notopoulos, Jr., Esq. Telecopy No.: 617. 338.2880 To GPI or GPH: Government Property Investors, Inc. 1775 Pennsylvania Avenue, N.W., Suite 1000 Washington, D.C. 20006 Attn: Mark Levin Telecopy No.: 202.296.8335 with a copy to: Rosecliff, Inc. 712 Fifth Avenue, 34th Floor New York, NY 10019 Attn: Peter T. Joseph Telecopy No. 212.554.5959 -53- and a copy to: Willkie Farr & Gallagher One Citicorp Center New York, New York 10022 Attn: Nora Ann Wallace, Esq. Telecopy No.: 212-821-8111 The 1818 Fund II, L.P. 63 Wall Street New York, NY 10005 Attn: Walter W. Grist Telecopy No. 212-493-8429 Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, NY 10019-6064 Attn: Peter J. Rothenberg, Esq. Telecopy No. 212-373-2004 or to such other representative or at such other address of a Party as such Party may furnish to the other Party in writing. 11.2 Schedules. The Schedules and all documents expressly referred to in this Agreement, are incorporated into this Agreement and are made a part of this Agreement as if set out in full. 11.3 Computation of Time. Whenever the last day for the exercise of any privilege or the discharge of any duty under this Agreement shall fall upon a Saturday, Sunday or any date on which banks in Boston, Massachusetts are closed, the Party having such privilege or duty may exercise such privilege or discharge such duty on the next succeeding day which is a regular business day. 11.4 Assignment: Successors in Interest. No assignment or transfer by HRPT, Merger Sub GPI or GPH, of its rights and obligations under this Agreement prior to the Closing shall be made except with the prior written consent of the other Party. This Agreement shall be binding upon and shall inure to the benefit of the Parties and their permitted successors and assigns, and any reference to a Party shall also be a reference to a permitted successor or assign. -54- 11.5 No Third-Party Beneficiaries. With the exception of the Parties, there shall exist no right of any person, including, without limitation, the stockholders and creditors of GPI, to claim a beneficial interest in this Agreement or any rights occurring by virtue of this Agreement. 11.6 Investigations; Non-Survival of Representations and Warranties. The respective representations and warranties of GPI and HRPT contained in this Agreement or in any Schedule, certificate, or other document delivered by any Party prior to Closing shall not be deemed waived or otherwise affected by any investigation made by a Party. Except for obligations of GPI under the Indemnification Agreement and of HRPT pursuant to the Registration Rights Agreement, the respective representations and warranties, covenants and agreements (except for those covenants and agreements contained in Sections 6.4, 6.5, 6.11, 6.12, 6.16, 8.2, 8.3, 8.4, 8.5, 8.6, 8.7, 8.10 and 9) of HRPT and GPI contained in this Agreement shall expire with and be terminated by the Merger. 11.7 Number; Gender. Whenever the context so requires, the singular number shall include the plural and the plural shall include the singular, and the gender of any pronoun shall include the other genders. 11.8 Captions. The titles, captions and table of contents contained in this Agreement are inserted in this Agreement only as a matter of convenience and for reference and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision of this Agreement. Unless otherwise specified to the contrary, all references to Sections are references to Sections of this Agreement and all references to Exhibits and Schedules are references to Exhibits and Schedules to this Agreement. 11.9 Amendments. To the extent permitted by law, this Agreement may be amended by a subsequent writing signed by all of the Parties upon the approval of the Boards of Directors of each of the Parties. 11.10 Controlling Law: Integration: Waiver. The Merger shall be governed by Maryland Law and otherwise, this Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts. This Agreement supersedes all negotiations, agreements and understandings among the Parties with respect to the subject matter of this Agreement (including, without limitation, the Term Sheet dated January 7, 1997, between GPI and HRPT and the Confidentiality Agreement dated May 17, 1996, between GPI and HRPT) and constitutes the entire agreement among the Parties to this Agreement. -55- The failure of any Party at any time or times to require performance of any provisions of this Agreement shall in no manner affect the right to enforce the same. No waiver by any Party of any conditions, or of the breach of any term, provision, warranty, representation, agreement or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed or construed as a further or continuing waiver of any such condition or breach of any other term, provision, warranty, representation, agreement or covenant contained in this Agreement. 11.11 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement, and any such prohibition or unenforceability in any jurisdiction will not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by law, the Parties waive any provision of law which renders any such provision prohibited or unenforceable in any respect. 11.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement or the terms of this Agreement to produce or account for more than one of such counterparts. 11.13 HRPT Limitation of Liability. The Declaration of Trust of HRPT, a copy of which has been duly filed with the Department of Assessments and Taxation of the State of Maryland, provides that the name "Health and Retirement Properties Trust" refers to the trustees under such Declaration of Trust collectively as trustees, but not individually or personally, and that no trustee, officer, shareholder, employee or agent of HRPT shall be held to any personal liability, jointly or severally, for any obligation of, or claim against, HRPT. All persons dealing with HRPT in any way shall look only to the assets of HRPT, respectively, for the payment of any sum or the performance of any obligation. 11.14 Diligence. HRPT acknowledges that it has received surveys (other than with respect to the Premises located in Richland, Washington) and title insurance commitments and/or policies with respect to all of the Premises. -56- EXECUTED under seal as of the date first above written. HEALTH AND RETIREMENT PROPERTIES TRUST By: /s/ David J. Hegarty David J. Hegarty GOVERNMENT PROPERTY INVESTORS, INC. By: /s/ Mark M. Levin Mark M. Levin Chief Executive Officer -57- TABLE OF CONTENTS SECTION 1 DEFINITIONS......................................................1 SECTION 2 TRANSACTIONS AND TERMS OF MERGER.................................9 2.1 Merger..................................................9 2.2 Declaration of Trust of the Survivor....................9 2.3 Bylaws of the Surviving Corporation....................10 2.4 Directors and Officers of the Survivor.................10 2.5 Manner of Converting Shares............................10 2.6 Investment and Registration Rights Agreement...........11 SECTION 3 CLOSING, EFFECTIVE TIME AND DELIVERY OF CONSIDERATION...........11 3.1 The Closing............................................11 3.2 Effective Time.........................................11 3.3 Issuance of HRPT Merger Shares.........................11 SECTION 4 REPRESENTATIONS AND WARRANTIES OF GPI...........................12 4.1 Organization, etc......................................12 4.2 Authorization; Execution; Binding Effect...............12 4.3 Capitalization.........................................13 4.4 Share Holdings.........................................13 4.5 No Conflicting Agreements or Charter Provisions........13 4.6 Litigation.............................................14 4.7 Names..................................................14 4.8 Financial Statements...................................14 4.9 No Undisclosed Liabilities.............................14 4.10 Default................................................15 4.11 Compliance with Law....................................15 4.12 No Adverse Changes; Acquisitions, Disposition and Commitments............................................16 4.13 Patents, etc...........................................17 4.14 Certain Transactions...................................17 4.15 Pension and Benefit Plans..............................18 4.16 Tax Matters............................................19 4.17 Contracts..............................................21 4.18 Insurance..............................................22 4.19 Bank Accounts..........................................22 4.20 Accounts...............................................22 4.21 Labor Matters..........................................23 4.22 Title to Properties....................................23 4.23 Proprietary Information................................25 4.24 Environmental Matters..................................25 4.25 Utilities, Etc.........................................27 4.26 Substantial Completion.................................27 4.27 GPH....................................................27 4.28 Fees...................................................28 -i- SECTION 5 REPRESENTATIONS AND WARRANTIES OF HRPT.........................28 5.1 Organization, etc.....................................28 5.2 Authorization: Execution: Binding Effect..............28 5.3 Capitalization........................................28 5.4 No Conflicting Agreements or Trust/Charter Provisions.29 5.5 Litigation............................................29 5.6 No Undisclosed Liabilities............................29 5.7 Default...............................................30 5.8 Compliance with Law...................................30 5.9 Securities Filings....................................30 5.10 Merger Shares.........................................31 5.11 Tax Matters...........................................31 SECTION 6 CERTAIN COVENANTS AND AGREEMENTS...............................32 6.1 Conduct of Business by GPI............................32 6.2 Inspection of and Access to Information...............34 6.3 No Solicitation.......................................34 6.4 Best Efforts: Further Assurances: Cooperation.........34 6.5 Expenses..............................................35 6.6 Public Announcements..................................36 6.7 Interim Financial Statements..........................36 6.8 Supplements to Schedules..............................36 6.9 Contribution to GPH...................................36 6.10 Reorganization........................................36 6.11 Change of Name........................................37 6.12 REIT Status...........................................37 6.13 Substitute Guarantor..................................37 6.14 Names.................................................37 6.15 GPI Shareholders......................................37 SECTION 7 CONDITIONS.....................................................38 7.1 Conditions to Each Party's Obligations................38 7.2 Conditions to Obligations of GPI......................38 7.3 Conditions to Obligations of HRPT.....................40 SECTION 8 OTHER AGREEMENTS...............................................43 8.1 Deposit...............................................43 8.2 Houston Premises......................................43 8.3 Development Properties................................44 8.4 Contract Properties...................................47 8.6 Tax Returns...........................................49 8.7 Employee Matters......................................50 8.8 Liquidation and Dissolution...........................50 8.9 Stock Purchase........................................50 8.10 Service Contract Adjustment...........................50 SECTION 9 SECOND CLOSING AND DELIVERY OF CONSIDERATION...................50 -ii- 9.1 Second Closing........................................50 9.2 Issuance of Second Closing Shares.....................50 SECTION 10 TERMINATION AND EXTENSION......................................51 10.1 Termination...........................................51 10.2 Extension.............................................52 SECTION 11 MISCELLANEOUS PROVISIONS.......................................52 11.1 Notices...............................................53 11.2 Schedules.............................................54 11.3 Computation of Time...................................54 11.4 Assignment: Successors in Interest....................54 11.5 No Third-Party Beneficiaries..........................54 11.6 Investigations; Non-Survival of Representations and Warranties.....................................55 11.7 Number; Gender........................................55 11.8 Captions..............................................55 11.9 Amendments............................................55 11.10 Controlling Law: Integration: Waiver..................55 11.11 Severability..........................................56 11.12 Counterparts..........................................56 11.13 HRPT Limitation of Liability..........................56 11.14 Diligence.............................................56 SIGNATURE PAGE..............................................................57 -iii- ESCROW AGREEMENT THIS ESCROW AGREEMENT (this "Escrow Agreement") is made as of February __, 1997 by and among Health and Retirement Properties Trust ("HRPT"), Government Property Investors, Inc. ("GPI"), and ____________________ (the "Escrow Agent"). R E C I T A L: HRPT and GPI have entered into a Merger Agreement (the "Merger Agreement"), an executed copy of which has been provided to the Escrow Agent, pursuant to which Government Property Holdings Trust ("GPH") will be merged with and into HUB Acquisition Trust ("Merger Sub") on the terms and conditions set forth in the Merger Agreement. Pursuant to the Merger Agreement, HRPT has agreed to deposit $5,000,000 into escrow upon execution of this Escrow Agreement subject to the terms and conditions set forth in the Merger Agreement and in this Escrow Agreement. NOW, THEREFORE, the parties agree as follows: Section 1. Defined Terms. Terms not otherwise defined herein shall have the respective meanings prescribed therefor in the Merger Agreement. The following terms are defined in this Escrow Agreement: "Bank" is _______________. "Escrow Fund" is defined in Section 3 of this Escrow Agreement. Section 2. Appointment of Escrow Agent. HRPT and GPI hereby appoint the Escrow Agent as the escrow agent to hold the Escrow Fund in accordance with the terms and conditions of this Escrow Agreement. Section 3. Delivery and Receipt of Funds. Simultaneously with the execution of this Escrow Agreement, HRPT shall deliver to the Escrow Agent the sum of $5,000,000 in immediately available funds by wire transfer. The Escrow Agent shall open an escrow account in the name of HRPT and shall deposit into such account such immediately available funds. The amount so deposited, including accrued interest thereon, is referred to as the "Escrow Fund." Receipt of the Escrow Fund from HRPT is hereby acknowledged by the Escrow Agent. Section 4. Investment of Escrow Fund. Until distributed and released in accordance with the terms and conditions of this Escrow Agreement, the Escrow Agent shall invest the Escrow Fund in a so-called "money market" deposit fund with the Bank or in such other liquid, investment grade securities as may be specified in writing by HRPT. The Escrow Fund may be invested in the name of Escrow Agent and may be commingled with other funds. Section 5. Release of Escrow Fund. The Escrow Agent shall distribute and release the Escrow Fund ten days after receipt of notice (a) from HRPT that either there has been compliance with the conditions set forth in Section 7.2 of the Merger Agreement or that the Merger Agreement has been terminated pursuant to Section 10.1(a), (b), (c) or (e) thereof and that any applicable grace period has expired or (b) from GPI that GPI has terminated the Merger Agreement pursuant to Section 10.1(d)(ii) thereof and that any applicable grace period has expired. Such notice shall contain a certification by the party delivering the notice certifying that such distribution and release is being requested pursuant to clause (a) or clause (b) of the preceding sentence, as applicable, and -2- that a copy of such notice has been concurrently sent to HRPT (in the case of a notice by GPI) or to GPI (in the case of a notice by HRPT) and shall specify the name and address of the party to whom such Escrow Fund shall be delivered and wire transfer information. Within ten days after receipt of such notice, provided that the Escrow Agent shall not have received a contrary instruction from the other party, the Escrow Agent shall deliver the Escrow Fund to the party so specified. If the Escrow Agent has received such a contrary instruction, it shall release the Escrow Fund only pursuant to a joint direction in writing of HRPT and GPI or pursuant to the decision of an arbitrator pursuant to the arbitration proceedings set forth in Section 13 of this Agreement. Upon distribution and release of the Escrow Fund, this Escrow Agreement shall be deemed terminated and the Escrow Agent shall be released and discharged from all further obligations hereunder. Section 6. Duties of Escrow Agent. The acceptance by the Escrow Agent of its duties as such under this Escrow Agreement is subject to the following terms and conditions, which HRPT and GPI hereby agree shall govern and control with respect to the rights, duties, liabilities and immunities of the Escrow Agent: (a) The Escrow Agent acts hereunder as a depositary only, and is not responsible or liable in any manner whatever for any investment made pursuant to the provisions of Section 4 or any failure, refusal or inability of the Bank to release or make payment pursuant to the Escrow Agent's direction of said Escrow Fund, including by reason of insolvency or bankruptcy of the Bank. (b) The Escrow Agent shall not be liable for acting upon any written notice, request, waiver, consent, receipt or other instrument or document which the Escrow Agent in good faith believes to be genuine and what it purports to be. (c) It is understood and agreed that the duties of the Escrow Agent hereunder are purely ministerial in nature and that it shall not be liable for any error of judgment, fact or law, or any act done or omitted to be done, except for its own willful misconduct, breach of fiduciary duty, bad faith or gross negligence or that of its officers, directors, employees and agents. The Escrow Agent's determination as to whether an event or condition has occurred, or been met or satisfied, or as to whether a provision of this Escrow Agreement has been complied with, or as to whether sufficient evidence of the event or condition or compliance with the provision has been furnished to it, shall not subject the Escrow Agent to any claim, liability or obligation whatsoever, even if it shall be found that such determination was improper and incorrect, provided, only, that the Escrow Agent and its officers, directors, employees and agents shall not have been guilty of willful misconduct, breach of fiduciary duty, bad faith or gross negligence in making such determination. (d) The Escrow Agent may consult with, and obtain advice from, legal counsel including its own officers, employees and partners in the event of any dispute or question as to the construction of any of the provisions hereof or its duties hereunder, and it shall incur no liability and shall be fully protected in acting in good faith in accordance with the opinion and instructions of such counsel. (e) In the event of any disagreement or lack of agreement between HRPT and GPI of which the Escrow Agent has knowledge, resulting or which might result in adverse claims or demands with respect to the Escrow Fund, the Escrow Agent shall be entitled, in its sole discretion, to refuse to comply with any claims or demands on it with respect thereto until such matter shall be resolved, and in so refusing, the Escrow Agent may elect to make no delivery or other disposition of the Escrow Fund, and in so doing the Escrow Agent shall not be or become liable in any way to either HRPT or GPI for its failure or refusal to comply with such claims or demands, and it shall be entitled to continue so to refrain from acting, and so to refuse to act, until all such claims or demands (i) shall have been finally determined by a court of competent jurisdiction, or (ii) shall have -3- been resolved by the agreement of HRPT and GPI and the Escrow Agent shall have been notified thereof in writing. (f) The Escrow Agent may resign at any time upon giving ten (10) days' notice to HRPT and GPI and may appoint a successor escrow agent hereunder so long as such successor shall accept and agree to be bound by the terms of this Escrow Agreement and shall be acceptable to HRPT and GPI. It is understood and agreed that the Escrow Agent's resignation shall not be effective until a successor escrow agent agrees to be bound by the terms of this Escrow Agreement. Section 7. No Representations by Escrow Agent. The Escrow Agent makes no representation as to the validity, value, genuineness, negotiability or collectibility of any security or other document or instrument held by or delivered to or by it. Section 8. Obligations of Escrow Agent. The Escrow Agent shall be under no obligation to institute or defend any actions, suits or legal proceedings in connection herewith or take any other action likely to involve it in expense unless first indemnified to its reasonable satisfaction. Section 9. Expenses. The reasonable out-of-pocket expenses (including, without limitation, reasonable legal fees and disbursements) incurred by the Escrow Agent in the performance of its duties hereunder shall be reimbursed one-half by GPI and one-half by HRPT. Such reimbursement for out-of-pocket expenses shall be made by cash payment to the Escrow Agent from time to time upon its written request. The Escrow Agent shall have no right or lien with respect to the Escrow Fund for payment of such expenses. Except as otherwise herein or in the Merger Agreement provided, each party shall pay its own expenses incident to the performance or enforcement of this Escrow Agreement, including all fees and expenses of its counsel for all activities of such counsel undertaken pursuant to this Escrow Agreement. [Section 10. Escrow Agent Status. _____ hereby acknowledges that the Escrow Agent is counsel to _____ and agrees that it will not seek to disqualify the Escrow Agent from acting and continuing to act as counsel to _____ in the event of a dispute hereunder or in the course of the defense or prosecution of any claim relating to the transactions contemplated hereby or by the Merger Agreement; provided, however, that in the event of a dispute, the Escrow Agent shall (a) immediately seek to appoint a successor escrow agent, which shall be acceptable to HRPT and GPI, having no business relationships with HRPT or GPI and (b) immediately resign upon acceptance of such appointment and agreement to be bound by the terms of this Escrow Agreement by such successor escrow agent.] Section 11. Assignment; Successors and Assigns. This Escrow Agreement shall not be assignable by either party without the prior written consent of the other. Nothing in this Escrow Agreement expressed or implied is intended to or shall be construed to confer upon or create in any Person (other than the parties hereto and their permitted successors and assigns) any rights or remedies under or by reason of this Agreement, including without limitation any rights to enforce this Escrow Agreement. Section 12. Specific Performance; Other Rights and Remedies. Each party recognizes and agrees that the other party's remedy at law for any breach of the provisions of this Escrow Agreement would be inadequate and agrees that for breach of such provisions, such party shall, in addition to such other remedies as may be available to it at law or in equity or as provided in this Escrow Agreement, be entitled to injunctive relief and to enforce its rights by an action for specific performance to the extent permitted by applicable law. Each party hereby waives any requirement for security or the posting of any bond or other surety in connection with any temporary or permanent award of injunctive, mandatory or other equitable relief. Nothing herein contained shall -4- be construed as prohibiting either party from pursuing any other remedies available to it for such breach or threatened breach, including without limitation the recovery of damages. Section 13. Arbitration. The Parties agree that any and all disputes or disagreements arising out of or relating to this Escrow Agreement, other than actions or claims for injunctive or other equitable relief or claims raised in actions or proceedings brought by third parties, shall be resolved through negotiations or, if the dispute is not so resolved, through mediation and if necessary binding arbitration conducted by ____________________, whose decision shall be binding on all parties and not appealable. Any such mediation and/or arbitration shall be conducted in _______________ pursuant to the procedures set forth in Exhibit ___ attached hereto and made a part hereof and the arbitration rules and procedures of ____________________. Section 14. Entire Agreement. This Escrow Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements, covenants, promises, conditions, understandings, inducements, representations and negotiations, expressed or implied, oral or written, between them as to such subject matter. Section 15. Waivers; Amendments. Anything in this Escrow Agreement to the contrary notwithstanding, amendments to and modifications of this Escrow Agreement may be made, required consents and approvals may be granted, compliance with any term, covenant, agreement, condition or other provision set forth herein may be omitted or waived, either generally or in a particular instance and either retroactively or prospectively with, but only with, the written consent of the party entitled to the benefit thereof. Section 16. Notices. All notices and other communications which by any provision of this Escrow Agreement are required or permitted to be given shall be given in writing and shall be (a) sent by nationally recognized overnight courier service, (b) sent by telecopy confirmed by sending (by nationally recognized overnight courier service) written confirmation at substantially the same time, or (c) personally delivered to the receiving party. All such notices and communications shall be mailed, sent or delivered as follows: If to HRPT, at: Health and Retirement Properties Trust 400 Centre Street Newton, Massachusetts 02158 Attention: David J. Hegarty, President Facsimile: 617-332-2261 with a copy to: Sullivan & Worcester LLP One Post Office Square Boston, Massachusetts 02109 Attention: Alexander A. Notopoulos, Jr. Facsimile: 617-338-2880 If to GPI, at: Government Property Investors, Inc. 1775 Pennsylvania Avenue, N.W., Suite 1000 Washington, D.C. 20006 Attention: Mark Levin Facsimile: 202-296-8335 -5- with a copy to: Willkie Farr & Gallagher One Citicorp Center New York, New York 10022 Attention: Nora Ann Wallace Facsimile: 212-821-8111 or to such other person(s) or facsimile number(s) or address(es) as the party to receive any such communication or notice may have designated by written notice to the other party. Section 17. Severability. If any provision of this Escrow Agreement shall be held or deemed to be, or shall in fact be, invalid, inoperative, illegal or unenforceable as applied to any particular case in any jurisdiction or jurisdictions, or in all jurisdictions or in all cases, because of the conflicting of any provision with any constitution or statute or rule of public policy or for any other reason, such circumstance shall not have the effect of rendering the provision or provisions in ques tion invalid, inoperative, illegal or unenforceable in any other jurisdiction or in any other case or circumstance or of rendering any other provision or provisions herein contained invalid, inoperative, illegal or unenforceable to the extent that such other provisions are not themselves actually in conflict with such constitution, statute or rule of public policy, but this Escrow Agreement shall be reformed and construed in any such jurisdiction or case as if such invalid, inoperative, illegal or unenforceable provision had never been contained herein and such provision reformed so that it would be valid, operative and enforceable to the maximum extent permitted in such jurisdiction or in such case. Section 18. Counterparts. This Escrow Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, binding upon all the parties hereto. In pleading or proving any provision of this Escrow Agreement, it shall not be necessary to produce more than one of such counterparts. Section 19. Section Headings. The headings contained in this Escrow Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Escrow Agreement. Section 20. Governing Law. The validity, interpretation, construction and performance of this Escrow Agreement shall be governed by, and construed in accordance with, the applicable laws of the Commonwealth of Massachusetts applicable to contracts made and performed therein and, in any event, without giving effect to any choice or conflict of laws provision or rule that would cause the application of domestic substantive laws of any other jurisdiction. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as a sealed instrument as of the date first above written. HEALTH AND RETIREMENT PROPERTIES TRUST By:_______________________ GOVERNMENT PROPERTY INVESTORS, INC. By:________________________ -6- -----------------------, as Escrow Agent By:________________________ SCHEDULE 2.6 INVESTMENT AND REGISTRATION RIGHTS AGREEMENT THIS INVESTMENT AND REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered ____________, 1997, among Health and Retirement Properties Trust, a Maryland real estate investment trust ("HRPT"), and Government Property Investors, Inc., a Delaware corporation (including its successors and assignees, the "Holder"). RECITALS A. Concurrently with the execution of this Agreement, HRPT has issued to the Holder _____ shares of the beneficial interest $.01 par value per share of HRPT ("Initial Shares") and from time to time will issue additional shares ("Additional Shares" and together with the Initial Shares and any other securities which are hereafter issued with respect thereto by way of exchange, reclassification, dividend or distribution, whether or not such securities have been sold to the public, the "Securities") pursuant to a Merger Agreement, dated February 17, 1997 (the "Merger Agreement"), among HRPT and the Holder. B. The Securities have been issued to the Holder without registration under the Securities Act of 1933, as amended (the "Securities Act"), and HRPT and the Holder desire to provide for compliance with the Securities Act and for the registration of the Securities upon the terms and conditions set forth below. NOW, THEREFORE, the parties agree as follows: 1. Certain Other Definitions. Capitalized terms used but not otherwise defined in this Agreement shall have the meanings given therefor in the Merger Agreement. The capitalized terms set forth below shall have the following meanings: 1.1 "Commission": the United States Securities and Exchange Commission and any successor federal agency having similar powers. 1.2 The terms "register", "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. 1.3 "Registrable Securities": Securities that have not been sold pursuant to a registration statement or under Rule 144 under the Securities Act. 1.4 "Registration Expenses": all expenses incurred by HRPT in complying with Section 5, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for HRPT, blue sky fees and expenses, and accountants' expenses including, without limitation, any special audits or comfort letters incident to or required by any such registration, transfer taxes, fees of transfer agents and registrars, costs of insurance, but excluding any fees and disbursements of underwriters, underwriting discounts and commissions and expenses of Holder and, in the case of an underwriter offering pursuant to Section 5.2(j) any filing fees. 2. Representations and Warranties of HRPT. The representations and warranties of HRPT contained in Section 5 of the Merger Agreement are incorporated by reference into this Agreement. The Holder is entitled to rely on such representations and warranties as if they were set forth in this Agreement. The Holder agrees that it shall not bring any action based on a breach of any such representation and warranty against HRPT, any Subsidiary, any affiliate or any officer, director, employee or agent of any of them with respect to any claim made after the first anniversary of the date of this Agreement. 3. Representations and Warranties of Holder. GPI hereby represents, acknowledges, covenants and agrees as follows: (i) the Securities are being acquired for its own account for investment and not with a view to any distribution or public offering within the meaning of the Securities Act or any state securities law; (ii) the Securities have not been registered under the Securities Act or any state securities law; (iii) it is an "accredited investor" within the meaning of Rule 501 promulgated by the Commission pursuant to the Securities Act; and (iv) it will not sell or otherwise transfer any of the Securities except upon the terms and conditions specified herein and it will cause any subsequent Holder of the Securities to agree to take and hold the Securities subject to the terms and conditions of this Agreement, provided that any Holder may sell the Securities in one or more private transactions not requiring registration under the Securities Act or any state securities law. 4. Restrictions on Transfer. 4.1 Legend. Each certificate representing the Securities issued to the Holder or to a subsequent Holder pursuant to Section 4.2 shall include a legend in substantially the following form, provided that such legend shall not be required if such transfer is being made in connection with a sale that is exempt from registration pursuant to Rule 144 under the Securities Act or if the opinion of counsel referred to in Section 4.3 is to the further effect that neither such legend nor the restrictions on transfer in this Section 4 are required in order to ensure compliance with the Securities Act: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES ACT AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM. SUCH SHARES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THE INVESTMENT AND REGISTRATION RIGHTS AGREEMENT DATED AS OF __________, 1997, BETWEEN THE ISSUER AND THE OTHER ENTITIES NAMED THEREIN, A COMPLETE AND CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER AND WILL BE FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE. 4.2 Notice of Transfer. Prior to any proposed assignment, transfer or sale of any Securities (other than pursuant to a Registration Statement or pursuant to Rule 144(k)), the Holder of such Securities shall give written notice to HRPT of Holder's intention to effect such assignment, transfer or sale, which notice shall set forth the date of such proposed assignment, transfer or sale. Holder shall also furnish to HRPT an agreement by the transferee that it is taking and holding the same subject to the terms and conditions specified in this Agreement and a written opinion of Holder's counsel, in form reasonably satisfactory to HRPT, to the effect that the proposed transfer may be effected without registration under the Securities Act. 4.3 Termination of Restrictions. The restrictions set forth in this Section 4 shall terminate and cease to be effective with respect to any of the Securities (i) upon the sale of any such Securities which has been registered under the Securities Act, (ii) upon receipt by HRPT of an opinion of counsel, in form reasonably satisfactory to HRPT, to the effect that compliance with such restrictions is not necessary in order to comply with the Securities Act with respect to the sale of the Securities or (iii) upon the expiration of the three-year period referred to in Rule 144(k) promulgated pursuant to the Securities Act (or such other period set forth in Rule 144(k) as it may be amended from time to time). Whenever such restrictions shall so terminate, the Holder shall be entitled to receive from HRPT, without 2 expense (other than transfer taxes, if any, if the Holder requests that certificates be issued in another name), certificates for such Securities not bearing the legend set forth in Section 4.1. 5. Registration under Securities Act etc. 5.1 Shelf-Registration. (a) General. HRPT shall prepare and file with the Commission on or prior to 30 days after the date hereof, a registration statement on an appropriate form under the Act relating to the offer and sale of the Initial Shares (and with respect to the Additional Shares, as soon after their issuance as is reasonably practicable, HRPT shall prepare and file appropriate amendments relating to such shares) by the Holder in accordance with the methods of distribution set forth in such registration statement and Rule 415 under the Act (hereafter, a "Shelf Registration Statement") and shall use its best efforts to cause the Shelf Registration Statement to be declared effective as soon as reasonably practicable thereafter. (b) Effective Period. HRPT agrees to use its best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus included in the Shelf Registration Statement to be usable by the Holders for a period of three years from the Closing Date or such shorter period that shall terminate when all the Securities covered by the Shelf Registration Statement have been sold; provided that HRPT shall be deemed not to have used its best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in holders of the Securities covered by the Shelf Registration Statement not being able to offer and sell such Securities during that period, unless such action is required by applicable law, and provided, further, that the foregoing shall not apply to actions taken by HRPT in good faith and for valid business reasons (not including avoidance of HRPT's obligations pursuant to this Agreement), including, without limitation, the acquisition or divestiture of a material portion of its assets, the offering of Securities pursuant to the registration rights granted to others or the offering of Securities by HRPT for its own account, so long as HRPT promptly complies with the requirements of Section 5.2(f), if applicable. Any such period during which HRPT fails to keep the Shelf Registration Statement effective and usable for offers and sales of Securities is hereafter referred to as a "Suspension Period". A Suspension Period shall commence on and include the date on which HRPT provides notice that the Shelf Registration Statement is no longer effective that the prospectus included in the Shelf Registration Statement is no longer usable for offers and sales of Securities or that HRPT is required to suspend the sale of Securities because of the occurrence of an underwritten offering in connection with the demand registrations or primary registrations referred to above and shall end on the date when each seller of Securities covered by the Shelf Registration Statement either receives the copies of the supplemented or amended prospectus contemplated by Section 5.2(f) or is advised in writing by HRPT that use of the prospectus may be resumed; provided no one Suspension Period shall continue for more than 75 days. If one or more Suspension Periods occur, the time period referenced above shall be extended by a period which is not less than the aggregate number of days included in all Suspension Periods. (c) Block-out Period. Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities, if so requested by HRPT, not to effect any sale of Securities pursuant to the Shelf Registration Statement for any period (but not more than 75 days) reasonably deemed necessary by HRPT or its managing underwriter in connection with the offering of HRPT equity pursuant to an underwritten offering pursuant to demand registration rights granted to another entity pursuant to Section 11 or the offering of any debt or equity securities by HRPT for its own account (a "Block-out Period"). 3 (d) Anything in this Agreement to the contrary notwithstanding, in any period of 12 consecutive months, the aggregate time during which Holder would be prohibited from selling Securities pursuant to the Shelf Registration Statement during any Suspension Periods and Block- out Periods shall not exceed 150 days. 5.2 Registration Procedures. HRPT shall: (a) cause any registration statement filed pursuant to Section 5.1 and the related prospectus and any amendment or supplement, as of the effective date of such registration statement, amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission promulgated under the Securities Act and (ii) not to contain any 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; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities and other securities covered by such registration statement until the earlier of such time as all such Registrable Securities and securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement or for a period of three years from the Closing Date; and will furnish, upon request, to each such seller and each Holder a copy of any amendment or supplement to such registration statement or prospectus prior to filing it and shall not file any such amendment or supplement to which any such seller or Holder shall have reasonably objected on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Securities Act or of the rules or regulations thereunder; (c) furnish to each seller of such Registrable Securities and each Holder such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act, such documents, if any, incorporated by reference in such registration statement or prospectus, and such other documents, as such seller or Holder may reasonably request; (d) use its best efforts to register or qualify all Registrable Securities and other securities covered by such registration statement under such other securities or blue sky laws of the states of the United States as each seller or Holder shall reasonably request, to keep such registration or qualification in effect for so long as such registration statement remains in effect, and do any and all other acts and things which may be necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of its Registrable Securities covered by such registration statement, except that HRPT shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction in which it is not and would not, but for the requirements of this Section 5.2(d), be obligated to be so qualified, or to subject itself to taxation in any such jurisdiction, or to consent to general service of process in any such jurisdiction; (e) upon request, furnish to each seller of Registrable Securities and each Holder a signed counterpart, addressed to such seller and such Holder, of (i) an opinion of counsel for HRPT, dated the effective date of such registration statement, and (ii) a "comfort letter", signed 4 by the independent public accountants who have certified HRPT's financial statements included in such registration statement, dated the effective date of such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included in such registration statement) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities; (f) immediately notify each seller of Registrable Securities covered by such registration statement and each Holder, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, which untrue statement or omission requires amendment of the registration statement or supplementation of the prospectus, and at the request of any such seller or Holder, as soon as practicable prepare and furnish to such seller and each Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include 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 in the light of the circumstances then existing; provided, however, that each Holder of Registrable Securities registered pursuant to such registration statement agrees that he will not sell any Registrable Securities pursuant to such registration statement during the time that HRPT is preparing and filing with the Commission a supplement to or an amendment of such prospectus or registration statement; (g) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its securities holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first month of the first fiscal quarter after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section ll(a) of the Securities Act; (h) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such registration statement from and after a date not later than the effective date of such registration statement; (i) cause all Registrable Securities included in a registration statement to be listed on each securities exchange on which similar securities issued by HRPT are then listed and, if not so listed, but similar securities are then listed on the NASD automated quotation system, to be listed on the NASD automated quotation system and, if listed on the NASD automated quotation system, use its best efforts to secure designation of all such Registrable Securities as a NASDAQ national market system security within the meaning of Rule 11Aa2-1 of the SEC or failing that, at such time as HRPT becomes eligible for such authorization, to secure NASDAQ authorization for such Registrable Securities if available and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Securities with the NASD; and (j) enter into customary agreements (including underwriting agreements in customary form but subject to the allocation of Registration Expenses provided for in Section 5 1.4) and take all such other actions reasonably requested by any Holder of Registrable Securities in order to expedite or facilitate the disposition of such Registrable Securities. Each seller of Registrable Securities as to which any registration is being effected shall furnish to HRPT such information regarding such seller and the distribution of such securities as shall be required by law or by the Commission in connection therewith. 5.3 Indemnification. (a) Indemnification by HRPT. HRPT shall indemnify and hold harmless the seller of any Registrable Securities covered by any registration statement filed pursuant to Section 5.1, its directors, partners, trustees and officers, each other person who participates as an underwriter in the offering or sale of such securities and each other person, if any, who controls such seller or any such underwriter within the meaning of the Securities Act against any losses, claims, damages, liabilities or expenses, joint or several, to which such seller or Holder or any such director or officer or participating or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or related actions or proceedings) arise out of or are based upon (x) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained in such registration statement, or any amendment or supplement to such registration statement, or any document incorporated by reference in such registration statement, or (y) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and HRPT will reimburse such seller, Holder and each such director, trustee, officer, participating person and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding, provided that HRPT shall not be liable in any such case to the extent that any such loss, claim, damage, liability or expense (or action or proceeding in respect thereof) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to HRPT through an instrument duly executed by such seller or such Holder or any such director, trustee, officer, participating person or controlling person specifically stating that it is for use in the preparation of such registration statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such seller or such Holder or any such director, officer, participating person or controlling person and shall survive the transfer of such securities by such seller. HRPT shall agree to make provision for contribution relating to such indemnity as shall be reasonably requested by any seller of Registrable Securities or the underwriters. (b) Indemnification by the Sellers. As a condition to including any Registrable Securities in any registration statement filed pursuant to Section 5.1, each prospective seller of such securities hereby undertakes severally and not jointly, to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 5.3(a)) HRPT, each director of HRPT, each officer of HRPT who shall sign such registration statement and each other person, if any, who controls HRPT within the meaning of the Securities Act, with respect to any untrue statement in or omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus included in such registration statement, or any amendment or supplement to such registration statement, of a material fact if such statement or omission was made in reliance upon and in conformity with written information furnished to HRPT through an instrument duly executed by such seller specifically stating that it is for use in the preparation of 6 such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of HRPT or any such director, officer or controlling person and shall survive the transfer of such securities by such seller. (c) Notice of Claims. etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in Sections 5.3(a) and (b), such indemnified party will, if a claim is to be made against an indemnifying party, give written notice to the latter of the commencement of such action, provided that the failure of any indemnified party to give notice shall not relieve the indemnifying party of its obligations under Sections 5.3(a) or (b), except to the extent that the indemnifying party is actually and materially prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment (i) a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, or (ii) the indemnified party has available to it reasonable defenses which are different from or additional to those available to the indemnifying party, the indemnifying party shall be entitled to participate in and to assume the defense of such action, jointly with any other indemnifying party similarly notified, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense of such action other than reasonable costs of investigation. Notwithstanding the foregoing, in any such action, any indemnified party shall have the right to retain its own counsel but the fees and disbursements of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party shall have failed to retain counsel for the indemnified party, or (ii) the indemnifying party and such indemnified party shall have mutually agreed to the retention of such counsel. It is understood that the indemnifying party shall not, in connection with any action or related actions in the same jurisdiction, be liable for the fees and disbursements of more than one separate firm qualified in such jurisdiction to act as counsel for the indemnified parties, unless in any indemnified party's reasonable judgment (i) a conflict of interest between such indemnified party and any other indemnified party may exist in respect of such claims, or (ii) the indemnified party has available to it reasonable defenses which are different from or additional to those available to another indemnified party. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (d) Other Indemnification. Indemnification similar to that specified in the Sections 5.3(a) and 5.3(b) (with appropriate modifications) shall be given by HRPT and each seller of Registrable Securities with respect to any required registration or other qualification of such Registrable Securities under any federal or state law or regulation of governmental authority other than the Securities Act. (e) Contribution. If the indemnification provided for in this Section 5.3 is unavailable or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities or expenses described as indemnifiable pursuant to Section 5.3(a) or 5.3(b), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party, as a result of such losses, claims, damages, liabilities 7 or expenses in such proportion as appropriate to reflect the relative fault of HRPT, on the one hand, or such seller of Registrable Securities, on the other hand, and to the parties' relative intent, knowledge, access to information and opportunity to correct or prevent any untrue statement or omission giving rise to such indemnification obligation. HRPT and the Holders of Registrable Securities agree that it would not be just and equitable if contributions pursuant to this Section 5.3(e) were determined by pro rata allocation (even if the Holders of Registrable Securities were treated as one entity for such purpose) or by any other method of allocation which did not take account of the equitable considerations referred to above in this Section 5.3(e). No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. (f) Indemnification Payments. Periodic payments of amounts required to be paid pursuant to this Section 5.3 shall be made during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. (g) Limitation on Seller's Payments. Notwithstanding any provision of this Agreement to the contrary, the liability of any seller of Registrable Securities under this Section 5.3 shall in no event exceed the proceeds received by such seller from the sale of Registrable Securities covered by the registration statement giving rise to such liability. 5.4 Registration Expenses. HRPT shall bear all Registration Expenses incurred in connection with the performance of its obligations under Section 5.1 of this Agreement. 6. Rule 144. HRPT shall comply with the requirements of Rule 144 under the Securities Act, as such Rule may be amended from time to time (or any similar rule or regulation hereafter adopted by the Commission), regarding the availability of current public information to the extent required to enable any Holder of Registrable Securities to sell Registrable Securities without registration under the Securities Act pursuant to Rule 144 (or any similar rule or regulation). Upon the request of any Holder of Registrable Securities, HRPT will deliver to such Holder a written statement as to whether it has complied with such requirements. 7. Amendments and Waivers. This Agreement may be amended and HRPT may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if HRPT shall have obtained the written consent to such amendment, action or omission to act, of the Holder or Holders of 51% or more of Registrable Securities (and, in the case of any amendment, action or omission to act which adversely affects any specific Holder of Registrable Securities or a specific group of Holders of Registrable Securities, the written consent of each such Holder or Holders of 51% or more of the Registrable Securities held by such group). Each Holder of any Registrable Securities at the time shall be bound by any consent authorized by this Section 7, whether or not such Registrable Securities shall have been marked to indicate such consent. 8. Nominees for Beneficial Owners. In the event that any Registrable Securities are held by a nominee for the beneficial owner thereof, the beneficial owner thereof may, at its election, be treated as the Holder of such Registrable Securities for purposes of any request or other action by any Holder or Holders of Registrable Securities pursuant to this Agreement or any determination of any number or percentage of Registrable Securities held by any Holder or Holders of Registrable Securities contemplated by this Agreement. If the beneficial owner of any Registrable Securities so elects, HRPT may require assurances reasonably satisfactory to it of such owner's beneficial ownership of such Registrable Securities. 8 9. Successors in Interest. The parties anticipate the liquidation of Holder immediately following the Effective Date. Contemporaneously therewith, the former stockholders of Holder shall, by instrument reasonably acceptable to HRPT, become parties to this Agreement. 10. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties to this Agreement, whether so expressed or not, and, in particular, shall inure to the benefit of and be enforceable by any Holder or Holders of Registrable Securities. 11. Notices. All notices, communications and deliveries required or permitted by this Agreement shall be made in writing signed by the Party making the same, shall specify the Section of this Agreement pursuant to which it is given or being made and shall be deemed given or made (i) on the date delivered if delivered by telecopy or in person, (ii) on the third (3rd) business day after it is mailed if mailed by registered or certified mail (return receipt requested) (with postage and other fees prepaid) or (iii) on the day after it is delivered, prepaid, to an overnight express delivery service that confirms to the sender delivery on such day, as follows: (a) if to any Holder of Registrable Securities, at the address shown on the stock transfer books of HRPT unless such Holder has advised HRPT in writing of a different address as to which notices shall be sent under this Agreement, and (b) if to HRPT, at 400 Centre Street, Newton, Massachusetts 02158, Attn: David J. Hegarty, President, Telecopy No.: (617) 332-2281, with a copy to Sullivan & Worcester LLP, One Post Office Square, Boston, Massachusetts 02109, Attn: Alexander A. Notopoulos, Jr., Telecopy No: (617) 338-2880, or to such other representative or at such other address of a Party as such Party hereto may furnish to the other Parties in writing. If notice is given pursuant to this Section 10 of any assignment to a permitted successor or assign of a Party hereto, the notice shall be given as set forth above to such successor or assign of such Party. 12. Miscellaneous. HRPT shall not after the date of this Agreement enter into any agreement with respect to its securities which is inconsistent with or violates the rights granted to Holders of Registrable Securities in this Agreement; provided, however, that HRPT shall be permitted to enter into registration rights agreements with respect to Securities issued in connection with acquisitions consummated after the date of this Agreement. This Agreement embodies the entire agreement and understanding between HRPT and the other parties to this Agreement relating to the subject-matter of this Agreement. This Agreement shall be construed and enforced in accordance with and governed by the law of the State of Delaware. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning of this Agreement. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 13. HRPT Limitation of Liability. The Declaration of Trust of HRPT, a copy of which is duly filed with the Department of Assessments and Taxation of the State of Maryland, provides that the name "Health and Retirement Properties Trust" refers to the trustees under such Declaration of Trust collectively as trustees, but not individually or personally, and that no trustee, officer, shareholder, employee or agent of HRPT shall be held to any personal liability, jointly or severally, for any obligation of, or claim against, HRPT. All persons dealing with HRPT in any way shall look only to the assets of HRPT for the payment of any sum or the performance of any obligation. 9 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective duly authorized officers as of the date first above written. HEALTH AND RETIREMENT PROPERTIES TRUST By:______________________________________ GOVERNMENT PROPERTY INVESTORS, INC. By:_______________________________________ 10 Schedule 7.2(d) VOTING AGREEMENT This Agreement is entered into this _____ day of _________, 1997, by and among Health and Retirement Properties Trust, a Maryland real estate investment trust ("HRPT"), Rosecliff Realty, L.P. ("Rosecliff") and The 1818 Fund II, L.P. ("1818" and, collectively with Rosecliff, the "Principal Shareholders"). R E C I T A L: Pursuant to that certain Agreement of Merger, dated as of February 17, 1997 (the "Merger Agreement"), between HRPT and Government Property Investors, Inc., a Delaware corporation ("GPI"), Government Property Holdings Trust, a Maryland real estate investment trust ("GPH"), has of the date hereof merged with and into HUB Acquisition Trust, a Maryland real estate investment trust (the "Company"), and the subsidiaries of GPH have thereby become subsidiaries of the Company (the "Acquisition"). Upon the consummation of the Acquisition, GPI will receive shares of beneficial interest, par value $.01 per share, of HRPT (the "HRPT Common Shares"), as consideration for shares of the capital stock of GPH held by GPI immediately prior to the consummation of the Acquisition, and GPI will thereafter liquidate and dissolve and as a result the former stockholders of GPI, including the Principal Shareholders, will become shareholders of HRPT. To induce HRPT to consummate the Acquisition, the Principal Shareholders are willing to agree to the restrictions set forth herein with respect to the transfer and voting of the HRPT Common Shares issued to the Principal Shareholders pursuant to the Merger Agreement and the liquidation of GPI. NOW, THEREFORE, HRPT and the Principal Shareholders hereby agree as follows: 1. Definitions. The capitalized terms set forth below (in their singular and plural forms as applicable) shall have the meanings set forth below. Other capitalized terms used but not defined herein shall have the meanings specified in the Merger Agreement. (a) "Affiliate": with respect to a specified Person, another Person who, directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with the specified Person or is a director, trustee, executive officer or general partner of the specified Person. (b) "Change in Management": (i) a termination of the Advisory Agreement, dated November 20, 1986, as in effect as of the date hereof, 2 between HRPT and HRPT Advisors, Inc. and as amended from time to time hereafter and (ii) a Change of Control of HRPT Advisors, Inc. (c) "Change of Control": with respect to a specified Person, if any other Person becomes the beneficial owner of more than fifty percent (50%) of the voting equity of the specified Person and within 6 months thereafter, individuals other than individuals who at the beginning of such period constituted the entire Board of Directors or Trustees become a majority of the Directors or Trustees; provided, in the case of HRPT Advisors, Inc., a change in ownership following the death or legal incapacity of a shareholder as a result of such shareholder's interest being held by his estate or legal representative, shall not constitute a Change of Control. (d) "Person": an individual, partnership, joint venture, corporation, limited liability company, trust or any other form of business organization. (e) "Transfer": to transfer, sell, assign, pledge, hypothecate, give, grant or create a security interest in or lien on, place in trust (voting or otherwise), assign an interest in or in any other way encumber or dispose of, directly or indirectly, and whether or not by operation of law or for value, any of the HRPT Common Shares. 2. Restrictions on Transactions in HRPT Common Shares. Until the occurrence of a Change in Management, unless otherwise approved by the Board of Trustees of HRPT, each Principal Shareholder agrees that it will not (i) Transfer any HRPT Common Shares now or hereafter held by it to any Person who, to such Principal Shareholder's knowledge, holds directly, or is an Affiliate of a Person who holds directly, 5% or more of the aggregate HRPT Common Shares at the time outstanding or (ii) make directly or indirectly or participate in an unsolicited offer to purchase any HRPT Common Shares. 3. Voting. Until the occurrence of a Change in Management, unless otherwise approved by the Board of Trustees of HRPT, each Principal Shareholder agrees that it will not (i) vote (or direct to be voted) any HRPT Common Shares or any other shares of equity interest of HRPT as to which it has direct or indirect voting power or control in favor of any transaction that could result in a Change of Control of HRPT or (ii) present any shareholder proposal dealing with a Change of Control of HRPT. 4. Legend. Each certificate representing HRPT Common Shares subject to this Agreement shall have endorsed, stamped or written thereon a legend which shall read substantially as follows: THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN AN AGREEMENT 3 BETWEEN THE ISSUER AND CERTAIN SHAREHOLDERS OF THE ISSUER, A COPY OF WHICH WILL BE FURNISHED WITHOUT CHARGE BY THE ISSUER TO THE HOLDER HEREOF UPON WRITTEN REQUEST. 5. Termination. This Agreement shall terminate with respect to either Principal Shareholder when such Principal Shareholder, together with its Affiliates, owns less than twenty-five percent (25%) of the aggregate HRPT Common Shares issued pursuant to the Merger Agreement. 6. Notices. All notices and other communications which by any provision of this Agreement are required or permitted to be given shall be given in writing and shall be (i) sent by nationally recognized overnight courier, (ii) sent by telecopy, confirmed by sending a copy by nationally recognized overnight courier at substantially the same time as such telecopy, or (iii) personally delivered to the receiving party (which if other than an individual shall be an officer or other responsible party of the receiving party). All such notices and communications shall be mailed, sent or delivered as follows or to such other person(s), facsimile number(s) or address(es) as the party to receive any such communication or notice may have designated by written notice to the other party: A. If to Rosecliff: Rosecliff Realty, L.P. 712 Fifth Avenue, 34th Floor New York, New York 10019 Attn: Peter T. Joseph B. If to 1818: c/o Brown Brothers Harriman & Co. 59 Wall Street New York, NY 10005 Attn: Walter W. Grist C. If to HRPT: Health and Retirement Properties Trust 400 Centre Street Newton, Massachusetts 02158 or to such other address as a party hereto shall specify in writing given in accordance with this section. 7. Modifications. This Agreement constitutes the entire agreement between the parties hereto with regard to the subject matter hereof, superseding all 4 prior understandings and agreements whether written or oral. This Agreement may not be amended or revised except by a writing signed by the parties. 8. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns but may not be assigned by any party without the prior written consent of the other parties hereto. 9. Captions. Captions have been inserted solely for the convenience of reference and in no way define, limit or describe the scope or substance of any provision and shall not affect the validity of any other provision. 10. Governing Law. This Agreement shall be construed under and governed by the laws of The Commonwealth of Massachusetts applicable to contracts made and to be performed entirely in Massachusetts, without giving effect to the provisions thereof relating to conflict of laws. 11. Specific Performance. Each Principal Shareholder recognizes and agrees that HRPT's remedy at law for breach of Sections 2 and 3 of this Agreement would be inadequate, and further agrees that, for breach of such provisions, each aggrieved party shall be entitled to injunctive relief and to enforce its rights by an action for specific performance. 12. Severability. If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 13. Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. 5 IN WITNESS WHEREOF, the undersigned have executed and delivered, or caused to be executed and delivered by their officers hereunto duly authorized, this Agreement as of the date first set forth above. HEALTH AND RETIREMENT PROPERTIES TRUST By: Name: Title: ROSECLIFF REALTY, L.P. By: Name: Title: THE 1818 FUND II, L.P. By: Brown Brothers Harriman & Co., a general partner By: Name: Title: SCHEDULE 7.2(d) INFORMATION ACCESS AGREEMENT This Agreement is entered into this ___ day of ________, 1997, by and among Health and Retirement Properties Trust, a Maryland real estate investment trust ("HRPT"), and Rosecliff Realty, L.P. ("Rosecliff") and The 1818 Fund II, L.P. ("1818" and, collectively with Rosecliff, the "Principal Shareholders"). R E C I T A L: Pursuant to that certain Agreement of Merger, dated as of February 17, 1997 (the "Merger Agreement"), between HRPT and Government Property Investors, Inc., a Delaware corporation ("GPI"), Government Property Holdings Trust, a Maryland real estate investment trust ("GPH"), has as of the date hereof merged with and into HUB Acquisition Trust, a Maryland real estate investment trust (the "Company"), and the subsidiaries of GPH have thereby become subsidiaries of the Company (the "Acquisition"). Upon the consummation of the Acquisition, GPI will receive shares of beneficial interest, par value $.01 per share, of HRPT (the "HRPT Common Shares"), as consideration for shares of the capital stock of GPH held by GPI immediately prior to the consummation of the Acquisition, and GPI will thereafter liquidate and dissolve and as a result the former stockholders of GPI, including the Principal Shareholders, will become shareholders of HRPT. To induce the Principal Shareholders to approve the consummation of the Acquisition, HRPT is willing to agree to make certain information available to the Principal Shareholders and to provide access to HRPT's properties and officers for a period following the Acquisition. NOW, THEREFORE, HRPT and the Principal Shareholders hereby agree as follows: 1. Definitions. The capitalized terms set forth below (in their singular and plural forms as applicable) shall have the following meanings: (a) "Affiliate": with respect to a specified Person, another Person who, directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with the specified Person or is a director, trustee, executive officer or general partner of the specified Person. (b) "Term": a term commencing on the date hereof and expiring on the third anniversary of the Closing (as defined in the Merger Agreement) of the Acquisition. 2 (c) "Person": an individual, partnership, joint venture, corporation, limited liability company, trust or any other form of business organization. 2. Access to Information. Solely for the purpose of enabling the Principal Shareholders to maintain their investment in HRPT on behalf of their respective partners and Affiliates, and without any intention of participation in the formulation, determination or direction of the basic business decisions of HRPT, HRPT will, upon the request of a Principal Shareholder during the Term: (a) Permit the Principal Shareholders to inspect HRPT's properties and provide them financial statements quarterly, and at least annually, business plans, and financial projections of HRPT; (b) Make appropriate officers of HRPT available periodically for consultations with the Principal Shareholders with respect to matters relating to the business and affairs of HRPT, including, without limitation, significant changes in management personnel, entry into new lines of business, important acquisitions or dispositions of properties, and the proposed compromise of significant litigation; and (c) Inform the Principal Shareholders with respect to any major or significant corporate actions, including, without limitation, special dividends, mergers, acquisitions or dispositions of assets, issuances of significant amounts of debt or equity and material amendments to the declaration of trust or by-laws of HRPT. 3. Confidentiality. The Principal Shareholders shall hold in confidence all proprietary and confidential information (including all material non-public information) of HRPT which may come into the Principal Shareholders' possession or knowledge as a result of their receipt of information hereunder, exercising a degree of care in maintaining such confidence as is used by the Principal Shareholders to protect their own proprietary or confidential information that they do not wish to disclose. In addition, in connection with and as a condition of the delivery of material non-public information, the Principal Shareholders may be obliged to execute and deliver an appropriate confidentiality agreement to HRPT. The Principal Shareholders shall use all reasonable efforts to ensure that their respective employees, agents and outside consultants similarly maintain the confidentiality of such proprietary and confidential information of HRPT. 4. Notices. All notices and other communications which by any provision of this Agreement are required or permitted be given shall be given in writing and shall be (i) sent by nationally recognized overnight courier, (ii) sent by telecopy, confirmed by sending a copy by nationally recognized courier at substantially the same time as such telecopy, or (iii) personally delivered to the receiving party (which if other than an individual shall be an officer or other 3 responsible party of the receiving party). All such notices and communications shall be mailed, sent or delivered as follows or to such other person(s), facsimile number(s) or address(es) as the party to receive any such communication or notice may have designated by written notice to the other party: A. If to Rosecliff: Rosecliff Realty, L.P. 712 Fifth Avenue, 34th Floor New York, New York 10019 Attn: Peter T. Joseph B. If to 1818: c/o Brown Brothers Harriman & Co. 59 Wall Street New York, NY 10005 Attn: Walter W. Grist C. If to the Company or HRPT: Health and Retirement Properties Trust 400 Centre Street Newton, Massachusetts 02158 or to such other address as a party hereto shall specify in writing given in accordance with this section. 5. Modifications. This Agreement constitutes the entire agreement between the parties hereto with regard to the subject matter hereof, superseding all prior understandings and agreements whether written or oral. This Agreement may not be amended or revised except by a writing signed by the parties. 6. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns but may not be assigned by any party without the prior written consent of the other parties hereto. 7. Captions. Captions have been inserted solely for the convenience of reference and in no way define, limit or describe the scope or substance of any provision and shall not affect the validity of any other provision. 8. Governing Law. This Agreement shall be construed under and governed by the laws of the Commonwealth of Massachusetts applicable to contracts made and to be performed entirely in Massachusetts, without giving effect to the provisions thereof relating to conflict of laws. 4 9. Specific Performance. Each party recognizes and agrees that a remedy at law for breach of this Agreement would be inadequate, and further agrees that, for breach of this Agreement, each aggrieved party shall be entitled to injunctive relief and to enforce its rights by an action for specific performance. 10. Severability. If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 11. Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. 5 IN WITNESS WHEREOF, the undersigned have executed and delivered, or caused to be executed and delivered, or caused to be executed and delivered by their officers hereunto duly authorized this Agreement as of the date first set forth above. HEALTH AND RETIREMENT PROPERTIES TRUST By: Name: Title: ROSECLIFF REALTY, L.P. By: Name: Title: THE 1818 FUND II, L.P. By: Brown Brothers Harriman & Co., a general partner By: Name: Title: SCHEDULE 7.2(i) INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT ("Agreement") is made and entered into __________, 1997, between GOVERNMENT PROPERTY INVESTORS, INC., a Delaware corporation ("GPI"), and HEALTH AND RETIREMENT PROPERTIES TRUST, a Maryland real estate investment trust ("HRPT"). RECITALS A. HRPT and GPI have entered into an Agreement of Merger, dated February 17, 1997 (the "Merger Agreement"), pursuant to which Government Property Holdings Trust ("GPH") will be merged with and into Hub Acquisition Trust ("Merger Sub"). B. Pursuant to the terms of the Merger Agreement, and as a condition to HRPT's obligations under the Merger Agreement, GPI has agreed to provide certain indemnification rights to HRPT. NOW, THEREFORE, the parties agree as follows: 1. Definitions. Capitalized terms used but not otherwise defined in this Agreement shall have the meanings given therefor in the Merger Agreement. 2. Indemnification by GPI. (a) Subject to the other provisions of this Agreement, from and after the Closing, GPI shall indemnify and hold harmless, HRPT and its subsidiaries and affiliates, each of their respective officers, trustees, directors, employees, agents and representatives, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the "Indemnified Parties"), against any losses, claims, damages, liabilities or expenses whenever arising or incurred (including, without limitation, amounts paid in settlement, reasonable costs of investigation and reasonable attorneys' fees and expenses) (collectively, "Losses") (x) arising out of or relating to any breach of any representation or warranty made by (i) GPI in the Merger Agreement, provided solely for purposes of this Agreement, each representation and warranty made by GPI shall be deemed to have been qualified by the phrase "to the knowledge of GPI" (as defined in the Merger Agreement), whether or not so qualified in the Merger Agreement, or (ii) GPI in Sections 3 and 4 of the Registration Rights Agreement and Section 6(b) of this Agreement or (y) pursuant to Section 8.5 of the Merger Agreement. (b) No Indemnified Party shall be entitled to make any claim for indemnification pursuant to this Agreement after December 31, 1997 (the "Claim Period"). (c) Indemnification Procedure. (i) Promptly after receipt by an Indemnified Party of notice of the commencement of any action or proceeding involving a claim to which indemnification is being sought, such Indemnified Party will, if a claim is to be made against GPI, give written notice to GPI of the commencement of such action or proceeding; provided, however, that failure so to notify GPI shall not relieve GPI from any liability which GPI may have with respect to such claim, except to the extent that GPI is actually materially prejudiced by such failure to give notice. (ii) In case any such action is brought against an Indemnified Party, unless in such Indemnified Party's reasonable judgment a conflict of interest between the Indemnified Party and GPI may exist in respect of such claim, GPI shall be entitled to assume and control the defense of such action to the extent that it may wish, with counsel reasonably satisfactory to such Indemnified Party, and after notice from GPI to such Indemnified Party of its election so to assume and control the defense of such action, GPI shall not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the latter in connection with the defense of such action other than reasonable costs of investigation. Notwithstanding the foregoing, in any such action, any Indemnified Party shall have the right to retain its own counsel, but the fees and disbursements of such counsel shall be at the expense of such Indemnified Party unless GPI shall have failed to retain counsel for the Indemnified Party. It is understood that GPI shall not, in connection with any action or related actions in the same jurisdiction, be liable for the fees and disbursements of more than one separate firm qualified in such jurisdiction to act as counsel for all Indemnified Parties, unless in any such Indemnified Party's reasonable judgment a conflict of interest between such Indemnified Party and any other Indemnified Party may exist in respect of such claim. GPI shall not be liable for any settlement of any proceeding effected without the written consent of GPI but if settled with such consent or if there be a final judgment for the plaintiff, GPI agrees to indemnify the Indemnified Party from and against any loss or liability by reason of such settlement or judgment; GPI shall not, without the consent of the Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Within five business days of the final determination of any such settlement or judgment, GPI shall deliver or shall instruct the Escrow Agent to deliver to the Indemnified Party HRPT Common Shares issued in the Merger having a value, -2- determined under Section 2(c)(iv), sufficient to satisfy the amount of such claim as finally determined. (iii) If an Indemnified Party shall claim a right to payment pursuant to this Agreement with respect to which there has been no action or proceeding involving such claim pursuant to Section 2(c)(i) above, such Indemnified Party shall send written notice of such claim to GPI. Such notice shall specify the basis for such claim. As promptly as possible after the Indemnified Party has given such notice, such Indemnified Party and GPI shall establish the merits and amount of such claim (by mutual agreement or arbitration) and, within five business days of the final determination of the merits and amount of such claim, GPI shall deliver (or shall instruct the Escrow Agent to deliver) to the Indemnified Party the amount of such claim as finally determined. HRPT Common Shares issued in the Merger having a value, determined under Section 2(c)(iv), sufficient to satisfy the amount of such claim as finally determined. (iv) For purposes of Paragraphs 2(c)(ii) and 2(c)(iii), HRPT Common Shares issued GPI in the Merger that are delivered in satisfaction of a claim made hereunder shall be valued at the greater of the closing sale price for an HRPT Common Share as reported by the NYSE for the trading day next prior to delivery or the Merger Price. 3. Liability Limits. (a) GPI shall have no liability for Losses until such time as the aggregate of such Losses exceeds $1,500,000 (the "Deductible") and thereafter, GPI shall indemnify the Indemnified Parties for all Losses incurred in excess of the Deductible, provided the limitation contained in this Section 3(a) shall not apply with respect to Losses arising under Section 8.5 of the Merger Agreement, and provided further that Losses pursuant to Section 8.5 of the Merger Agreement shall not be taken into account in determining whether the Deductible has been met. (b) Solely for purposes of this Agreement, a Loss or series of related Losses shall be deemed to have a Material Adverse Effect if the amount of such Loss or series of related Losses exceeds $250,000. (c) In the case of all Premises (including the College Park Premises and including Development Properties and Contract Properties acquired after the Closing Date) if there shall be a Material Adverse Effect and an Indemnified Party (A) shall make a claim for a Loss with respect to which an Indemnified Party is entitled to indemnification under Section 2 (a) resulting from (1) a reduction or offset of rent for a period which is less than the remaining term of the lease or (2) a tenant claim for one time refund of rent or other amounts, then in either case, the amount of the Loss shall be equal to such offset, reduction or tenant claim or (B) shall make a claim for a Loss -3- with respect to which an Indemnified Party is entitled to indemnification under Section 2(a) resulting from a reduction or offset of rent for a period equal to the remaining term of the lease, then the amount of the Loss shall be equal to ten (10) times the amount of such offset or reduction. In the case of the College Park Premises, if either (1) a reduction in rent during the extension period from the rent for such extension period set out by the terms of the current lease and/or (2) a reduction in the GSA buyout option price, as contemplated by Section 2.B or 2.C of the Purchase and Sale Agreement with respect to the College Park Premises, then the amount of the Loss shall be equal to the present value of (1) the ten (10) year stream of such reduction in rent during the extension period plus (2) the reduction in the buyout option price ((1) and (2) discounted to the date of the claim at a discount rate of 10%). (d) Notwithstanding the preceding, GPI's aggregate liability for all Losses under this Agreement and, after the Closing Date, under the Merger Agreement shall not exceed and shall be payable solely from the Second Closing Consideration (as adjusted). At the Second Closing, if any Indemnified Party shall have made a claim hereunder within the Claim Period which remains outstanding, HRPT shall deliver to _____________ as escrow agent (the "Escrow Agent") a number of HRPT Common Shares having a value (based on the Merger Price) equal to the amount of such claim. 4. Arbitration. The Parties agree that any and all disputes or disagreements arising out of or relating to this Agreement, other than actions or claims for injunctive or other equitable relief or claims raised in actions or proceedings brought by third parties, shall be resolved through negotiations or, if the dispute is not so resolved, through mediation and if necessary binding arbitration conducted by ____________________, whose decision shall be binding on all parties and not appealable. Any such mediation and/or arbitration shall be conducted in _______________ pursuant to the procedures set forth in Exhibit ___ attached hereto and made a part hereof and the arbitration rules and procedures of ____________________. 5. Representations and Warranties of GPI. GPI hereby represents and warrants to HRPT that: (i) this Agreement has been duly authorized, executed and delivered by GPI and constitutes the legal, valid and binding agreement of it, enforceable against GPI in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or other laws affecting creditors' rights and remedies generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); and -4- (ii) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement will not violate or conflict with, constitute a breach of or default under, result in the loss of any material benefit under, or permit the acceleration of or entitle any party to accelerate any obligation under or pursuant to any material mortgage, lien, lease, agreement, instrument, order, arbitration award, judgment or decree to which GPI is a party or by which GPI or any of GPI's assets are bound. 6. Notices. All notices, communications and deliveries required or permitted by this Agreement shall be made in writing signed by the Party making the same, shall specify the Section of this Agreement pursuant to which it is given or being made, and shall be deemed given or made (i) on the date delivered if delivered by telecopy or in person, (ii) on the third business day after it is mailed if mailed by registered or certified mail (return receipt requested) (with postage and other fees prepaid), or (iii) on the day after it is delivered, prepaid, to an overnight express delivery service that confirms to the sender delivery on such day, as follows: To: Health and Retirement Properties Trust 400 Centre Street Newton, Massachusetts 02158 Attn: David J. Hegarty, President Telecopy No.: (617) 332-2261 with a copy to: Sullivan & Worcester LLP One Post Office Square Boston, Massachusetts 02109 Attn: Alexander A. Notopoulos, Jr. Telecopy No.: (617) 338-2880 To GPI: Government Property Investors, Inc. 1775 Pennsylvania Avenue, N.W., Suite 1000 Washington, D.C. 20006 Attn: Mark Levin Telecopy No.: 202-296-8335 with a copy to: Willkie Farr & Gallagher One Citicorp Center New York, New York Attn: Nora Ann Wallace Telecopy No.: 212-821-8111 -5- or to such other representative or at such other address of a Party as such Party hereto may furnish to the other Parties in writing. 7. Time of the Essence; Computation of Time. Time is of the essence for each and every provision of this Agreement. Whenever the last day for the exercise of any privilege or the discharge of any duty under this Agreement shall fall upon a Saturday, Sunday or any date on which banks in Boston, Massachusetts are closed, the Party having such privilege or duty may exercise such privilege or discharge such duty on the next succeeding day which is a regular business day. 8. Successors in Interest. The parties anticipate the liquidation of GPI immediately following the Effective Date. As a condition of such liquidation and contemporaneously therewith, certain holders of GPI Common Stock listed on Exhibit A shall, by instrument reasonably acceptable to HRPT, severally assume and agree to pay, perform and observe GPI's obligations under this Agreement in accordance with their proportionate interests set forth opposite their names on Exhibit A. 9. Captions. The titles and captions contained in this Agreement are inserted in this Agreement only as a matter of convenience and for reference and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision of this Agreement. Unless otherwise specified to the contrary, all references to Sections are references to Sections of this Agreement. 10. Amendments. To the extent permitted by law, this Agreement may be amended by a subsequent writing signed by all of the Parties. 11. Controlling Law; Integration; Waiver. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts. This Agreement supersedes all negotiations, agreements and understandings among the Parties with respect to the subject matter of this Agreement and constitutes the entire agreement among the Parties to this Agreement relating to the subject matter of this Agreement. The failure of any Party at any time or times to require performance of any provisions of this Agreement shall no manner affect the right to enforce the same. No waiver by any Party of any conditions, or of the breach of any term, provision, warranty, representation, agreement or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed or construed as a further or continuing waiver of any such condition or breach of any other term, provision, warranty, representation, agreement or covenant contained in this Agreement. 12. Sole Recourse. The Parties agree that the remedies set forth in this Agreement shall be the sole recourse of the Indemnified Parties for any and all Losses and any other breaches by GPI under this Agreement and, after the Closing Date, under the Merger Agreement. 13. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining -6- provisions of this Agreement, and any such prohibition or unenforceability in any jurisdiction will not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by law, the Parties waive any provision of law which renders any such provision prohibited or unenforceable in any respect. 14. HRPT Limitation of Liability. The Declaration of Trust of HRPT, a copy of which is duly filed with the Department of Assessments and Taxation of the State of Maryland, provides that the name "Health and Retirement Properties Trust" refers to the trustees under such Declaration of Trust collectively as trustees, but not individually or personally, and that no trustee, officer, shareholder, employee or agent of HRPT shall be held to any personal liability, jointly or severally, for any obligation of, or claim against, HRPT. All persons dealing with HRPT in any way shall look only to the assets of HRPT for the payment of any sum or the performance of any obligation. EXECUTED under seal as of the date first above written. HEALTH AND RETIREMENT PROPERTIES TRUST By: _________________________________ GOVERNMENT PROPERTY INVESTORS, INC. By: _________________________________ -7- SCHEDULE 7.2(j) SERVICE CONTRACT THIS SERVICE CONTRACT is entered into as of __________ __, 1997, by and between Government Property Investors, Inc. (the "Service Provider") and_____________________ (the "Company"). R E C I T A L Pursuant to that certain Agreement of Merger, dated as of February 17, 1997 (the "Merger Agreement"), between Health and Retirement Properties Trust and the Service Provider, Government Property Holdings Trust ("GPH") has as of the date hereof merged with and into HUB Acquisition Trust ("Merger Sub") and the subsidiaries of GPH have thereby become subsidiaries of Merger Sub (the "Acquisition"). Prior to the date hereof, the Service Provider rendered substantial and valuable administrative and support services to the subsidiaries of GPH. The Company will require the skills and services of certain employees of the Service Provider in connection with their general business operations after the date hereof. The Service Provider is willing to provide such skills and services to the Company on the terms and conditions hereinafter set forth. AGREEMENT NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the Company and the Service Provider, intending to be legally bound, do hereby agree as follows: 1. Engagement. The Company hereby engages the Service Provider and the Service Provider hereby accepts the engagement for the Term (hereafter defined) and upon the terms and conditions herein set forth to provide to the Company, administrative and support services in a manner consistent with past practice with respect to the operation of the "Premises" (as defined in the Merger Agreement) and from time to time requested by the Company. 2. Term. The engagement shall commence on the date hereof and expire on July 31, 1997 (the "Term"). Upon expiration of the Term, all obligations as between the parties shall terminate without recourse to one another under this Agreement. 3. Performance of Services. The Service Provider shall perform services under this Agreement directly through the employees listed on Exhibit A who shall devote such time and attention as directed by the Company during usual business hours as is reasonably necessary to support the business of the Company and its affiliates. The Service Provider shall consult regularly with the Company to monitor performance of the employees. The Company shall have the right to decline to have any employee, whom it in good faith believes not to be performing acceptably, continue to provide services under this Agreement. -2- 4. Confidentiality. The Service Provider shall hold in confidence all proprietary and confidential information of the Company which may come into the Service Provider's possession or knowledge as a result of its performance of services hereunder, exercising a degree of care in maintaining such confidence as is used by the Service Provider to protect its own proprietary or confidential information that it does not wish to disclose. The Service Provider shall use all reasonable efforts to ensure that its employees similarly maintain the confidentiality of such proprietary and confidential information of the Company. 5. Compensation. The Company shall compensate the Service Provider during the Term by reimbursing it for (i) the compensation the Service Provider is obligated to pay the employees listed on Exhibit A at the rates (together with applicable employment taxes including FICA and FUTA) set forth therein, to the extent that and so long as such employees continue to provide services under Section 3, provided, however, that in no event shall the Company be responsible for reimbursing the Service Provider for any severance costs or similar expenses, (ii) rent payments in respect of the Service Provider's lease of its office space in Washington, D.C. during the Term and (iii) other office expenses relating to the provision of services hereunder; provided the aggregate compensation to the Service Provider under this Agreement shall not exceed $700,000. Reimbursement shall be made on a semi-monthly basis. 6. Notices. All notices hereunder, to be effective, shall be in writing and shall be mailed by first class certified mail, postage prepaid, as follows: (i) If to the Service Provider, addressed to it at: 1775 Pennsylvania Avenue, N.W., Suite 1000 Washington, D.C. 20006 Attention: With a copy to: Willkie Farr & Gallagher One Citicorp Center New York, New York 10022 Attention: Nora Ann Wallace (ii) If to the Company, addressed to it at: Health and Retirement Properties Trust 400 Centre Street Newton, Massachusetts 02158 Attention: With a copy to: Sullivan & Worcester LLP One Post Office Square Boston, Massachusetts 02109 Attention: Alexander A. Notopoulos, Jr. -3- 7. Modifications. This Agreement, including the Exhibits hereto, constitutes the entire agreement between the parties hereto with regard to the subject matter hereof,superseding all prior understandings and agreements whether written or oral. This Agreement may not be amended or revised except by a writing signed by the parties. 8. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns (including any successor to GPI upon its liquidation) but may not be assigned by either party without the prior written consent of the other party. 9. Captions. Captions have been inserted solely for the convenience of reference and in no way define, limit or describe the scope or substance of any provision and shall not affect the validity of any other provision. 10. Governing Law. This Agreement shall be construed under and governed by the laws of The Commonwealth of Massachusetts applicable to contracts made and to be performed entirely in Massachusetts, without giving effect to the provisions thereof relating to conflict of laws. IN WITNESS WHEREOF, the parties have duly executed this Agreement as a sealed instrument as of the date first above written. GOVERNMENT PROPERTY INVESTORS, INC. By:________________________ Name: Title: M&P PARTNERS, L.P. By:________________________ Name: Title: SCHEDULE 7.3(i) NON-SOLICITATION AGREEMENT This Agreement is entered into this ____ day of ___________, 1997, by and among Health and Retirement Properties Trust, a Maryland real estate investment trust ("HRPT"), HUB Acquisition Trust, a Maryland real estate investment trust (the "Company"), and (the "Affiliates" and each an "Affiliate"). R E C I T A L: Pursuant to that certain Agreement of Merger, dated as of February 17, 1997 (the "Merger Agreement"), between HRPT and Government Property Investors, Inc., a Delaware corporation ("GPI"), Government Property Holdings Trust, a Maryland real estate investment trust ("GPH") has as of the date hereof merged with and into the Company and the subsidiaries of GPH have thereby become subsidiaries of the Company (the "Acquisition"). Upon the consummation of the Acquisition, GPI will receive shares of beneficial interest, par value $.01 per share, of HRPT (the "HRPT Common Shares"), as consideration for shares of the capital stock of GPH held by GPI immediately prior to the consummation of the Acquisition. The Affiliates are officers, directors or employees of GPI, one or more GPI subsidiaries and/or shareholders of GPI actively engaged in the management of the business of GPI. In connection with and to induce HRPT to consummate the Acquisition, the Affiliates are willing to agree not to take certain action which would interfere with or harm the business the subsidiaries of GPH which have become subsidiaries of the Company and HRPT. NOW THEREFORE, HRPT, the Company and the Affiliates hereby agree as follows: 1. Definitions. Except as otherwise provided in this Agreement, the capitalized terms set forth below (in their singular and plural forms as applicable) shall have the following meanings: (a) "Competitor": any Person engaged wholly or partly, in the Business. (b) "Business": the business of building, developing, leasing and acting as administrator for real estate owned or leased to the United States government through the General Services Administration and other departments and agencies. (c) "Person": an individual, partnership, partnership, joint venture, limited liability company, trust, corporation or any other form of business organization. -2- 2. Non-Solicitation. Affiliates each covenant and agree that for two (2) years after the date of this Agreement, they will not, either directly or indirectly, alone or in conjunction with any other Person (a) solicit any employee, consultant, contractor or other personnel of the Company, to terminate, alter or lessen their affiliation with the Company; or (b) solicit, divert or appropriate any tenant or actively sought prospective tenant of the Company for or on behalf of any Competitor. 3. Notices. All notices and other communications which by any provision of this Agreement are required or permitted to be given shall be given in writing and shall be (i) sent by nationally recognized overnight courier, (ii) sent by telecopy, confirmed by sending a copy by nationally recognized overnight courier at substantially the same time as such telecopy, or (iii) personally delivered to the receiving party (which if other than an individual shall be an officer or other responsible party of the receiving party). All such notices and communications shall be mailed, sent or delivered as follows or to such other person(s), facsimile number(s) or address(es) as the party to receive any such communication or notice may have designated by written notice to the other party: A. If to any Affiliate, to the address set forth opposite his or her name on Exhibit A hereto. B. If to the Company or HRPT: Health and Retirement Properties Trust 400 Centre Street Newton, Massachusetts 02158 or to such other address as a party hereto shall specify in writing given in accordance with this section. 4. Modifications. This Agreement constitutes the entire agreement between the parties hereto with regard to the subject matter hereof, superseding all prior understandings and agreements whether written or oral. This Agreement may not be amended or revised except by a writing signed by the parties. 5. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of HRPT, the Company and their respective successors and assigns but may not be assigned by any Affiliate. 6. Captions. Captions have been inserted solely for the convenience of reference and in no way define, limit or describe the scope or substance of any provision and shall not affect the validity of any other provision. 7. Governing Law. This Agreement shall be construed under and governed by the laws of The Commonwealth of Massachusetts applicable to contracts made and to be performed entirely in Massachusetts, without giving effect to the provisions thereof relating to conflict of laws. 8. Specific Performance. Each Affiliate recognizes and agrees that HRPT's and the Company's remedy at law for breach of Section 2 of this Agreement would be inadequate, and further agrees that, for breach of such provision, each aggrieved party -3- shall be entitled to injunctive relief and to enforce its rights by an action for specific performance. 9. Severability. If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 10. Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the undersigned have executed and delivered, or caused to be executed and delivered by their officers hereunto duly authorized, this Agreement as of the date first set forth above. HEALTH AND RETIREMENT PROPERTIES TRUST By: Name: Title: HUB ACQUISITION TRUST By: Name: Title: [signature blocks for Affiliates to come] Exhibit A Name Address Schedule 9.2 SECOND CLOSING ESCROW AGREEMENT THIS SECOND CLOSING ESCROW AGREEMENT (this "Escrow Agreement") is made as of _________ __, 19__ by and among Health and Retirement Properties Trust ("HRPT"), ____________________ (the "Successor"), and ____________________ (the "Escrow Agent"). R E C I T A L: HRPT and GPI entered into a Merger Agreement (the "Merger Agreement"), an executed copy of which has been provided to the Escrow Agent, pursuant to which Government Property Holdings Trust ("GPH") merged with and into HUB Acquisition Trust ("Merger Sub") on the terms and conditions set forth in the Merger Agreement. To induce HRPT to consummate the transactions contemplated by the Merger Agreement, GPI entered into an Indemnification Agreement with HRPT, and the Successor subsequently entered into an Accession Agreement, executed copies of which agreements have been provided to the Escrow Agent (such Indemnification Agreement, as amended by such Accession Agreement, the "Indemnification Agreement"), pursuant to which agreements the Successor agreed to indemnify HRPT with respect to certain matters on the terms and conditions set forth in the Indemnification Agreement. HRPT has made a claim for Losses (as defined in the Indemnification Agreement) which has not been resolved. Pursuant to the Indemnification Agreement, the Successor has agreed to deposit an aggregate of _________ HRPT Second Closing Shares (the "Escrowed Shares") into escrow upon execution of this Escrow Agreement subject to the terms and conditions set forth in the Indemnification Agreement and in this Escrow Agreement. NOW, THEREFORE, the parties agree as follows: Section 1. Defined Terms. Terms not otherwise defined herein shall have the respective meanings prescribed therefor in the Merger Agreement and the Indemnification Agreement. Section 2. Appointment of Escrow Agent. HRPT and the Successor hereby appoint the Escrow Agent as the escrow agent to hold the Escrowed Shares (as defined below) in accordance with the terms and conditions of this Escrow Agreement. Section 3. Delivery and Receipt of Escrowed Shares. Simultaneously with the execution of this Escrow Agreement, the Successor shall deliver to the Escrow Agent certificates representing the Escrowed Shares together with undated stock powers duly executed in blank. Receipt of the Escrowed Shares and the related stock powers is hereby acknowledged by the Escrow Agent. Until distributed and released in accordance with the terms and conditions of this Escrow Agreement, the Escrow Agent shall hold in trust the Escrowed Shares and the related stock powers. If the Escrow Agent should receive any cash or other property in respect of the Escrowed Shares, the Escrow Agent shall invest and reinvest such cash and the income therefrom in any money market fund, substantially all of which is invested in direct obligations of the United States of America or obligations the principal of and the interest on which are unconditionally guaranteed by the United States of America and shall hold such other property in trust subject to the terms and conditions hereinafter set forth. Section 4. Release of Escrowed Shares. The Escrowed Shares shall secure the obligations of the Successor pursuant to the Indemnification Agreement and in accordance with the terms of -2- this Escrow Agreement. The Escrow Agent shall release the Escrowed Shares pursuant to a joint direction in writing of HRPT and the Successor or pursuant to the decision of an arbitrator pursuant to the arbitration proceedings set forth in Section 4 of the Indemnification Agreement. For purposes of this Section, each Escrowed Share shall be valued at the greater of the closing sale price for an HRPT Common Share as reported on the NYSE for the trading day next prior to delivery or the Merger Price. Section 5. Termination of Escrow. The Escrow Agent shall distribute and release any remaining Escrowed Shares (and, if applicable, any cash or other property in respect of the Escrowed Shares, and any income therefrom, received by the Escrow Agent) upon receipt of notice from HRPT and the Successor that no claim for indemnification made on or before the expiration of the Claim Period (as defined in the Indemnification Agreement) remains outstanding. Such notice shall specify the name and address of each party to whom the remaining Escrowed Shares (and, if applicable, such cash, property and income) shall be delivered. Promptly after receipt of such notice, the Escrow Agent shall deliver the certificates representing such Escrowed Shares (and, if applicable, such cash, property and income) to each party so specified. Upon distribution and release of such Escrowed Shares (and, if applicable, such cash, property and income), this Escrow Agreement shall be deemed terminated and the Escrow Agent shall be released and discharged from all further obligations hereunder. Section 6. Duties of Escrow Agent. The acceptance by the Escrow Agent of its duties as such under this Escrow Agreement is subject to the following terms and conditions, which HRPT and the Successor hereby agree shall govern and control with respect to the rights, duties, liabilities and immunities of the Escrow Agent: (a) The Escrow Agent shall not be liable for acting upon any written notice, request, waiver, consent, receipt or other instrument or document which the Escrow Agent in good faith believes to be genuine and what it purports to be. (b) It is understood and agreed that the duties of the Escrow Agent hereunder are purely ministerial in nature and that it shall not be liable for any error of judgment, fact or law, or any act done or omitted to be done, except for its own willful misconduct, breach of fiduciary duty, bad faith or gross negligence or that of its officers, directors, employees and agents. The Escrow Agent's determination as to whether an event or condition has occurred, or been met or satisfied, or as to whether a provision of this Escrow Agreement has been complied with, or as to whether sufficient evidence of the event or condition or compliance with the provision has been furnished to it, shall not subject the Escrow Agent to any claim, liability or obligation whatsoever, even if it shall be found that such determination was improper and incorrect, provided, only, that the Escrow Agent and its officers, directors, employees and agents shall not have been guilty of willful misconduct, breach of fiduciary duty, bad faith or gross negligence in making such determination. (c) The Escrow Agent may consult with, and obtain advice from, legal counsel including its own officers, employees and partners in the event of any dispute or question as to the construction of any of the provisions hereof or its duties hereunder, and it shall incur no liability and shall be fully protected in acting in good faith in accordance with the opinion and instructions of such counsel. (d) In the event of any disagreement or lack of agreement between HRPT and the Successor of which the Escrow Agent has knowledge, resulting or which might result in adverse claims or demands with respect to the Escrowed Shares, the Escrow Agent shall be entitled, in its sole discretion, to refuse to comply with any claims or demands on it with respect thereto until such matter shall be resolved, and in so refusing, the Escrow Agent may elect to make no delivery or other disposition of the Escrowed Shares, and in so doing the Escrow Agent shall not be or become liable in any way to either HRPT or the Successor for its failure or refusal to comply -3- with such claims or demands, and it shall be entitled to continue so to refrain from acting, and so to refuse to act, until all such claims or demands (i) shall have been finally determined by a court of competent jurisdiction, or (ii) shall have been resolved by the agreement of HRPT and the Successor and the Escrow Agent shall have been notified thereof in writing. (e) The Escrow Agent may resign at any time upon giving ten (10) days' notice to HRPT and the Successor and may appoint a successor escrow agent hereunder so long as such successor shall accept and agree to be bound by the terms of this Escrow Agreement and shall be acceptable to HRPT and the Successor. It is understood and agreed that the Escrow Agent's resignation shall not be effective until a successor escrow agent agrees to be bound by the terms of this Escrow Agreement. Section 7. No Representations by Escrow Agent. The Escrow Agent makes no representation as to the validity, value, genuineness, negotiability or collectibility of any security or other document or instrument held by or delivered to or by it. Section 8. Obligations of Escrow Agent. The Escrow Agent shall be under no obligation to institute or defend any actions, suits or legal proceedings in connection herewith or take any other action likely to involve it in expense unless first indemnified to its reasonable satisfaction. Section 9. Expenses. The reasonable out-of-pocket expenses (including, without limitation, reasonable legal fees and disbursements) incurred by the Escrow Agent in the performance of its duties hereunder shall be reimbursed one-half by the Successor and one-half by HRPT. Such reimbursement for out-of-pocket expenses shall be made by cash payment to the Escrow Agent from time to time upon its written request. The Escrow Agent shall have no right or lien with respect to the Escrowed Shares for payment of such expenses. Except as otherwise herein or in the Merger Agreement provided, each party shall pay its own expenses incident to the negotiation, preparation, performance and enforcement of this Escrow Agreement (including all fees and expenses of its counsel, accountants and other consultants, advisors and representatives for all activities of such persons undertaken pursuant to this Escrow Agreement), except to the extent, if any, otherwise specifically set forth in this Agreement. [Section 10. Escrow Agent Status. _____ hereby acknowledges that the Escrow Agent is counsel to _____ and agrees that it will not seek to disqualify the Escrow Agent from acting and continuing to act as counsel to _____ in the event of a dispute hereunder or in the course of the defense or prosecution of any claim relating to the transactions contemplated hereby or by the Merger Agreement; provided, however, that in the event of a dispute, the Escrow Agent shall (a) immediately seek to appoint a successor escrow agent, which shall be acceptable to HRPT and the Shareholders, having no business relationships with HRPT or the Shareholders and (b) immediately resign upon acceptance of such appointment and agreement to be bound by the terms of this Escrow Agreement by such successor escrow agent.] Section 11. Assignment; Successors and Assigns. This Escrow Agreement shall not be assignable by any party without the prior written consent of the other parties. Nothing in this Escrow Agreement expressed or implied is intended to or shall be construed to confer upon or create in any Person (other than the parties hereto and their permitted successors and assigns) any rights or remedies under or by reason of this Agreement, including without limitation any rights to enforce this Escrow Agreement. Section 12. Specific Performance; Other Rights and Remedies. Each party recognizes and agrees that the other party's remedy at law for any breach of the provisions of this Escrow Agreement would be inadequate and agrees that for breach of such provisions, such party shall, in addition to such other remedies as may be available to it at law or in equity or as provided in this Escrow Agreement, be entitled to injunctive relief and to enforce its rights by an action for specific -4- performance to the extent permitted by applicable law. Each party hereby waives any requirement for security or the posting of any bond or other surety in connection with any temporary or permanent award of injunctive, mandatory or other equitable relief. Nothing herein contained shall be construed as prohibiting either party from pursuing any other remedies available to it for such breach or threatened breach, including without limitation the recovery of damages. Section 13. Entire Agreement. This Escrow Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements, covenants, promises, conditions, understandings, inducements, representations and negotiations, expressed or implied, oral or written, between them as to such subject matter. Section 14. Waivers; Amendments. Anything in this Escrow Agreement to the contrary notwithstanding, amendments to and modifications of this Escrow Agreement may be made, required consents and approvals may be granted, compliance with any term, covenant, agreement, condition or other provision set forth herein may be omitted or waived, either generally or in a particular instance and either retroactively or prospectively with, but only with, the written consent of the party entitled to the benefit thereof. Section 15. Notices. All notices and other communications which by any provision of this Escrow Agreement are required or permitted to be given shall be given in writing and shall be (a) sent by nationally recognized overnight courier service, (b) sent by telecopy confirmed by sending (by nationally recognized overnight courier service) written confirmation at substantially the same time, or (c) personally delivered to the receiving party. All such notices and communications shall be mailed, sent or delivered as follows: If to HRPT, at: Health and Retirement Properties Trust 400 Centre Street Newton, Massachusetts 02158 Attention: David J. Hegarty, President Facsimile: 617-332-2261 with a copy to: Sullivan & Worcester LLP One Post Office Square Boston, Massachusetts 02109 Attention: Alexander A. Notopoulos, Jr. Facsimile: 617-338-2880 If to the Successor, at: If to the Escrow Agent, at: ---------------------------------- ---------------------------------- Attention: Facsimile: or to such other person(s) or facsimile number(s) or address(es) as the party to receive any such communication or notice may have designated by written notice to the other party. -5- Section 16. Severability. If any provision of this Escrow Agreement shall be held or deemed to be, or shall in fact be, invalid, inoperative, illegal or unenforceable as applied to any particular case in any jurisdiction or jurisdictions, or in all jurisdictions or in all cases, because of the conflicting of any provision with any constitution or statute or rule of public policy or for any other reason, such circumstance shall not have the effect of rendering the provision or provisions in ques tion invalid, inoperative, illegal or unenforceable in any other jurisdiction or in any other case or circumstance or of rendering any other provision or provisions herein contained invalid, inoperative, illegal or unenforceable to the extent that such other provisions are not themselves actually in conflict with such constitution, statute or rule of public policy, but this Escrow Agreement shall be reformed and construed in any such jurisdiction or case as if such invalid, inoperative, illegal or unenforceable provision had never been contained herein and such provision reformed so that it would be valid, operative and enforceable to the maximum extent permitted in such jurisdiction or in such case. Section 17. Counterparts. This Escrow Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, binding upon all the parties hereto. In pleading or proving any provision of this Escrow Agreement, it shall not be necessary to produce more than one of such counterparts. Section 18. Section Headings. The headings contained in this Escrow Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Escrow Agreement. Section 19. Governing Law. The validity, interpretation, construction and performance of this Escrow Agreement shall be governed by, and construed in accordance with, the applicable laws of the Commonwealth of Massachusetts applicable to contracts made and performed therein and, in any event, without giving effect to any choice or conflict of laws provision or rule that would cause the application of domestic substantive laws of any other jurisdiction. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as a sealed instrument as of the date first above written. HRPT: HEALTH AND RETIREMENT PROPERTIES TRUST By:_______________________ THE SUCCESSOR: [signature blocks to come] THE ESCROW AGENT: --------------------------- as Escrow Agent By:________________________ EX-10.2 3 AMENDED AND RESTATED REVOLVING LOAN AGREEMENT U.S. $250,000,000 THIRD AMENDED AND RESTATED REVOLVING LOAN AGREEMENT among HEALTH AND RETIREMENT PROPERTIES TRUST, as Borrower, THE LENDERS NAMED HEREIN, KLEINWORT BENSON LIMITED, as Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent and NATWEST BANK N.A. as Co-Agent Dated as of March 15, 1996
TABLE OF CONTENTS SECTION PAGE SECTION 1. DEFINITIONS...........................................................................................2 1.1. Defined Terms......................................................................................2 1.2. Other Definitional Provisions.....................................................................26 1.3 Certain Calculations: Mark-to Market.............................................................26 SECTION 2. AMOUNT AND TERMS OF REVOLVING LOANS..................................................................27 2.1. Revolving Loans...................................................................................27 2.2. Notes; Maturity Date..............................................................................29 2.3. Procedure for Borrowing...........................................................................29 2.4. Interest..........................................................................................32 2.5. Duration of Interest Period; Notice of Continuation/Conversion....................................33 2.6. Fees..............................................................................................35 2.7. Termination or Reduction of Commitment............................................................35 2.8. Optional Prepayments; Mandatory Prepayments.......................................................35 2.9. Computation of Interest and Fees..................................................................37 2.10. Payments and Currency............................................................................37 2.11. Use of Proceeds..................................................................................39 2.12. Increased Costs..................................................................................39 2.13. Change in Law Rendering Eurodollar Loans or Alternate Rate Loans Unlawful; Failure to Give Notice of Continuation........................................................42 2.14. Eurodollar Availability..........................................................................43 2.15. Indemnities......................................................................................44 2.16 Eligible Mortgages and Eligible Properties .......................................................45 SECTION 3. REPRESENTATIONS AND WARRANTIES.......................................................................45 3.1. Financial Condition...............................................................................45 3.2. No Material Adverse Effect........................................................................45 3.3. Existence; Compliance with Law....................................................................45 3.4. Operator, Advisor, Credit Support Obligors; Compliance with Law...................................46 3.5. Power; Authorization; Enforceable Obligations.....................................................46 3.6. No Legal Bar......................................................................................47 3.7. No Material Litigation............................................................................47 3.8. No Default........................................................................................47 3.9. Ownership of Mortgage Interests and Property; Liens...............................................47 3.10. No Burdensome Restrictions.......................................................................50 3.11. Taxes............................................................................................50 3.12. Federal Regulations..............................................................................50 3.13. Employees........................................................................................50 3.14. ERISA............................................................................................50 3.15. Status as REIT...................................................................................50 3.16. Restrictions on Incurring Indebtedness...........................................................51 3.17. Subsidiaries.....................................................................................51 3.18. Compliance with Environmental Laws...............................................................51 i 3.19. Pollution; Hazardous Materials...................................................................51 3.20. Securities Laws..................................................................................52 3.21. Declaration of Trust, By-Laws, Advisory Contract, etc............................................52 3.22. Disclosures......................................................................................52 3.23. Medicare and Medicaid Certification..............................................................52 3.24. Offering, Etc., of Securities....................................................................52 SECTION 4. CONDITIONS PRECEDENT.................................................................................53 4.1. Conditions to Effectiveness.......................................................................53 4.2. Conditions Precedent to Loans.....................................................................54 SECTION 5. AFFIRMATIVE COVENANTS................................................................................55 5.1. Financial Statements..............................................................................55 5.2. Certificates; Other Information...................................................................56 5.3. Payment of Obligations............................................................................58 5.4. Conduct of Business and Maintenance of Existence..................................................58 5.5. Leases and Mortgage Interests; Credit Support Agreements..........................................58 5.6. Maintenance of Property, Insurance................................................................58 5.7. Inspection of Property; Books and Records; Discussions............................................59 5.8. Notices...........................................................................................59 5.9. Appraisals and Other Valuations...................................................................60 5.10. Meetings.........................................................................................60 5.11. REIT Requirements................................................................................61 5.12. Indemnification..................................................................................61 5.13. Changes in GAAP..................................................................................61 5.14. Clean-Down Period................................................................................62 5.15. Further Assurances; Restrictions on Negative Pledges.............................................62 5.16. Currency Arrangements............................................................................62 SECTION 6. NEGATIVE COVENANTS...................................................................................62 6.1. Financial Covenants...............................................................................62 6.2. Restricted Payments...............................................................................63 6.3. Merger; Sale of Assets; Termination and Other Actions............................................63 6.4. Transactions with Affiliates......................................................................64 6.5. Subsidiaries......................................................................................64 6.6. Accounting Changes................................................................................64 6.7. Change in Nature of Business......................................................................64 6.8. Indebtedness......................................................................................65 6.9. No Liens..........................................................................................66 6.10. Fiscal Year......................................................................................66 6.11. Chief Executive Office...........................................................................66 6.12. Amendment of Certain Agreements..................................................................66 6.13. Payments Not to Exceed Appraised Value.........................................................66 SECTION 7. EVENTS OF DEFAULT....................................................................................67 7.1. Events of Default.................................................................................67 7.2. Annulment of Acceleration.........................................................................70 7.3. Cooperation by Borrower...........................................................................70 ii SECTION 8. THE AGENTS...........................................................................................71 8.1. Appointment of Agent and Administrative Agent.....................................................71 SECTION 9. SUBSIDIARY GUARANTIES................................................................................75 9.1 Guaranties.........................................................................................75 SECTION 10. GENERAL.............................................................................................77 10.1 CHOICE OF LAW.....................................................................................77 10.2 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; ETC.............................................77 10.3 Notices; Certain Payments.........................................................................78 10.4 No Waivers; Cumulative Remedies; Entire Agreement; Headings; Successors and Assigns; Counterparts; Severability. ..........................................................79 10.5 Survival..........................................................................................81 10.6 Amendments and Waivers............................................................................81 10.7 Payment of Expenses and Taxes.....................................................................82 10.8 Adjustments; Setoff...............................................................................83 10.9 NONLIABILITY OF TRUSTEES..........................................................................84 EXHIBITS EXHIBIT A - FORM OF PROMISSORY NOTE EXHIBIT B - FORM OF NOTICE OF BORROWING EXHIBIT C - FORM OF NOTICE OF CONTINUATION/CONVERSION EXHIBIT D - FORM OF SUBORDINATION AGREEMENT SCHEDULES Schedule 1 - LENDERS' COMMITMENTS AND CERTAIN LENDING OFFICES Schedule 2 - PERMITTED EXCEPTIONS Schedule 3 - AMOUNTS OWED UNDER THE EXISTING LOAN AGREEMENT Schedule 4 - BORROWER'S SUBSIDIARIES Schedule 5 - MANDATORY LIQUID ASSET COSTS (FOR GBP LOANS) Schedule 6 - NON-CURRENT MORTGAGE INTEREST AGREEMENTS
iii HEALTH AND RETIREMENT PROPERTIES TRUST THIRD AMENDED AND RESTATED REVOLVING LOAN AGREEMENT DATED AS OF MARCH 15, 1996 This THIRD AMENDED AND RESTATED REVOLVING LOAN AGREEMENT is dated as of March 15, 1996, among HEALTH AND RETIREMENT PROPERTIES TRUST, a real estate investment trust formed under the laws of the State of Maryland ("Borrower"), the several lenders parties to this Agreement (each, together with any additional lender or lenders pursuant to Section 10.4, a "Lender" and, collectively, the "Lenders"), KLEINWORT BENSON LIMITED, a bank organized under the laws of England, as agent for itself and the other Lenders (in such capacity, together with any successor in such capacity in accordance with the terms hereof, "Agent"), WELLS FARGO BANK, NATIONAL ASSOCIATION, a bank organized under the laws of the United States of America, as administrative agent, and NATWEST BANK N.A. (formerly National Westminster Bank USA), a national banking association, as co-agent (in such capacity, "Co-Agent"); and, in connection with Section 9 and the guarantees given therein, HEALTH AND RETIREMENT PROPERTIES INTERNATIONAL, INC., a Delaware corporation, CAUSEWAY HOLDINGS INC., a Massachusetts corporation and SJO CORPORATION, a Massachusetts corporation, each being a direct wholly-owned Subsidiary (as defined below) of Borrower. WHEREAS, Borrower, Kleinwort Benson Limited, as agent, Wells Fargo Bank, National Association, as administrative agent, NatWest Bank N.A., as co-agent, Health and Retirement Properties International, Inc., as guarantor and the lenders described therein are parties to that certain Second Amended and Restated Revolving Loan Agreement dated as of March 15, 1995 (as such agreement may have been amended, supplemented or modified from time to time prior to the date hereof, the "Existing Loan Agreement"); WHEREAS, Borrower desires that Lenders extend the maturity date under the Existing Loan Agreement, change the fees and interest rate margins thereunder, permit investments in Clinics (as defined below) and make certain other amendments to the Existing Loan Agreement and amend and restate it in its entirety; and WHEREAS, Lenders desire to make such extension, change the fees and margins, permit such investments and make such amendments and such amendment and restatement. NOW, THEREFORE, the parties hereto hereby agree that the Existing Loan Agreement be amended and restated in its entirety as follows: 1 SECTION 1. DEFINITIONS 1.1. Defined Terms. As used in this Agreement: "Acute Care Asset" means, in respect of any Property or Mortgage Interest, that more than 50% of the licensed beds of the Property or, in the case of a Mortgage Interest, of the Mortgaged Property covered thereby, are designated for acute care. "Adjusted Net Operating Cash Flow" means, in respect of a Property that is a Medical Office Asset or a Clinic, the net result of (i) aggregate lease payments made by the Operators(s) of the relevant Property during the relevant period of determination, less (ii) direct costs of the Borrower attributable to such Property for such period, provided that if either (x) an Operator of the relevant Property has failed to exercise a renewal option under the lease thereof prior to the expiration of that option (and no replacement Lease with that or another Operator has been signed), or (y) an Operator of the relevant Property is in default under any payment obligation or in any material respect under any other Contractual Obligation between such Operator and Borrower or any of its Subsidiaries, including without limitation such Lease, any other Lease or any Mortgage Interest Agreement, or (z) a Credit Support Obligor for the Lease of such Property is in default under any payment obligation or in any material respect under any other Contractual Obligation of such Credit Support Obligor to Borrower or any of its Subsidiaries, including without limitation any Lease, Mortgage Interest, Mortgage Interest Agreement or Credit Support Agreement, the lease payments made by the Operator referred to in the preceding clause (x) or (y) and the lease payments made in respect of the Property referred to in the preceding clause (z) during the relevant period of determination shall not be included in Adjusted Net Operating Cash Flow. "Adjusted Net Interest" means, in respect of a Mortgaged Property that consists of a Medical Office Asset or a Clinic, the net result of (i) aggregate interest payments made by the Mortgagor of the relevant Mortgaged Property during the relevant period of determination less (ii) direct costs of the Borrower attributable to such Mortgaged Property for such period, provided that if either (y) the Mortgagor of the relevant Mortgaged Property is in default under any payment obligation or in any material respect under any other Contractual Obligation between such Mortgagor and Borrower or any of its Subsidiaries, including without limitation the Mortgage Interest Agreement related to such Mortgaged Property, any other Mortgage Interest Agreement or any Lease or (z) a Credit Support Obligor for the Mortgage Interest Agreement of such Mortgaged Property is in default under any payment obligation or in any material respect under any other Contractual Obligation of such Credit Support Obligor to Borrower or any of its Subsidiaries, including without limitation any Lease, Mortgage Interest, Mortgage Interest Agreement or Credit Support Agreement, the interest payments made by the Mortgagor referred to in the preceding clause (y) and the interest payments made in respect of the Mortgaged Property referred to in the preceding clause (z) during the relevant period of determination shall not be included in Adjusted Net Interest. "Administrative Agent" means Wells Fargo Bank, National Association ("Wells") acting in its capacity as administrative agent in connection with this Agreement; provided that with respect to Loans denominated in GBP, "Administrative Agent" shall mean 2 a Lender (the "GBP Agent") agreed to by Borrower, Agent and Wells and, in such circumstances, references to "Administrative Agent" relating to Loans denominated in GBP shall be read as references to the GBP Agent, while references to "Administrative Agent" relating to Loans denominated in U.S. Dollars or otherwise shall be read as references to Wells, and if such circumstances are applicable the singular term "Administrative Agent" shall be construed to include both Wells and the GBP Agent where appropriate (including, without limitation, for purposes of the indemnifications given in Sections 8 and 10.7); and, in addition, "Administrative Agent" shall mean any successor to either Wells or the GBP Agent in their respective capacities in accordance with the terms hereof; provided further that in no event shall Wells be or be deemed to be the GBP Agent or have any of its related duties unless Wells expressly accepts such role. "Advisor" means HRPT Advisors or such other Person as shall act as an advisor to Borrower, whether pursuant to the Advisory Agreement, or an agreement analogous to the Advisory Agreement, with the prior written consent of Agent. "Advisory Agreement" means the Advisory Agreement, dated as of November 20, 1986, between Borrower and HRPT Advisors, as amended by an Amendment Agreement, dated August 26, 1987, between Borrower and HRPT Advisors and as amended by a Second Amendment Agreement, dated December 6, 1993, between Borrower and HRPT Advisors, and as amended, supplemented or modified from time to time in a manner not inconsistent with the terms hereof or of the Subordination Agreement. "Affiliate" means, with respect to a particular Person, (a) any Person which, directly or indirectly, is in Control of, is Controlled by, or is under common Control with such particular Person, or (b) any Person who is a director or officer or trustee (i) of such particular Person, (ii) of any Subsidiary of such particular Person or (iii) of any Person described in clause (a) above. "Agreement" means this Third Amended and Restated Revolving Loan Agreement, as amended, supplemented or modified from time to time in accordance herewith. "Allowed Value" means, as of any date of determination, (i) with respect to each Eligible Property or Property (as the context may require), the lesser of (a) the acquisition cost to Borrower or to any of its Subsidiaries of such Eligible Property or Property, (b) the Appraised Value of such Eligible Property or Property as set forth in the then most recent Appraisal with respect to such Eligible Property or Property less the value attributable to any capital improvements made by the Operator of such Eligible Property or Property financed by such Operator, and (c) the minimum purchase price (howsoever denominated) that would be payable to Borrower or such Subsidiary by the Operator of such Eligible Property or Property or any other Person if it purchased such Eligible Property or Property on the date of determination pursuant to the exercise of any right it may have (whether then or in the future exercisable) to purchase such Eligible Property or Property (assuming in the case of any such right only exercisable in the future that such right is exercisable on the date of determination), and (ii) with respect to each Eligible Mortgage or Mortgage Interest (as the context may require), the lesser of (a) the outstanding principal 3 amount due to Borrower or any of its Subsidiaries from the relevant Mortgagor in respect of such Eligible Mortgage or Mortgage Interest, and (b) the Appraised Value of the Mortgaged Property which is covered by the relevant Eligible Mortgage or Mortgage Interest as set forth in the most recent Appraisal with respect to such Eligible Mortgage or Mortgaged Property. "Alternate GBP Rate" means the interest rate per annum specified by Administrative Agent from time to time as the cost to Lenders of funding affected Loans denominated in GBP as described in Section 2.13 or 2.14 (without reference to the Applicable Margin or the Mandatory Liquid Asset Costs payable under Section 2.4(a)). "Alternate GBP Rate Loans" means the portion of Loans (which are denominated in GBP) the interest on which is computed by reference to the Alternate GBP Rate. "Alternate Rate", in respect of any Loan, means the rate or rates of interest agreed pursuant to Section 2.13 or 2.14, as the case may be, between Borrower and Lenders to be applicable to such Loan; provided that in the absence of such agreement under the circumstances specified in Section 2.13 or 2.14, as the case may be, the Alternate Rate shall be equal to the Base Rate in the case of Loans denominated in U.S. Dollars and shall be equal to the Alternate GBP Rate in the case of Loans denominated in GBP. "Alternate Rate Loans" means the portion of the Loans (which may be denominated in U.S. Dollars or in GBP) the interest on which is computed by reference to the Alternate Rate. "Applicable Facility Fee Percentage" means with respect to the facility fee payable under Section 2.6, the per annum percentage corresponding to the lower of the ratings provided by Standard & Poor's Rating Group and Moody's Investors Service in respect of the senior unsecured long-term indebtedness of Borrower, as specified in the following table:
A-/A3 BBB+/Baa1 BBB/Baa2 BBB-/Baa3 Lower than Ratings or higher or higher or higher or higher BBB-/Baa3 Facility Fee 0.200% 0.250% 0.250% 0.250% 0.375%
Each change in the Applicable Facility Fee Percentage shall be effective as of the date of the public announcement or publication by Standard & Poor's Ratings Group or Moody's Investors Service, as the case may be, of a change in Borrower's senior unsecured long-term indebtedness ratings. "Applicable Margin" means, with respect to Base Rate Loans, Alternate Rate Loans and Eurodollar Loans, the per annum percentage corresponding to the lower of the ratings provided by Standard & Poor's Ratings Group and Moody's Investors Service in respect of the senior unsecured long-term indebtedness of Borrower, as specified in the following table: 4
A-/A3 Lower Ratings or BBB+/Baa1 BBB/Baa2 BBB-/Baa3 than higher or higher or higher or higher BBB- /Baa3 Applicable Margin for 0.000% 0.000% 0.000% 0.000% 0.250% Base Rate Loans or for Alternate Rate Loans that are Base Rate Loans Applicable Margin for 0.375% 0.500% 0.750% 0.875% 1.250% Euro Dollar Loans or Alternate Rate Loans that are not Base Rate Loans
Each change in the Applicable Margin shall be effective as of the date of the public announcement or publication by Standard & Poor's Ratings Group or Moody's Investors Service, as the case may be, of a change in Borrower's senior unsecured long-term indebtedness ratings. "Appraisal" means an appraisal using methodologies acceptable to Agent and Administrative Agent at the time such appraisal is or was made and performed by a Recognized Appraiser. "Appraised Value" of any Facility shall mean (a) in the case of any Fee Interest, the lesser of (i) the value placed upon such Facility pursuant to the most recent Appraisal thereof based on a valuation of the Fee Interest subject to the Lease(s) in respect of such Fee Interest and (ii) the value placed upon such Facility pursuant to the most recent Appraisal thereof based on a valuation of the Fee Interest free and clear of all Leases and determined by discounting to present value the Facility's future projected net cash flow, provided that in the case where the most recent Appraisal only values the Fee Interest under either subclause (i) or subclause (ii) of this clause (a) but not both, the Appraised Value shall mean the value so placed on the Fee Interest under either subclause (i) or subclause (ii) of this clause (a), whichever is applicable; (b) in the case of a Leasehold Interest, the lesser of (i) the value placed upon such Facility pursuant to the most recent Appraisal thereof based on a valuation of the Leasehold Interest subject to the Lease(s) in respect of such Leasehold Interest and (ii) the value placed upon such Facility pursuant to the most recent Appraisal thereof based on a valuation of the Leasehold Interest free and clear of all Leases and determined by discounting to present value the Facility's future projected net cash flow, provided that in the case where the most recent Appraisal only values the Leasehold Interest under either subclause (i) or subclause (ii) of this clause (b) but not both, the Appraised Value shall mean the value so placed on the Leasehold Interest under either subclause (i) or subclause (ii) of this clause (b), whichever is applicable; and (c) in the case of a Mortgage 5 Interest, the value placed upon the Mortgaged Property covered by such Mortgage Interest pursuant to the most recent Appraisal thereof based on a valuation of such Mortgaged Property free and clear of such Mortgage Interest and determined by discounting to present value the future projected net cash flow of such Mortgaged Property. "Average Cost of Debt" means , in respect of Borrower, the quotient (measured over the four most recent financial quarters of Borrower) of (i) Interest Charges in respect of Indebtedness included in clauses (i)-(vi) of the definition thereof set forth herein divided by (ii) the daily average outstanding amount of Indebtedness included within such clauses. "Base Rate" means a fluctuating interest rate per annum as shall be in effect from time to time, which rate per annum shall at all times be equal to the greater of: (i) the prime rate of interest announced by Administrative Agent from time to time, changing when and as said prime rate changes; and (ii) the sum of one-half of one percent (0.5%) and the Federal Funds Rate in effect from time to time, changing when and as such Federal Funds Rate changes. "Base Rate Loans" means the portion of the Loans (which are denominated in U.S. Dollars) the interest on which is computed by reference to the Base Rate. "Borrower" has the meaning set forth in the first paragraph of this Agreement. "Borrowing Date" means the Business Day specified in a Notice of Borrowing as the date on which Borrower requests the Lenders to make Loans hereunder. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in New York City or London, England are authorized or required by law to remain closed or on which banks are not open for dealings in U.S. Dollar and GBP deposits in the London interbank market. "Capitalized Lease Obligation" means, as to any Person, any obligation of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real or personal property which obligation is required to be classified or accounted for as a capital lease obligation on a balance sheet of such Person prepared in accordance with GAAP and, for purposes of this Agreement, the amount of such obligation at any date shall be the outstanding amount thereof at such date, determined in accordance with GAAP and Section 1.3(a). "Cash Flow" means, for any period and any Person in respect of one or more Properties and/or Mortgaged Properties as to which such Person is the Operator or Mortgagor thereof, the sum (without duplication of counting and determined in accordance with Section 6 1.3(a)) of (i) Income Before Extraordinary Items, (ii) Interest Charges payable to Borrower, in the case of a Mortgaged Property, (iii) depreciation expenses, (iv) amortization expenses, (v) other non-cash items reducing Income before Extraordinary Items, (vi) all payments required to be made to Borrower or any of its Subsidiaries under a Lease, including without limitation fixed rent, participation rent and additional rent in respect of (a) operating expenses, (b) taxes based on the ownership of real property, (c) insurance premiums and/or (d) any other costs or expenses of the relevant lessor or sublessor, (vii) subordinated expenses paid to any Affiliate of such Operator or such Mortgagor relating to management, accounting or other similar fees, and (viii) to the extent otherwise included in the calculation of Income Before Extraordinary Items, any Restricted Payment, less non-cash items increasing Income Before Extraordinary Items, in each case of such Person for such period attributable to such Properties and/or Mortgaged Properties. "Cash Flow Event" means in respect of a Property or Mortgaged Property, that the Cash Flow of the Operator or Mortgagor thereof (as applicable) over its four most recent financial quarters (or, (i) if financial reporting for such Cash Flow is provided on an annual basis, over its last reported financial year, or (ii) where Marriott International, Inc. is the Operator or Mortgagor and financial reporting for such Cash Flow is not otherwise required to be provided to Borrower or its Subsidiaries, over the last reported financial year as certified by an officer of Marriott International, Inc. in a certificate described in Section 5.2(b)(iii)), attributable to that Property or Mortgaged Property is less than its Fixed Charges over the same period for such Property or Mortgaged Property; provided that a Cash Flow Event shall not be deemed to occur in respect of a Property or a Mortgaged Property that is part of a group of Cross Guarantied Assets if the Cash Flow of the Operators and Mortgagors determined on an aggregate basis over their respective four most recent financial quarters (or last reported financial year or last certified financial year, as the case may be), attributable to the relevant group of Cross Guarantied Assets, is greater than or equal to their Fixed Charges determined on an aggregate basis over the same period in respect of such group of Cross Guarantied Assets. "Clinic" means, in the case of a Property, a Property 50% or more of the rentable area of which is leased for use in, or, in the case of a Mortgaged Property, a Mortgaged Property 50% of the usable area of which is used for, the provision of outpatient medical services directly to patients. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commission" means the United States Securities and Exchange Commission or any successor to the responsibilities of such commission. "Commitment" has the meaning set forth in Section 2.1(b). "Commitment Period" means the period from and including the date hereof to and including the Final Borrowing Date or such earlier date as the Commitments shall terminate as provided herein. 7 "Common Shares" means Borrower's common shares of beneficial interest, $0.01 par value. "Contingent Obligation" means, as to any Person, any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations ( "primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the payment of, or the ability of the primary obligor to make payment of, such primary obligation or (d) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof; provided that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be determined in accordance with Section 1.3(a) and shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. "Contractual Obligation" means, as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Control" (including with correlative meanings the terms "Controlling", "Controlled by" and "under common Control with"), as applied to any Person, means the possession of the power, direct or indirect, (i) to vote 5% or more of the securities having ordinary voting power for the election of directors or trustees of such Person, or (ii) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Credit Support Agreements" means each of the Lease Guarantees, Mortgage Guarantees, Pledges and Sublease Agreements, and any other agreements or instruments providing assurances in any form, in each case in respect of any Person's obligations under a Lease or Mortgage Interest Agreement. "Credit Support Obligors" means the obligors in respect of the Credit Support Agreements, and each of them. "Cross Guarantied Assets" means a group of Properties and/or Mortgage Interests as to which the various Operators and/or Mortgagors have guarantied each other's obligations to Borrower and/or any of Borrower's Subsidiaries and have agreed to cross-default such obligations and/or cross-collateralize those obligations to the extent of any 8 security or credit support that has been provided for such obligations or a group of Properties and/or Mortgage Interests operated by a single Operator or Mortgagor as to which such Operator or Mortgagor has agreed to cross-default all of its obligations to Borrower and/or any of Borrower's Subsidiaries and to cross-collateralize those obligations to the extent of any security or credit support that has been provided for such obligations. "Current" means, at any date of determination, in respect of cash flow information of an Operator or Mortgagor required in a Real Property Statement, (a) for a fiscal year of that Operator or Mortgagor, that such information relates to its fiscal year then current or the fiscal year ended not more than one hundred and fifty days prior thereto or (b) for a fiscal quarter of that Operator or Mortgagor, that such information relates to its fiscal quarter then current or a fiscal quarter ended not more than seventy five days prior thereto. "Declaration of Trust" means the Declaration of Trust establishing Borrower, dated October 9, 1986, as amended and restated on July 1, 1994, as such Declaration of Trust may be further amended, supplemented or modified from time to time. "Default" means any of the events specified in Section 7.1, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "EBI" means, with respect to Borrower and its Subsidiaries, for any period of time, without duplication of counting and determined in accordance with Section 1.3(a), the sum of (i) the net income on a consolidated basis (determined in accordance with GAAP for such period), plus (ii) any losses for such period and reserves for such losses from the sale of real property assets (on a tax effected basis) plus (iii) any non-cash extraordinary losses and expenses and reserves for any non-cash extraordinary losses and expenses for such period, minus (iv) any gains for such period from the sale of assets (on a tax effected basis) outside the ordinary course of business, minus (v) any extraordinary gains from such period, plus (vi) to the extent deducted from gross income to calculate net income, Interest Charges of Borrower and its Subsidiaries on a consolidated basis for such period. "Effective Date" means the date when the conditions precedent set forth in Section 4 are first satisfied, or are waived pursuant to Section 10.6. "Eligible Mortgage" means each Mortgage Interest where (i) the requirements of Section 2.16 in respect of such Mortgage Interest are met, (ii) except in the case of Mortgaged Properties that consist of Medical Office Assets or Clinics, the Mortgagor in respect of such Mortgage Interest is not in default under any payment obligation or in any material respect under any other Contractual Obligation between such Mortgagor and Borrower or any of its Subsidiaries, including without limitation any Mortgage Interest Agreement, any note payable by such Mortgagor to Borrower or any of its Subsidiaries or any Lease, (iii) except in the case of Mortgaged Properties that consist of Medical Office Assets or Clinics, there has been no Cash Flow Event with respect to such Mortgaged Property , and in the case of Mortgaged Properties consisting of Medical Office Assets or Clinics, the Notional Interest Cover Ratio is met, (iv) except in the case of Mortgaged Properties that consist of Medical Office Assets or Clinics, no Credit Support Obligor in 9 respect of such Mortgage Interest is in default under any payment obligation or in any material respect under any other Contractual Obligation of such Credit Support Obligor to Borrower or any of its Subsidiaries, including without limitation any Lease, Mortgage Interest Agreement or Credit Support Agreement, and (v) such Mortgage Interest is not subject to a Lien otherwise permitted pursuant to Section 6.9(i) or 6.9 (iv). "Eligible Property" means each Property which is leased to an Operator, provided (i) the requirements of Section 2.16 in respect of such Property are met, (ii) except in the case of Properties consisting of Medical Office Assets or Clinics, it is not a Property the Operator of which has failed to exercise any renewal option under the Lease thereof prior to the expiration of the option (and no replacement Lease with that or another Operator has been signed), (iii) except in the case of Properties consisting of Medical Office Assets or Clinics, such Operator is not in default under any payment obligation or in any material respect under any other Contractual Obligation between such Operator and Borrower or any of its Subsidiaries, including without limitation such Lease, any other Lease or any Mortgage Interest Agreement, (iv) except in the case of Properties consisting of Medical Office Assets or Clinics, there has been no Cash Flow Event with respect to such Property, and in the case of Properties consisting of Medical Office Assets or Clinics, the Notional Interest Cover Ratio is met, (v) except in the case of Properties consisting of Medical Office Assets or Clinics, no Credit Support Obligor for the Lease of such Property is in default under any payment obligation or in any material respect under any other Contractual Obligation of such Credit Support Obligor to Borrower or any of its Subsidiaries, including without limitation any Lease, Mortgage Interest Agreement or Credit Support Agreement, and (vi) such Property is not subject to a Lien otherwise permitted pursuant to Section 6.9(i) or 6.9(iv). "Environmental Laws" means all statutes, ordinances, orders, rules and regulations having effect in any domestic or foreign jurisdiction relating to environmental matters, including, without limitation, those relating to fines, orders, injunctions, penalties, damages, contribution, cost recovery compensation, losses or injuries resulting from the Release or threatened Release of Hazardous Materials and to the generation, use, storage, transportation, or disposal of Hazardous Materials, in any manner applicable to Borrower or any Operator or Mortgagor or any of their respective Subsidiaries or any of their respective properties, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. ss. 9601 et seq.), the Hazardous Material Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. ss. 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. ss. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601 et seq.), the Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.) and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. ss. 11001 et seq.), each as amended or supplemented, and any analogous future or present local, municipal, state and federal statutes and regulations promulgated pursuant thereto, each as in effect as of the date of determination. "Equivalent Amount" means the amount of a currency other than U.S. Dollars that can be purchased with U.S. Dollars calculated on the basis of Administrative Agent's spot rate of exchange for the purchase of such other currency with U.S. Dollars on the date such calculation is to be made (such calculation to be made on the occasions set forth in Section 1.3(b)). 10 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means (i) any corporation which is an entity under common control with Borrower within the meaning of Section 4001 of ERISA or a member of a controlled group of corporations within the meaning of Section 414(b) of the Code of which Borrower is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Code of which Borrower is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Code of which Borrower, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. "Eurodollar Loans" means the portion of the Loans (which may be denominated in U.S. Dollars or in GBP) the interest on which is computed by reference to the LIBO Rate. "Event of Default" means any of the events specified in Section 7.1, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Existing Loan Agreement" has the meaning set forth in the introduction to this Agreement. "Existing Loans" has the meaning set forth in Section 2.1(a). "Excluded Taxes" means taxes upon any Lender's overall net income imposed by the United States of America or any political subdivision or taxing authority thereof or therein or by any jurisdiction in which the Lending Office of any Lender is located or in which any Lender is organized or has its principal or registered office, except taxes, duties or charges imposed pursuant to Section 1, 2 and/or 39 of the Massachusetts General Laws, Chapter 63, as currently in effect or as amended hereafter or any analogous provisions (or provisions having an analogous effect) of the laws, rules or regulations (or interpretations thereof) of Massachusetts or any other Governmental Authority. "Facility" means each operating facility offering health care or related services or rehabilitation or retirement services or other healthcare related income producing real property interest (including, without limitation, the Fee Interests and/or Leasehold Interests and/or Mortgage Interests associated with such Facility) in which Borrower or any of its Subsidiaries has acquired or will acquire an interest as owner, lessee or mortgagee, including without limitation each Property and Mortgaged Property. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a day for which 11 such rate is published, for the next preceding day for which it is published) by the Federal Reserve Bank of New York. "Fee Interests" means any land and any buildings, structures, improvements and fixtures owned beneficially in fee simple by Borrower or any of its Subsidiaries and equipment located thereon or used in connection therewith and all personalty (including, without limitation, franchises) related thereto and all other real estate interests, owned beneficially by Borrower or any of its Subsidiaries. "Final Borrowing Date" means the earlier of (i) March 15, 1999 and (ii) such date as the Commitments shall terminate as provided herein. "Final Repayment Date" means the later of (i) the Termination Date and (ii) such date as all Outstandings have been paid in full. "Fixed Charges" means, for any period and any Person in respect of one or more Properties and/or Mortgaged Properties as to which such Person is the Operator or Mortgagor thereof, the sum (without duplication of counting and determined in accordance with Section 1.3(a)) of (i) Interest Charges, (ii) all payments required to be made as lessee or sublessee under the terms of any Lease or other lease agreement, including without limitation fixed rent, participation rent and additional rent in respect of (a) operating expenses, (b) taxes based on the ownership of real property, (c) insurance premiums and/or (d) any other costs or expenses of the relevant lessor or sublessor, and (iii) scheduled payments of principal of Indebtedness or payments of amounts equivalent to principal, in each case of such Person, for such period and attributable to such Properties and/or Mortgaged Properties. "GAAP" means, subject to the provisions of Section 1.2, generally accepted accounting principles set forth in the Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements by the Financial Accounting Standards Board or in such other statement by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date in question; and the requirement that such principles be applied on a consistent basis shall mean that the accounting principles observed in a current period are comparable in all material respects to those applied in a preceding period. "GBP" shall mean the lawful currency from time to time of the United Kingdom. "General Corporate Loans" means Loans, the proceeds of which are to be applied toward general corporate purposes of Borrower or its Subsidiaries, as designated by Borrower pursuant to a Notice of Borrowing. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or Controlled (through stock or capital ownership or otherwise) by any of the foregoing. 12 "Hazardous Material" means (i) any chemical, material, substance or waste defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous waste," "restricted hazardous waste," or "toxic substances" or any other formulations intended to define, list or classify substances by reason of deleterious properties under any applicable Environmental Laws, (ii) biomedical waste, (iii) any oil, petroleum or petroleum derived substance, any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, any flammable substances or explosives, any radioactive materials, any toxic wastes or substances or any other materials or pollutants which (a) pose a hazard to any property of Borrower or any Operator or Mortgagor or any of their respective Subsidiaries or to Persons on or about such property or (b) cause such property to be in violation of any Environmental Laws, (iv) asbestos in any form which is or could become friable, urea formaldehyde foam insulation, electrical equipment which contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty parts per million, and (v) any other chemical, material, substance or waste, exposure to which is prohibited, limited or regulated by any Governmental Authority or may or could pose a hazard to the health and safety of the owners, occupants or any Persons surrounding the Facilities. "Hospitality Properties Trust" means Hospitality Properties Trust, a real estate investment trust formed under the laws of the State of Maryland. "HRPT Advisors" means HRPT Advisors, Inc., a Delaware corporation. "IDFA Indebtedness" means the Indebtedness, in an aggregate principal amount not to exceed $17,700,000 plus accrued interest thereon, existing pursuant to (a) that certain Loan Agreement dated as of April 15, 1991 between the Illinois Development Finance Authority and Marriott Retirement Communities, Inc. and relating to the Illinois Development Finance Authority Revenue Refunding Bonds Series 1991A, and (b) that certain Loan Agreement dated as of April 15, 1991 between the Illinois Development Finance Authority and Marriott Retirement Communities, Inc. and relating to the Illinois Development Finance Authority Revenue Refunding Bonds Series 1991B, which Indebtedness was assumed by Borrower's wholly-owned Subsidiary Church Creek Corporation, a Massachusetts corporation, pursuant to that certain Purchase Agreement dated March 17, 1994 among HMC Retirement Properties, Inc., HMH Properties, Inc. and Borrower and (without duplication) the letter of credit obligations with respect to which such Indebtedness was guaranteed by Borrower. "Income Before Extraordinary Items" means, for any period and any Person in respect of one or more Properties and/or Mortgaged Properties as to which such Person is the Operator or Mortgagor thereof, the net income (or loss) of such Person for such period attributable to such Properties and/or Mortgaged Properties, excluding any extraordinary items (net of taxes) and including amounts paid or provided for income taxes or deferred income taxes by or on behalf of such Person attributable to such Properties and/or Mortgaged Properties, all as determined in conformity with GAAP and Section 1.3(a). "Indebtedness" means, with respect to any Person, and without duplication and determined in accordance with Section 1.3(a), (i) all indebtedness, obligations and other 13 liabilities (contingent or otherwise) of such Person for borrowed money or other extensions of credit or evidenced by bonds, debentures, notes or similar instruments (whether or not the recourse of the lender is to the whole of the assets of such Person or to only a portion thereof), (ii) all reimbursement obligations and other liabilities (contingent or otherwise) of such Person with respect to letters of credit or bankers' acceptances issued for the account of such Person or with respect to interest rate protection agreements or securities repurchase agreements or currency exchange agreements or similar or analogous hedging or derivative agreements or instruments, (iii) all obligations and other liabilities (contingent or otherwise) of such Person with respect to any conditional sale, installment sale or other title retention agreement, purchase money mortgage or security interest, or otherwise to pay the deferred purchase price of property or services (except trade accounts payable and accrued expenses arising in the ordinary course of business) or in respect of any sale and leaseback arrangement, (iv) all Capitalized Lease Obligations of such Person, (v) all Contingent Obligations of such Person, (vi) all surety and other bonds and deposits, and all obligations and other liabilities secured by a Lien or other encumbrance on any asset of such Person (even though such Person has not assumed or otherwise become liable for the payment thereof), and (vii) all obligations to purchase, redeem or acquire any capital stock of such Person or its Subsidiaries that, by its terms or by the terms of any security into which it is convertible or exchangeable, is, or upon the happening of any event or the passage of time would be, required to be redeemed or repurchased by such Person or its Subsidiaries, including at the option of the holder, in whole or in part, or has, or upon the happening of an event or passage of time would have, a redemption or similar payment due, on or prior to the fifth anniversary of the date hereof or, if later, the date which is two years after the due date for the final repayment of the Loans as specified in any amendment of this Agreement. "Independent Trustees" has the meaning set forth in the Declaration of Trust. "Insolvency Event", with respect to any Person, means that (i) such Person shall have suspended or discontinued its business or commenced any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or such Person shall have made a general assignment for the benefit of its creditors; or (ii) there shall have been commenced against such Person any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall have been commenced against such Person any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets, which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) such Person shall have taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii) or (iii) above; or (v) such Person shall generally not be paying, or shall have been unable to pay, or shall have 14 admitted in writing its inability to pay, its debts as they become due. "Interest Charges" of a Person for any period means the sum of (i) the aggregate interest accrued and payable in cash, securities or otherwise on all Indebtedness of such Person and its Subsidiaries, if any, on a consolidated basis for such period, plus (ii) the aggregate amount of debt discount or other amounts analogous to interest accruing during or attributable to such period, whether or not payable during such period, including without limitation all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under (a)(i) interest rate swap agreements, interest rate collar agreements, and (ii) other agreements or arrangements designed to protect such Person and/or its Subsidiaries against fluctuations in interest rates; and (b) foreign exchange contracts and other agreements or arrangements designed to protect such Person and/or its Subsidiaries against fluctuations in currency values, all amounts calculated above to be determined in conformity with GAAP and in accordance with Section 1.3(a). "Interest Payment Date" means, subject to Section 2.10 hereof, (i) in the case of a Eurodollar Loan, the last day of each Interest Period (or if any such day is not a Business Day, the next succeeding Business Day), provided that in the case of each Interest Period of more than three months duration, "Interest Payment Date" shall also include each date that is three months, or an integral multiple thereof, after commencement of such Interest Period; and (ii) in the case of an Alternate Rate Loan or Base Rate Loan, the last Business Day of March, June, September and December of each year and the date such Loan (or any portion thereof) is converted in accordance with the terms hereof into a Base Rate Loan or Eurodollar Loan, in the case of an Alternate Rate Loan, or an Alternate Rate Loan or Eurodollar Loan, in the case of a Base Rate Loan. "Interest Period" means with respect to each Eurodollar Loan, and subject to Section 2.10 hereof, a one, two, three or six month period (or such other period of less than six months as shall be agreed by all the Lenders) as selected at the option of Borrower pursuant to a Notice of Borrowing or Notice of Continuation; provided that: (i) no Interest Period may be selected which expires later than the Termination Date; (ii) any Interest Period which begins on the last Business Day of a calendar month (or on a day with respect to which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to the foregoing proviso, end on the last Business Day of a calendar month; (iii) in the case of immediately successive Interest Periods applicable to a Eurodollar Loan continued as such pursuant to a Notice of Continuation, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires; (iv) there shall be no more than eight Interest Periods outstanding at any one time; and 15 (v) in the event Borrower fails to specify an Interest Period for any Loan in the applicable Notice of Borrowing or Notice of Continuation, Borrower shall be deemed to have selected an Interest Period of one month. "Interest Rate Determination Date" means each date for calculating the LIBO Rate for purposes of determining the interest rate in respect of an Interest Period. For a Eurodollar Loan, the Interest Rate Determination Date for such Loans denominated in U.S. Dollars shall be the second Business Day prior to the first day of the related Interest Period, while the Interest Rate Determination Date for such Loans denominated in GBP shall be the first day of the related Interest Period. "Kleinwort Benson" means Kleinwort Benson Limited, a bank organized and existing under the laws of England. "Lease Guarantees" means each guarantee, letter of credit or other similar undertaking issued by any Person in respect of any of the obligations of an Operator under a Lease. "Lease Guarantors" means the obligors in respect of the Lease Guarantees, and each of them. "Leasehold Interests" means any leasehold estate in any land and/or any buildings, structures, improvements and fixtures owned beneficially by Borrower or any of its Subsidiaries and all equipment located thereon or used in connection therewith and all personalty (including, without limitation, franchises) related thereto, owned beneficially by Borrower or any of its Subsidiaries. "Leases" means any leases or subleases relating to the Properties in respect of which Borrower of any of its Subsidiaries is the lessor. "Lender" has the meaning set forth in the first paragraph of this Agreement. "Lending Office" means the branch or Affiliate office or offices of each Lender designated as the Lending Office(s) of such Lender on Schedule 1 and each other branch or Affiliate office as such Lender may designate as its Lending Office(s) from time to time by notice to Agent and Borrower. "LIBO Rate" means the average (expressed as a percentage and rounded to the nearest one ten thousandth of one percent) of the offered rates, if any, quoted by the Reference Banks to Administrative Agent in the London interbank market for U.S. Dollar or GBP (as applicable) deposits of amounts comparable to the principal amount of the Loans for which the LIBO Rate is being determined with maturities comparable to the Interest Period for which such LIBO Rate will apply as of approximately 11:00 A.M. (London time) on the Interest Rate Determination Date for such Interest Period. "Lien" means, as to any Person, any mortgage, lien (statutory or otherwise), pledge, adverse claim, charge, security interest, assignment, deposit agreement or other 16 encumbrance in or on, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capitalized Lease Obligation with respect to any property or asset of such Person, or the signing or filing of a financing statement which names such Person as debtor, or the signing of any security agreement authorizing any other party as the secured party thereunder to file any financing statement. "Loan Agents" has the meaning set forth in Section 8.1(a). "Loan Documents" means, collectively, this Agreement (including, without limitation, the guaranties in Section 9), the Notes and any other agreements, documents or instruments delivered pursuant to or in connection with any of the foregoing, as such agreements, documents or instruments may be amended, modified or supplemented from time to time. "Loans" means the Existing Loans and the revolving loans made or to be made to Borrower by the Lenders hereunder. "MAC" means, with respect to any Property or Mortgage Interest, any material adverse effect on or change in (a) the business, operations, assets, prospects or financial condition or other condition of (i) such Property or (ii) such Mortgage Interest or (iii) any Operator of such Property or (iv) any Mortgagor of such Mortgage Interest or (v) any Credit Support Obligor of such Property or Mortgage Interest, (b) Agent's, Administrative Agent's or any Lender's rights and remedies under the Loan Documents, or (c) the ability of (i) any Operator of such Property or (ii) any Mortgagor of such Mortgage Interest or (iii) any Credit Support Obligor of such Property or Mortgage Interest to perform its obligations under the Loan Documents or under the Leases, the Mortgage Interest Agreements or the Credit Support Agreements in respect of such Property or Mortgage Interest. "Majority Lenders" means, at any particular time, Lenders having more than 66-2/3% of the Commitments, or if the Commitments have been terminated at such time, Lenders having more than 66-2/3% of the aggregate principal amount of the Loans then outstanding. "Mandatory Liquid Asset Costs" means, in relation to each Lender which may be subject to such requirements, the additional cost to such Lender of complying with the relative reserve asset ratio required by the Bank of England from time to time (if any), expressed as a percentage per annum and calculated as set forth in Schedule 5. "Material Adverse Effect" means a material adverse effect on or change in (a) the business, operations, assets, prospects or financial condition or other condition of (i) Borrower and its Subsidiaries taken as a whole or (ii) the Advisor or (iii) the Properties and Mortgage Interests taken as a whole, (b) Agent's, Administrative Agent's or any Lender's rights and remedies under the Loan Documents, (c) the ability of (i) Borrower or any of its Subsidiaries or (ii) the Advisor to perform its respective obligations under the Loan Documents, the Advisory Agreement, the Leases, the Mortgage Interest Agreements or the 17 Credit Support Agreements, or (d) the ability of the Operators, Mortgagors and Credit Support Obligors (taken as a whole) to perform their obligations under the Leases, the Mortgage Interest Agreements and the Credit Support Agreements insofar as they relate to Eligible Properties and Eligible Mortgages. "Medical Office Asset" means, in the case of a Property, other than a Clinic, a Property 50% or more of the rentable area of which is leased to one or more Operators for use as, or, in the case of a Mortgaged Property, other than a Clinic, a Mortgaged Property 50% or more of the usable area of which is used for, (i) offices for the practice of the medical profession (or administrative functions related thereto), including offices of physicians or physician practice groups, or (ii) medical research and development. "Mortgage Guarantees" means each guarantee, letter of credit or other similar undertaking issued by any Person in respect of any of the obligations of a Mortgagor under a Mortgage Interest Agreement. "Mortgage Guarantors" means the obligors in respect of the Mortgage Guarantees, and each of them. "Mortgage Interest" means any interest of Borrower or any of its Subsidiaries as lender and as mortgagee or beneficiary, as applicable, in respect of a loan secured in whole or in part by a Lien on any land or any buildings, structures, improvements and fixtures (including any leasehold estate with respect thereto). "Mortgage Interest Agreement" means any agreement, note, mortgage, deed of trust and/or other document creating, evidencing or securing a Mortgage Interest. "Mortgaged Property" means any land and any building, structure, improvements and fixtures (including any leasehold estate with respect thereto) with respect to which Borrower or any of its Subsidiaries has a Mortgage Interest. "Mortgagor" means, in the case of a Mortgage Interest, the obligor or obligors in respect of such Mortgage Interest. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Multiple Employer Plan" means an employee benefit plan, other than a Multiemployer Plan, subject to Title IV of ERISA to which Borrower or any ERISA Affiliate, and at least one employer other than Borrower or an ERISA Affiliate, is making or accruing an obligation to make contributions or, in the event that any such plan has been terminated, to which Borrower or any ERISA Affiliate made or accrued an obligation to make contributions during any of the five plan years preceding the date of termination of such plan. 18 "Net Mortgage Proceeds" means (a) any amounts paid, other than scheduled repayments, by a Mortgagor to Borrower or any of its Subsidiaries under an agreement, evidencing or securing any interest of Borrower or such Subsidiary as lender and as mortgagee or beneficiary, as applicable, in respect of a loan secured in whole or in part by a Lien on a Facility, in respect of principal thereunder, plus (b) the gross proceeds received by or for the account of Borrower or such Subsidiary of any sale or other disposition of any such agreement, minus (c) the reasonable out-of-pocket fees and expenses (including attorneys' fees and expenses) incurred by Borrower or such Subsidiary in connection with such sale or other disposition. "Net Property Proceeds" means (a) the gross proceeds received by or for the account of Borrower or any of its Subsidiaries of any sale, lease or other disposition of any Fee Interest or Leasehold Interest or termination or substitution of any lease or sublease with respect to any Fee Interest or Leasehold Interest of Borrower or any of its Subsidiaries, minus the reasonable out-of-pocket fees and expenses (including attorneys' fees and expenses) incurred by Borrower or such Subsidiary in connection with such sale or other disposition, (b) all insurance proceeds paid and received by or for the account of Borrower or such Subsidiary on account of the loss of or damage of any such Fee Interest or Leasehold Interest, to the extent such proceeds are not applied to the replacement or restoration of such assets and (c) all proceeds received by or for the account of Borrower or such Subsidiary, arising from the taking by condemnation or eminent domain of any such Fee Interest or Leasehold Interest, to the extent such proceeds are not applied to the replacement or restoration of such assets. "Net Securities Proceeds" with respect to any private or public offering of securities or any borrowing from one or more financial institutions means the gross proceeds thereof received by or for the account of Borrower net of (a) underwriting discounts and commissions and (b) reasonable out-of-pocket fees and expenses incurred in connection with such offering or borrowing; provided that such proceeds shall not include proceeds from borrowings (or from refinancing of such borrowings) from financial institutions which are applied substantially contemporaneously with the borrowing thereof to the acquisition of one or more Facilities but no later than two Business Days after such borrowing. "Notes" has the meaning set forth in Section 2.2. "Notice of Borrowing" means a notice substantially in the form of Exhibit B hereto delivered by Borrower to Administrative Agent (with a copy to Agent to follow) pursuant to Section 2.3 with respect to a proposed borrowing. "Notice of Continuation/Conversion" means a notice substantially in the form of Exhibit C hereto delivered by Borrower to Administrative Agent (with a copy to Agent to follow) pursuant to Section 2.5 with respect to a continuation or conversion of one or more Loans. "Notional Interest Cover Ratio" means, in respect of a (a) Property that is a Medical Office Asset or a Clinic, a ratio of (i) Adjusted Net Operating Cash Flow in respect of such Medical Office Asset or Clinic (measured over the four most recent financial quarters 19 of Borrower or, if less, the number of full financial quarters of Borrower during which the relevant Property has been a Property and annualized if measured over less than four financial quarters), to (ii) a notional amount of interest payable at a rate equal at all times to the Average Cost of Debt on a notional amount of principal equal to 80% of the acquisition cost to Borrower of such Medical Office Asset or Clinic (measured over the four most recent financial quarters of Borrower), of at least 1.25:1 and (b) Mortgaged Property that is a Medical Office Asset or a Clinic, a ratio of (i) Adjusted Net Interest in respect of such Medical Office Asset or Clinic (measured over the four most recent financial quarters of Borrower or, if less, the number of full financial quarters of Borrower during which the relevant Mortgaged Property has been a Mortgaged Property and annualized if measured over less than four financial quarters), to (ii) a notional amount of interest payable at a rate equal at all times to the Average Cost of Debt on a notional amount of principal equal to 80% of the Indebtedness secured by such Medical Office Asset or Clinic (measured over the four most recent financial quarters of Borrower), of at least 1.25:1. "Operators" in respect of a Facility, means the lessee or sublessee (other than Borrower or any of its Subsidiaries) thereof. "Outstanding" means, when used with reference to the Notes as of a particular time, all Notes theretofore issued as provided in this Agreement, except (i) Notes theretofore reported as lost, stolen, damaged or destroyed, or surrendered for transfer, exchange or replacement, in respect of which replacement Notes have been issued, (ii) Notes theretofore paid in full, and (iii) Notes theretofore duly cancelled by Borrower; and except that, for the purpose of determining whether holders of the requisite principal amount of Notes have made or concurred in any waiver, consent, approval, notice or other communication or matter under this Agreement, Notes held or owned by Borrower or any Affiliate of Borrower, shall not be deemed to be outstanding. "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA, or any successor to the responsibilities of such corporation. "Permitted Exceptions" means those exceptions to title set forth on Schedule 2. "Person" means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan" means an employee benefit plan, other than a Multiemployer Plan, maintained for or covering any employees of Borrower or any ERISA Affiliate and subject to Title IV of ERISA. "Pledges" means any pledge or grant of a Lien to secure any of the obligations of a Mortgagor under a Mortgage Interest Agreement, an Operator under a Lease, a Mortgage Guarantor under a Mortgage Guarantee, a Lease Guarantor under a Lease Guarantee or a Sublessee under a Sublease Agreement, each as amended, supplemented or 20 modified from time to time. "Pledgors" means the obligors in respect of the Pledges, and each of them. "Preferred Shares" means Borrower's preferred shares of beneficial interest authorized under the Declaration of Trust. "Primary Credit Support Obligor" means each Credit Support Obligor in respect of obligations of a Primary Operator/Mortgagor. "Primary Operator/Mortgagor" means any Operator and/or Mortgagor which is a lessee or sublessee with respect to Facilities and/or an obligor or mortgagor with respect to Mortgage Interests or Facilities representing, in aggregate, 10% or more of the aggregate Allowed Value of the Properties and Mortgage Interests; provided that with respect to property interests located in the United Kingdom, every Operator and every Mortgagor shall be deemed to be a "Primary Operator/Mortgagor" . "Process Agent" has the meaning set forth in Section 10.2. "Property" or "Properties" means each of the Facilities in which Borrower or any of its Subsidiaries has a Fee Interest or Leasehold Interest. "Pro Rata Share" means, with respect to each Lender as of the date of determination, the percentage obtained by dividing (i) the Commitment of that Lender as of such date by (ii) the Commitment of all Lenders as of such date; provided that if the Commitments have been terminated at such time, such Pro Rata Share shall be the percentage obtained by dividing (i) the aggregate amount of the Loans outstanding from that Lender as of such date by (ii) the aggregate amount of the Loans outstanding from all Lenders as of such date. "Psychiatric Care Asset" means, in respect of any Property or Mortgage Interest, that more than 50% of the licensed beds of the Property or, in the case of a Mortgage Interest, of the Mortgaged Property covered thereby, are designated for psychiatric treatment. "Real Property" has the meaning set forth in Section 5.12. "Real Property Permit" means, in respect of any Property or Mortgaged Property, all certificates of occupancy, permits, licenses, franchises, approvals and authorizations from all Governmental Authorities having jurisdiction over such Property or Mortgaged Property or any portion thereof, the absence of which could materially impair the use of such Property or Mortgaged Property for the purposes for which it is currently used, and from all insurance companies and fire rating and similar boards and organizations required to have been issued to Borrower or any of its Subsidiaries or the Operator (in the case of a Property) or the Mortgagor (in the case of a Mortgaged Property) to enable such Property or Mortgaged Property or any portion thereof to be lawfully occupied and used as currently so occupied or used. 21 "Real Property Statement" means a certificate of a Responsible Officer providing each of the following: (i) a list of all Facilities owned by Borrower and its Subsidiaries or in which Borrower or any such Subsidiary has an interest at the date of such certificate, identifying the nature of such interest and certifying the Appraised Value, if available, and each of the other costs, values and prices referred to in the definition of "Allowed Value" relating to each Facility; (ii) specification in respect of each Facility of each of the following: (a) whether as of the date of such certificate such Facility is an Eligible Property or a Mortgaged Property covered by an Eligible Mortgage; (b) in respect of each Eligible Property, the acquisition cost of Borrower or any of its Subsidiaries in respect of such Eligible Property; and (c) in respect of each Eligible Mortgage, the then outstanding principal amount due to Borrower or any of its Subsidiaries from the relevant Mortgagor in respect of such Eligible Mortgage; (iii) with respect to each such Eligible Property or Eligible Mortgage, certification as to the ratio of (A) the Cash Flow of the Operator or Mortgagor thereof (as applicable) over the four most recent financial quarters (or, (y) if financial reporting for such Cash Flow is provided on an annual basis, over its last reported financial year, or (z) where Marriott International, Inc. is the Operator or Mortgagor and financial reporting for such Cash Flow is not otherwise required to be provided to Borrower or its Subsidiaries, over the last reported financial year as certified by an officer of Marriott International, Inc. in a certificate described in Section 5.2(b)(iii)) attributable to that Eligible Property or Eligible Mortgage to its (B) Fixed Charges over the same period for such Eligible Property or Eligible Mortgage and, further, certification that, with respect to each Eligible Property or Eligible Mortgage, the details of cash flows of the Operator or Mortgagor thereof used by Borrower in its calculations are Current; provided that if such Eligible Property or Eligible Mortgage is part of a group of Cross Guarantied Assets, in addition to the certification required for each individual Eligible Property or Eligible Mortgage, Borrower also shall provide certification as to the ratio of (A) the Cash Flow of the Operators or Mortgagors (as applicable) for such group determined on an aggregate basis over their respective four most recent financial quarters (or last reported financial year or last certified financial year, as the case may be) attributable to the group of Cross Guarantied Assets to (B) their Fixed Charges over the same period for such group of Cross Guarantied Assets; and (iv) certification that there has been no MAC in any of the circumstances set forth in Section 2.16(c), other than, in each case, a MAC which has ceased to be in effect. 22 "Recognized Appraiser" means a qualified and recognized professional appraiser as may be selected or approved by Agent and Administrative Agent with the consent of Borrower, which will not be unreasonably withheld, having at least five years' prior experience in performing real estate appraisals in the geographic area where the property being appraised is located, having a recognized expertise in appraising properties operated as health care or retirement facilities or hotel or other lodging facilities; provided that if the property being appraised is located in the United Kingdom, such appraiser will be selected or approved by Agent with the consent of Borrower. "Reference Banks" means Kleinwort Benson Limited and Wells Fargo Bank, National Association. "Rehabilitation Treatment Asset" means, in respect of any Property or Mortgage Interest, that more than 50% of the licensed beds of the Property or, in the case of a Mortgage Interest, of the Mortgaged Property covered thereby, are designated for rehabilitation treatment. "Release" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, leaching or migration of any Hazardous Materials into the indoor or outdoor environment (including, without limitation, the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), or into or out of any Facility, including the movement of any Hazardous Material through the air, soil, surface water, groundwater or property. "Reportable Event" means a "reportable event" within the meaning of Section 4043 of ERISA (other than a "reportable event" for which the 30-day notice to PBGC requirement has been waived by regulation of PBGC). "Requirement of Law" means, as to any Person, any law, treaty, rule or regulation, or judgment, order, directive or other determination of any arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its properties or to which such Person or any of its property is subject. "Responsible Officer" means, with respect to any matter (including financial matters), the president, chief executive officer, chief financial officer, executive vice president or treasurer of Borrower. "Restricted Payment" means (a) every dividend or other distribution of assets, properties, cash, rights, obligations or securities paid, made, declared or authorized by Borrower or any of its Subsidiaries (other than to Borrower) or in respect of any of the Common Shares, the Preferred Shares or other equity securities of Borrower, or any class of Borrower's equity securities, or for the benefit of holders of any thereof in their capacity as such and (b) every payment by or for the account of Borrower or any of its Subsidiaries in connection with the redemption, purchase, retirement, defeasance or other acquisition of any Common Shares, Preferred Shares or other equity securities of Borrower or options, warrants or other rights to acquire any of Borrower's equity securities and (c) every payment (i) of principal, interest, fees or other amounts in respect of any Indebtedness of Borrower or any of 23 its Subsidiaries to any Affiliate of Borrower (provided that "Restricted Payment" shall not include or prohibit any such payment in respect of intercompany Indebtedness of any of Borrower's Subsidiaries permitted under Section 6.8(d)), (ii) in respect of the redemption, purchase, retirement, defeasance, or other acquisition from an Affiliate of Borrower of any Indebtedness of Borrower, or (iii) of fees in respect of advisory services rendered to Borrower or any of its Subsidiaries by the Advisor and (d) every direct or indirect investment by Borrower (by means of capital contribution, advance, loan or otherwise) in an Affiliate or any Person which becomes an Affiliate after or as a result of such investment (but not including investments by Borrower in its direct wholly-owned Subsidiaries), and (e) every payment by or for the account of Borrower or any of its Subsidiaries in connection with the redemption, purchase, retirement, defeasance or other acquisition for value, directly or indirectly, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, of Indebtedness which is subordinate in right of payment to the Loans or the Notes. "Solvent" means, with respect to any Person on a particular date, that on such date (i) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person (whether or not required to be reflected on a balance sheet prepared in accordance with GAAP), (ii) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (iii) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (v) such Person is not engaged in business or a transaction for which such Person's property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Specified Subordinated Indebtedness" means Indebtedness of any Person, the terms of which prohibit the holder or any representative of the holder from exercising any legal remedies or other creditor's rights (including without limitation the filing of a petition in respect of such Person under the U.S. Bankruptcy Code, 11 U.S.C. 101 et seq.) thereunder until all obligations (contingent or otherwise) of such Person to Borrower under all Leases, Mortgage Interest Agreements and Credit Support Agreements to which that Person is a party have been indefeasibly satisfied in full. "Sublease Agreement" means any agreement pursuant to which a Person subleases all, or a material portion, of a Property from an Operator, as such agreement is amended, supplemented or modified from time to time. "Sublessees" means the sublessees in respect of the Sublease Agreements, and each of them. "Subordination Agreement" means the amended and restated subordination agreement, dated as of June 15, 1994, among Administrative Agent, the Advisor and 24 Borrower an executed copy of which is annexed hereto as Exhibit D, as amended, supplemented or modified from time to time in a manner not inconsistent with the terms of the Existing Loan Agreement or hereof. "Subsidiary" means, as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly, through one or more intermediaries, or both, by such Person. "Tangible Net Worth" means, with respect to Borrower and its Subsidiaries, the excess of total assets over total liabilities of such Persons on a consolidated basis, such total assets and total liabilities each to be determined in accordance with GAAP and Section 1.3(a), consistent with those applied in the preparation of the financial statements referred to in Section 3.1; excluding, however, from the determination of total assets (i) goodwill, organizational expenses, capitalized software, research and development expenses, trademarks, trade names, copyrights, patents, patent applications, licenses and rights in any thereof, and other similar intangibles, (ii) all prepaid expenses, deferred charges or unamortized debt discount and expense, (iii) all reserves carried and not deducted from assets, (iv) treasury stock and shares of beneficial interest and capital stock, obligations or other securities of, or capital contributions to, or investments in, any Subsidiary, (v) securities, other than the shares of stock of Hospitality Properties Trust, which are not readily marketable, (vi) cash held in a sinking or other analogous fund established for the purpose of redemption, purchase, retirement, defeasance, acquisition or prepayment of Common Shares, Preferred Shares or other equity securities, capital stock or Indebtedness, (vii) any write-up in the book value of any asset resulting from a revaluation thereof subsequent to December 31, 1987, (viii) leasehold improvements not recoverable at the expiration of a Lease (to the extent that the useful life of such improvements is greater than the term of such Lease), and (ix) any items not included in clauses (i) through (viii) above which are treated as intangibles in conformity with GAAP. "Termination Date" means March 15, 2000 "Termination Event" means (i) a Reportable Event or an event described in Section 4062(e) of ERISA, or (ii) the withdrawal of Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a "substantial employer", as such term is defined in Section 4001(a)(2) of ERISA, or the incurrence of liability by Borrower or any ERISA Affiliate under Section 4064 of ERISA upon the termination of a Multiple Employer Plan, (iii) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, (iv) the institution of proceedings to terminate a Plan by the PBGC under Section 4042 of ERISA, (v) the withdrawal of Borrower or any ERISA Affiliate from any Multiemployer Plan, or (vi) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. "Total Liabilities" of any Person means and includes, as of any date as of 25 which the amount thereof is to be determined, without duplication (i) all items which in accordance with GAAP would be required to be included on the liabilities side of a consolidated balance sheet of such Person at such date and (ii) to the extent not otherwise included in (i) above, all Indebtedness of such Person as of such date, determined on a consolidated basis and in accordance with Section 1.3(a). "Trigger Date" has the meaning set forth in Section 5.14. "United Kingdom" means the United Kingdom of Great Britain and Northern Ireland. "U.S. Dollars" or "$" shall mean the lawful currency of the United States of America. 1.2. Other Definitional Provisions. (a) All terms defined in this Agreement shall have the meanings assigned to them herein when used in the Notes or any certificate or other document made or delivered pursuant hereto, unless otherwise defined therein. (b) As used herein and in the Notes and other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in Section 1.1, and accounting terms partly defined in Section 1.1 to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section, schedule and exhibit references are to this Agreement unless otherwise specified and, where appropriate, the singular shall include the plural. 1.3 Certain Calculations: Mark-to Market (a) Except in the circumstances set forth in Section 1.3(b), for the purposes of determining the amount of outstanding Indebtedness, Total Liabilities or any other indebtedness, obligations or liabilities of Borrower or any of its Subsidiaries or any other Person, or the amount or value of any investments or assets of or obligations owed to Borrower or any of its Subsidiaries or any other Person, or the amount of any other item included in income or cash flow statements of Borrower or any of its Subsidiaries or any other Person (each of the foregoing being a "Calculation Item"), if such Calculation Item is owed or otherwise recorded or measured in GBP or any other currency other than U.S. Dollars, the amount or value of the Calculation Item shall be calculated in U.S. Dollars and shall be the amount of U.S. Dollars that can be purchased with GBP or such other currency calculated on the basis of Administrative Agent's spot rate of exchange for the purchase of U.S. Dollars with GBP or such other currency on the date such calculation is to be made; provided that notwithstanding the continuous nature of certain representations and covenants in this Agreement, unless requested to do so by Agent or Administrative Agent or unless 26 Borrower is aware of any material currency movement or other circumstance which would be reasonably likely to have an effect on its ability to satisfy any such representation or covenant, Borrower shall not be required to make such calculation with respect to such representations and covenants at any time other than in connection with the delivery of a Real Property Statement or the delivery of the certificate of a Responsible Officer under Section 5.2(b); provided further that even if not required to make such calculations, nothing in this Section 1.3(a) shall be construed to in any way limit Borrower's obligations to satisfy all such representations and covenants in accordance with their terms. (b) Administrative Agent shall calculate the Equivalent Amount of Loans denominated in GBP: (i) after any Borrowing Date on which Loans are made such that the aggregate principal amount of Loans outstanding exceeds 75% of the Commitments and if requested by Agent or if Administrative Agent in the reasonable exercise of its judgment considers it desirable to make such calculation to monitor compliance by Borrower with the limits set forth in Section 2.1, on the final Business Day of each Interest Period for each Loan denominated in GBP or otherwise as often as Administrative Agent considers it desirable or necessary to make such calculation and Administrative Agent shall notify Borrower and Agent if, based on such calculation, Borrower is in compliance with the requirements of Section 2.1 as to the maximum aggregate outstanding principal amount of Loans denominated in GBP or whether prepayment of the Loans is necessary as required by Section 2.8(e); (ii) on any proposed Borrowing Date to determine whether, after giving effect to a proposed borrowing, Borrower will be in compliance with such requirements of Section 2.1; and (iii) on any proposed continuation/conversion date under Section 2.5 to determine whether, after giving effect to such proposed continuation/conversion, Borrower will be in compliance with such requirements of Section 2.1; provided that any failure by Administrative Agent to make such calculations or provide the information under this Section 1.3(b) shall not affect the obligations of Borrower to comply with the limits set forth in Section 2.1 or otherwise to satisfy all representations and covenants made by it in this Agreement. SECTION 2. AMOUNT AND TERMS OF REVOLVING LOANS 2.1. Revolving Loans. (a) Each Lender severally (and not jointly) agrees, subject to the terms and conditions hereof, to continue the Existing Loans outstanding on the Effective Date, to make Loans to Borrower from time to time during the period from the Effective Date to and including the Final Borrowing Date, and to maintain its Loans outstanding to Borrower on the Final Borrowing Date from such date until the Termination Date, up to an aggregate amount (including, without limitation, the amount of any Existing Loans) or the Equivalent Amount in GBP at any one time not exceeding its Pro Rata Share of the aggregate Commitments (as defined below) to be used for the purposes identified in Section 2.11 ; provided that in no event shall the aggregate outstanding principal amount of Loans denominated in GBP at any time exceed the Equivalent Amount of $100,000,000 (as determined in accordance with Section 1.3(b)). Each Loan hereunder shall be made by Lenders in accordance with their respective Pro Rata Share. Upon satisfaction of the conditions set forth in Section 4, (i) all loans outstanding under the Existing Loan Agreement 27 as of, and at the time of, the Effective Date ("Existing Loans") and all rights relating to the Existing Loans and all other rights arising under the Existing Loan Agreement and all documents relating thereto, except to the extent specifically amended and restated by this Agreement, shall be assigned (without any further action or authorization being required) by the lenders under the Existing Loan Agreement to the Lenders proportionately to their respective Pro Rata Shares of the Commitments without recourse, representation or warranty (except for representations and warranties made in this Section 2.1(a)) of any nature, express or implied, by any such lender and such Existing Loans shall be continued and deemed to be Loans for all purposes under this Agreement and (ii) each Lender shall pay to Administrative Agent its Pro Rata Share of the Existing Loans or, if less, the amount by which such Pro Rata Share exceeds its outstanding Existing Loans (if any), for distribution to the lenders under the Existing Loan Agreement that are not Lenders and to the other Lenders that have funded such Loans, in accordance with their respective Commitments, and each Lender's share of the Existing Loans shall be adjusted accordingly. In connection with such assignment, each Lender shall be deemed to represent and warrant to each other Lender that (i) it is, and will be on the Effective Date, prior to the assignment of its interests pursuant to this Section 2.1(a), the legal and beneficial owner of the interests being assigned and such interests are, and will be on the Effective Date, free and clear of any adverse claim and (ii) the total aggregate principal amount and accrued interest, fees and other amounts due to such Lender under the Existing Loan Agreement on March 29, 1996 are as set forth on Schedule 3 annexed hereto. Any amounts of accrued interest, commitment fees or other amounts (other than principal) owed (whether or not presently due and payable) by Borrower to the lenders under or in respect of the Existing Loans shall, as of the Effective Date, be deemed to be due and payable to the lenders under the Existing Loan Agreement. The continuation of the Existing Loans hereunder shall not be deemed to be a repayment thereof, and Borrower shall not be required to deliver any notice of prepayment or notice of borrowing or to satisfy any condition relating to minimum amounts of prepayments or minimum amounts of borrowings hereunder with respect to such continuance of the Existing Loans. (b) Each Lender's commitment to make and maintain Loans to Borrower pursuant to this Section 2.1 is herein called its "Commitment" and such commitments of all Lenders in the aggregate are herein called the "Commitments". The original amount of each Lender's Commitment is set forth opposite its name on Schedule 1 annexed hereto and the aggregate original amount of the Commitments is $250,000,000; provided that up to an Equivalent Amount of $100,000,000 may be made in Loans denominated in GBP (as determined in accordance with Section 1.3(b)); provided further that the amount of the Commitments shall be reduced from time to time by the amount of any reductions thereto made pursuant to Section 2.7 (with a proportionate reduction of the amount of the Commitments otherwise available for the borrowing of Loans denominated in GBP); provided further that Lenders shall have no obligation to make or maintain Loans hereunder to the extent any such Loan would (i) cause the aggregate amount of the Loans then outstanding to exceed the Commitments or (ii) cause the aggregate amount of the General Corporate Loans then outstanding to exceed 25% of the Commitments; and provided further that Lenders shall have no obligation to make or maintain Loans denominated in GBP hereunder to the extent any such Loan would cause the aggregate amount of the Loans denominated in GBP then outstanding to exceed the Equivalent Amount of $100,000,000 (as determined in accordance with Section 1.3(b)). 28 (c) Each Lender's Commitment shall expire on the Termination Date and all Loans and all other amounts owed hereunder with respect to the Loans and the Commitments shall be paid in full no later than that date. (d) Subject to the other terms and conditions hereof, Borrower may borrow under this Section 2.1, repay Loans in accordance with Section 2.10 or prepay Loans in accordance with Section 2.8 and reborrow the amounts so repaid under this Section 2.1. 2.2. Notes; Maturity Date. The Loans of each Lender pursuant hereto shall be evidenced by, and be repayable with interest in accordance with the terms of, a promissory note of Borrower substantially in the form of Exhibit A, with appropriate insertions, payable to the order of such Lender in the principal amount of the Commitment of such Lender (together with any replacement, modification, renewal or substitution thereof, individually a "Note" and collectively, the "Notes"), which shall be dated the Effective Date and be duly completed, executed and delivered by Borrower. The Loans of each Lender pursuant hereto shall be made and maintained by such Lender's Lending Office(s) as designated by such Lender from time to time. All outstanding Loans and each of the Notes shall mature and Borrower shall repay the outstanding principal amount of such Loans and the Notes in full together with all unpaid interest accrued thereon on the Termination Date (or earlier as hereinafter provided) (or if such day is not a Business Day, the next preceding Business Day) all in accordance with Section 2.10(b), and shall be subject to payment and prepayment as provided in Section 2.8 hereof. Each Lender is authorized to endorse at any time the date and amount of each Loan or conversion or continuation thereof, the date and amount of each payment of principal with respect to its Loans and whether its Loans are Base Rate Loans, Eurodollar Loans or Alternate Rate Loans, on the schedule annexed to and constituting a part of such Lender's Note, which endorsement shall constitute prima facie evidence of the accuracy of the information endorsed. 2.3. Procedure for Borrowing. (a) Whenever Borrower desires to borrow under Section 2.1, it shall deliver both a Notice of Borrowing and a Real Property Statement to Administrative Agent (with a copy of each to Agent) no later than 11:00 A.M. (New York time) in the case of Base Rate Loans at least one Business Day and in the case of Eurodollar Loans at least three Business Days in advance of the proposed Borrowing Date. The Notice of Borrowing shall specify (i) the proposed Borrowing Date (which shall be a Business Day), (ii) whether such Loans are to be denominated in U.S. Dollars or, subject to the limit in Section 2.1, GBP, (iii) the amount of the Loans requested (which amount shall be in a minimum aggregate amount of $1,000,000 and integral multiples of $500,000 in excess of that amount if the Loans are to be denominated in U.S. Dollars or a minimum aggregate amount of GBP 1,000,000 and integral multiples of GBP 500,000 in excess of that amount if the Loans are to be denominated in GBP), (iv) whether such Loans will be Base Rate Loans or Eurodollar Loans and, if Eurodollar Loans are specified, the initial Interest Period requested for such Eurodollar Loans, (v) Borrower's account at Administrative Agent to which the net proceeds of the requested Loans are to be credited, (vi) whether the requested Loans (or any portion thereof) are to be General Corporate Loans and, if only a portion thereof are so designated, the amount of such portion, (vii) that the representations and warranties contained in the Loan Documents are true, correct and accurate in all material respects to the same extent as though 29 made on and as of the date of such Notice of Borrowing unless stated in the relevant Loan Document to relate to a specific earlier date, in which case such representations and warranties shall be true, correct and complete in all material respects as of such earlier date, (viii) that no event has occurred and is continuing or would result from the proposed borrowing that would constitute a Default or Event of Default, (ix) that the amount of the proposed borrowing will not cause (A) the aggregate outstanding principal amount of the Loans to exceed the Commitments currently in effect, (B) the aggregate amount of the General Corporate Loans then outstanding to exceed 25% of the Commitments or (C) the aggregate amount of the Loans denominated in GBP then outstanding to exceed the Equivalent Amount of $100,000,000 (as determined in accordance with Section 1.3(b)), (x) that the proceeds of the proposed borrowing (other than any proceeds of General Corporate Loans) shall be used to make payment on the proposed Borrowing Date for the purchase price and costs of acquiring interests in one or more Facilities due and payable on such Borrowing Date and (xi) with respect to the amount of such Loans which will not be General Corporate Loans, the following: (x) the name of the proposed Operators and/or Mortgagors (as applicable) of the Facility or Facilities to which such borrowing relates and any Credit Support Obligors in relation thereto; (y) the name and location of such Facility or Facilities, the Appraised Value(s) thereof and each of the other costs, values and prices referred to in the definition of "Allowed Value" therefor, and a description of the interests of Borrower or any of its Subsidiaries therein to be acquired with the proceeds of such borrowing; and (z) if the proceeds of such Loan will be used to acquire an interest in any Facility which interest is required to be an Eligible Property or Eligible Mortgage included in the calculation of Indebtedness permitted under Section 6.8(a) after giving effect to such Loan, certification to that effect. In lieu of delivering the above-described Notice of Borrowing, Borrower may give Administrative Agent telephonic notice (which telephonic notice shall be followed immediately with a notice by facsimile telecopy) by the time specified for a Notice of Borrowing above; provided that such notice shall be promptly confirmed in writing by delivery of a Notice of Borrowing and a Real Property Statement to Administrative Agent and Agent on or before the applicable Borrowing Date; provided further that in the event of a discrepancy between a Notice of Borrowing and such telephonic notice, the telephonic notice shall govern. Except as otherwise provided in Sections 2.13 and 2.14, a Notice of Borrowing (or telephonic notice in lieu thereof as provided above) shall be irrevocable, and Borrower shall be bound to make the borrowing specified in such Notice of Borrowing (or telephonic notice in lieu thereof as provided above) in accordance therewith. None of Agent, Administrative Agent or any Lender shall incur any liability to any Person (including Borrower or any of its Subsidiaries) in acting upon any telephonic notice referred to above that Administrative Agent or Agent believes in good faith to have been given by a duly authorized officer or other Person authorized to borrow on behalf of 30 Borrower or otherwise acting in good faith under this Section 2.3, and upon funding of Loans by Lenders in accordance with this Agreement pursuant to any such telephonic notice Borrower shall have effected the borrowing of such Loans hereunder. (b) All Loans under this Agreement shall be made by Lenders simultaneously and proportionately to their respective Pro Rata Shares of the Commitments, it being understood that no Lender shall be responsible for any default by any other Lender in that other Lender's obligation to make Loans requested hereunder nor shall the Commitment of any Lender to make Loans requested hereunder be increased or decreased as a result of a default by any other Lender in that other Lender's obligation to make Loans requested hereunder. Promptly after receipt by Administrative Agent of a Notice of Borrowing pursuant to Section 2.3(a) (or telephonic notice in lieu thereof followed immediately with a notice by facsimile telecopy) and in any event not later than 2:00 p.m. (New York time) on the preceding Business Day (in the case of Base Rate Loans) or at least three Business Days (in the case of Eurodollar Loans) in advance of the proposed Borrowing Date, Administrative Agent shall notify each Lender of the relevant details of the proposed borrowing. Each Lender shall make the amount of its Loan available to Administrative Agent, in immediately available funds, at the account specified by Administrative Agent to the Lenders, not later than 11:00 A.M. (New York time) on the Borrowing Date specified in the applicable Notice of Borrowing. Upon satisfaction or waiver of the applicable conditions precedent specified in Sections 4.1 and 4.2, Administrative Agent shall make the proceeds of such Loans available to Borrower on such Borrowing Date by causing an amount of immediately available funds equal to the proceeds of all such Loans received by Administrative Agent from Lenders to be credited to the account at Administrative Agent as specified by Borrower in the Notice of Borrowing. Unless Administrative Agent shall have been notified by any Lender prior to the Borrowing Date for any Loans that such Lender does not intend to make available to Administrative Agent the amount of such Lender's Loan requested on such Borrowing Date (and any such notice shall be without prejudice to any rights of Borrower against such Lender hereunder), Administrative Agent may assume that such Lender has made such amount available to Administrative Agent on such Borrowing Date and Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to Borrower a corresponding amount on such Borrowing Date. If such corresponding amount is not in fact made available to Administrative Agent by such Lender, Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from such Borrowing Date until the date such amount is paid to Administrative Agent, at the Base Rate in the case of Loans denominated in U.S. Dollars or at the Alternate GBP Rate in the case of Loans denominated in GBP. If such Lender does not pay such corresponding amount forthwith upon Administrative Agent's demand therefor, Administrative Agent shall promptly notify Borrower and Borrower shall immediately pay such corresponding amount to Administrative Agent together with interest thereon, for each day from such Borrowing Date until the date such amount is paid to Administrative Agent, at the Base Rate in the case of Loans denominated in U.S. Dollars or at the Alternate GBP Rate in the case of Loans denominated in GBP. Nothing in this Section 2.3 shall be deemed to relieve any Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that Borrower may have against any Lender as a result of any default by such Lender hereunder. 31 2.4. Interest. (a) Generally. Each Loan shall be a Eurodollar Loan or a Base Rate Loan as selected by Borrower initially at the time a Notice of Borrowing is given pursuant to Section 2.3(a) or as selected pursuant to Section 2.5 (or, in the case of any Existing Loans, as in effect on the Effective Date), except for any portion of a Eurodollar Loan which is converted to an Alternate Rate Loan pursuant to Section 2.13 or 2.14. Loans shall bear interest on the unpaid principal amount thereof from the date made (or, in the case of any Existing Loans, from the Effective Date) to maturity (whether by accelerations or otherwise), at the interest rates specified as follows: (i) in the case of a Eurodollar Loan, at an interest rate per annum for and during each Interest Period equal to the LIBO Rate for such Interest Period plus the Applicable Margin in effect from time to time; (ii) in the case of the Base Rate Loan, at an interest rate per annum equal to the Base Rate in effect from time to time plus the Applicable Margin in effect from time to time; and (iii) in the case of an Alternate Rate Loan (including any Alternate GBP Rate Loan), at an interest rate per annum equal to the Alternate Rate in effect from time to time plus the Applicable Margin in effect from time to time, plus, in the case of any Loan denominated in GBP and made by a Lender subject to such requirements, Mandatory Liquid Asset Costs. Borrower shall pay interest on the unpaid principal amount of the Loans outstanding from time to time, in arrears, (i) on each Interest Payment Date, (ii) on the Termination Date, (iii) in the currency required by Section 2.10(b) and (iv) in accordance with Section 2.4(b) (where applicable). In addition, Borrower shall pay accrued interest on the principal amount of any Loans prepaid in accordance with Section 2.8 on the date of any such prepayment. (b) Default Interest. If Borrower shall default in the payment of the principal of or interest on any portion of a Loan or any other amount becoming due hereunder or under any of the Loan Documents, Borrower shall on demand from time to time pay interest (to the extent permitted by law in the case of interest on overdue interest) on such defaulted amount accruing from and including the date of such default (without reference to any period of grace) up to and including the date of actual payment (after as well as before judgment) at a rate per annum which is the sum of (i) two percent (2%) plus (ii) the greatest of the LIBO Rate, the Alternate Rate or the Base Rate plus (iii) the Applicable Margin. Interest under this Section 2.4(b) shall be payable upon demand. (c) Interest Determination. Upon determining the LIBO Rate for each Interest Period, the Alternate Rate for any period or the Base Rate in effect from time to time, Administrative Agent shall promptly notify Borrower and Lenders thereof by telephone (confirmed promptly in writing) or in writing. Such determination shall, in the absence of manifest error, be conclusive and binding upon Borrower and the Lenders. 32 2.5. Duration of Interest Period; Notice of Continuation/Conversion. (a) Borrower may, pursuant to the applicable Notice of Borrowing or Notice of Continuation/Conversion, as the case may be, select an Interest Period to be applicable to each Eurodollar Loan. (b) Subject to the provisions of Sections 2.13 and 2.14, Borrower shall have the option (i) to convert at any time all or any part of outstanding Base Rate Loans to Eurodollar Loans or (ii) upon the expiration of any Interest Period applicable to Eurodollar Loans, to continue all or any portion of such Loans as Eurodollar Loans or convert all or any portion of such Loans to Base Rate Loans, as the case may be, and the succeeding Interest Period(s) of such continued Loans shall commence on the most recent Interest Payment Date therefor; provided that Loans may be continued as, or converted into, Eurodollar Loans with a particular Interest Period only in an aggregate amount equal to $1,000,000 and integral multiples of $500,000 in excess of that amount if the Loans are to be denominated in U.S. Dollars or a minimum aggregate amount of GBP 1,000,000 and integral multiples of GBP 500,000 in excess of that amount if the Loans are to be denominated in GBP (but subject always to the determinations described in Section 1.3(b) and the limits in Section 2.1 for Loans denominated in GBP); provided further that Eurodollar Loans or any portion thereof may only be converted into Base Rate Loans on the expiration date of the Interest Period(s) applicable thereto; and provided further that (i) no event has occurred and is continuing or would result from such Loan continuation/conversion that would constitute a Default or Event of Default, and (ii) the representations and warranties contained in Section 3 shall be true, correct and complete in all material respects on and as of the proposed continuation/ conversion date to the same extent as though made on and as of that date unless stated in such section to relate to a specific earlier date, in which case such representations and warranties shall be true, correct and complete in all material respects as of such earlier date. All conversions and continuations of Loans shall be made simultaneously and on a pro rata basis by the Lenders in accordance with their respective Pro Rata Shares. Borrower shall deliver a Notice of Continuation/ Conversion to Administrative Agent (with a copy to Agent to follow) no later than 11:00 A.M. (New York City time) at least three Business Days in advance of the proposed continuation/ conversion date (in the case of a conversion to, or a continuation of, Eurodollar Loans) or at least three Business Days in advance of the proposed conversion date (in the case of a conversion to Base Rate Loans). A Notice of Continuation/Conversion shall specify (i) the proposed continuation/conversion date (which shall be a Business Day), (ii) the amount of the Loans to be continued/ converted, (iii) the nature of the proposed continuation/ conversion, (iv) in the case of a continuation of, or conversion to, Eurodollar Loans, the requested Interest Period, (v) that the representations and warranties contained in the Loan Documents are true, correct and accurate in all material respects to the same extent as though made on and as of the date of such Notice of Continuation/Conversion unless stated in such Loan Documents to relate to a specific earlier date, in which case such representations and warranties shall be true, correct and complete in all material respects as of such earlier date, and (vi) that no event has occurred and is continuing or would result from the proposed continuation/conversion that would constitute a Default or Event of Default. In lieu of delivering the above-described Notice of Continuation/Conversion, Borrower may give Administrative Agent telephonic notice by the time specified for delivery of a Notice of 33 Continuation/Conversion above (which telephonic notice shall be followed immediately with a notice by facsimile telecopy); provided that in the event of a discrepancy between a Notice of Continuation/Conversion and such telephonic notice, such telephonic notice shall govern. Promptly after receipt by Administrative Agent of a Notice of Continuation/Conversion pursuant to this Section 2.5 (or telephonic notice followed immediately with a notice by facsimile telecopy), and in any event not later than 2:00 p.m. (New York time) at least three Business Days in advance of the proposed continuation/conversion date, Administrative Agent shall notify each Lender of the relevant details of the proposed continuation/conversion. None of Agent, Administrative Agent or any Lender shall incur any liability to any Person (including Borrower) in acting upon any telephonic notice referred to above that Administrative Agent or Agent believes in good faith to have been given by a duly authorized officer or other person authorized to act on behalf of Borrower or for otherwise acting in good faith under this Section 2.5, and upon the continuation and/or conversion (as applicable) of any Loan in accordance with this Agreement pursuant to any such telephonic notice, Borrower shall have effected a continuation and/or conversion (as applicable) hereunder of such Loan. Except as otherwise provided in Sections 2.13 and 2.14, a Notice of Continuation/Conversion (or telephonic notice in lieu thereof) shall be irrevocable from and after the giving thereof, and Borrower shall be bound to effect a continuation and/or conversion (as applicable) in accordance therewith. 2.6. Fees. (a) Borrower shall pay to Administrative Agent for the account of each Lender, in accordance with its Pro Rata Share of the Commitments, a facility fee in an amount equal to the Applicable Facility Fee Percentage of the average daily balance of such Lender's Commitment in respect of each quarterly period during the period from the date hereof to but excluding the Final Borrowing Date. Borrower shall pay to Administrative Agent for the account of each Lender, in accordance with its Pro Rata Share of the Commitments, a facility fee in an amount equal to the Applicable Facility Fee Percentage of the average daily balance of such Lender's Outstandings in respect of each quarterly period during the period from the Final Borrowing Date to but excluding the Final Repayment Date. Such fees shall be calculated quarterly and be payable in arrears on (x) the last Business Day of March, June, September and December of each year until the Final Repayment Date and (y) the Final Repayment Date, and accrue from the Effective Date to and excluding the Final Repayment Date and be payable in U.S. Dollars as required by Section 2.10(b). (b) Borrower shall on the date this Agreement is delivered by the parties hereto pay to Administrative Agent for the account of each Lender, in accordance with its Pro Rata Share of the Commitments, an upfront fee in an amount equal to 0.150% of the Commitments, all in accordance with the letter agreement dated February 5, 1996 between Agent and Borrower. (c) Borrower shall on the date this Agreement is delivered by the parties 34 hereto pay to Administrative Agent for Administrative Agent's own account and the account of each Lender such fees in such amount as may have been agreed in writing between Agent and Borrower. (d) Borrower shall pay to Administrative Agent for its account an annual administration fee payable in such amounts and according to such terms as are set forth in a separate letter agreement between Administrative Agent and Borrower, the first such payment to be due on the date this Agreement is delivered by the parties hereto. 2.7. Termination or Reduction of Commitment. Borrower shall have the right, upon not less than five Business Days' notice to Administrative Agent, to terminate the Commitments or, from time to time, to reduce pro rata the amount of the Commitments, to the extent, in either case, that the Commitments are undrawn. Any such reduction shall be in an amount of $1,000,000 or any integral multiple thereof and shall reduce permanently the aggregate amount of the Commitments then in effect, with a proportionate reduction of the amount of the Commitments otherwise available for the borrowing of Loans denominated in GBP. 2.8. Optional Prepayments; Mandatory Prepayments. (a) Subject to Sections 2.8(f) and 2.15, Borrower may, at its option, prepay any Loans on any Business Day in whole or in part, without premium, upon at least three Business Days', in the case of Eurodollar Loans, or one Business Day's, in the case of Base Rate Loans, prior written notice to Administrative Agent, specifying the amount of prepayment. Each notice of prepayment pursuant to this clause (a) shall be irrevocable and the payment amount specified in such notice shall be due and payable on the date specified in the currency required by Section 2.10(b), together with accrued interest to such date on the Loans and all amounts (if any) payable pursuant to Section 2.15. Partial prepayments of the Loans pursuant to this clause (a) shall be in an aggregate principal amount of $1,000,000 (or GBP 1,000,000) or integral multiples of $500,000 (or GBP 500,000) in excess of that amount. (b) In the event of any sale or other disposition of any interest in any Facility, any Lease termination, or any other event giving rise to Net Property Proceeds or Net Mortgage Proceeds, on the final Business Day of the first Interest Period to expire after the closing of such sale or other disposition or, if such closing occurs at a time when there are no Eurodollar Loans outstanding, on the final Business Day of the month during which such closing occurs, Borrower shall apply an amount equal to all of such Net Property Proceeds and Net Mortgage Proceeds (other than any amount thereof required and used to satisfy Indebtedness secured by a Lien, not inconsistent with the terms of this Agreement, on the relevant Properties or Mortgage Interests) to the prepayment of the Loans; provided that with respect to a particular transaction or a related series of transactions giving rise to Net Property Proceeds or Net Mortgage Proceeds, prepayment of the Loans shall be required from such Net Property Proceeds or Net Mortgage Proceeds only to the extent that the same exceed $5,000,000; provided further that no prepayment shall be required in respect of Loans denominated in GBP to the extent the aggregate outstanding principal amount of such Loans does not exceed the Allowed Value of Eligible Properties and Eligible Mortgages in respect of Properties located in the United Kingdom acquired with or funded with GBP. 35 (c) In the event of any (i) public or private offering by or on behalf of Borrower of debt or equity securities issued by Borrower or (ii) incurrence by Borrower of Indebtedness to one or more financial institutions, within thirty days after such offering or incurrence, Borrower shall apply all Net Securities Proceeds arising from such offering or incurrence to the prepayment of the Loans or, at the option of Borrower, to the prepayment of other Indebtedness of Borrower outstanding on the Effective Date; provided further that no prepayment shall be required in respect of Loans denominated in GBP to the extent the aggregate outstanding principal amount of such Loans does not exceed the Allowed Value of Eligible Properties and Eligible Mortgages in respect of Properties located in the United Kingdom acquired with or funded with GBP. (d) The Loans shall be subject to certain mandatory prepayments pursuant to and upon the occurrence of the events described in the provisions of Sections 2.13 and 2.14. (e) If at any time the principal balance of the Loans exceeds the Commitments, Borrower shall promptly (and in any event no later than two Business Days after becoming aware thereof) repay Loans to the extent necessary to reduce the aggregate outstanding principal amount thereof to an amount that is equal to or less than the Commitments. If at any time the principal balance of the General Corporate Loans then outstanding exceeds 25% of the Commitments, Borrower shall promptly (and in any event no later than two Business Days after becoming aware thereof) repay General Corporate Loans to the extent necessary to reduce the aggregate outstanding principal amount thereof to an amount that is equal to or less than 25% of the Commitments. If at any time the principal balance of the Loans denominated in GBP exceeds the Equivalent Amount of $100,000,000 (as determined in accordance with Section 1.3(b)), Borrower shall promptly (and in any event no later than two Business Days after becoming aware thereof) repay Loans denominated in GBP to the extent necessary to reduce the aggregate outstanding principal amount thereof to an amount that is equal to or less than the Equivalent Amount in GBP of $100,000,000; provided that, so long as no Default or Event of Default has occurred and is continuing, any such repayment of the Loans denominated in GBP may be made at the end of the applicable Interest Periods on condition that Borrower deposits with Administrative Agent cash in an amount equal to the amount of the required prepayment at the time otherwise required for prepayment (such amounts to be held as cash collateral by Administrative Agent pending such repayment on terms satisfactory to Agent, Administrative Agent and Borrower). (f) Subject to the application of the payment provisions of Section 2.10(a), any prepayments of the Loans pursuant to this Section, Sections 2.13 or 2.14, or any other provision of any Loan Document shall be applied first to any amounts payable with respect thereto pursuant to Section 2.15, second to the payment of accrued and unpaid interest on the principal amount of outstanding General Corporate Loans up to and including the date of prepayment, third, to the payment of accrued and unpaid interest on the principal amount of all other outstanding Loans up to and including the date of prepayment, fourth to the principal amount of such General Corporate Loans, and fifth to the principal amount of all other outstanding Loans. Subject to the requirements of the preceding sentence, Borrower may designate the application of any prepayments, to be applied to principal on the Loans, to the Eurodollar Loans, Base Rate Loans and/or Alternate Rate Loans, as it may select, provided that if Borrower does not designate such application, such prepayments shall be applied (x) first to outstanding Base Rate Loans, (y) second to outstanding Alternate Rate 36 Loans and (z) third to outstanding Eurodollar Loans. 2.9. Computation of Interest and Fees. Fees and other amounts other than interest calculated on the basis of a rate per annum shall be computed on the basis of a 360-day year for the actual days elapsed. Interest on the Base Rate Loans and on the Alternate Rate Loans, in each case, calculated by reference to the prime rate and interest on the Eurodollar Loans denominated in GBP shall be computed on the basis of a 365-day year for the actual days elapsed, while interest on the Eurodollar Loans denominated in U.S. Dollars and interest on the Alternate Rate Loans and the Base Rate Loans, in each case, where interest is not calculated by reference to the prime rate, shall be computed on the basis of a 360-day year for the actual days elapsed. 2.10. Payments and Currency. (a) Except as contemplated by this Agreement, the borrowing by Borrower from the Lenders, each payment (including each prepayment) by Borrower on account of principal, interest and fees required under Sections 2.6(a) and (b), and any reduction of the amount of the Commitments of the Lenders hereunder, shall be made for the account of each Lender according to its Pro Rata Share; provided that payments to the Lenders of interest based upon the Alternate Rate shall be allocated appropriately to give effect to differences among the Lenders' respective costs of funds. All payments (including prepayments) by Borrower on account of principal, interest, fees, costs, indemnities or other amounts payable hereunder or under any of the Loan Documents shall be made to Administrative Agent for the account of the applicable Lenders (except for fees required under Section 2.6(c) which shall be only for the account of Administrative Agent and Agent, respectively) at the account of Administrative Agent specified in Section 10.3(b) and in immediately available funds in the currency required by Section 2.10(b). Each payment or prepayment hereunder and under the Notes and the other Loan Documents shall be made without set-off or counterclaim and free and clear of, and without deduction for, any present or future withholding or other taxes, duties or charges of any nature imposed on or attributable to such payments or prepayments by or on behalf of any Governmental Authority, except for any Excluded Taxes. If any such taxes (other than any Excluded Taxes), duties or charges (including, without limitation, any tax, duty or charge imposed by Sections 1, 2 and/or 39 of the Massachusetts General Laws, Chapter 63, as currently in effect or as amended hereafter or any analogous provisions (or provisions having an analogous effect) of the laws, rules or regulations (or interpretations thereof) of Massachusetts or any other Governmental Authority) are so levied or imposed on or are attributable to any such payment or prepayment, Borrower will make additional payments in such amounts as may be necessary so that the net amount received by a Lender, after withholding or deduction for or on account of all such taxes, duties or charges, will be equal to the amount provided for herein or in such Lender's Note or in any of the other Loan Documents. Whenever any taxes, duties or charges are payable by Borrower with respect to or attributable to any payments or prepayments hereunder or under any of the Notes or any other Loan Document, Borrower agrees to furnish promptly to Administrative Agent for the account of the applicable Lender official receipts or copies thereof, if reasonably available, evidencing payment of any such taxes, duties or charges so withheld or deducted. If Borrower fails to pay any such taxes, duties or charges when due to the appropriate taxing authority after receipt of notice that any such taxes, duties or charges are due, or fails to remit to Administrative Agent for the account of the applicable Lender the customary evidence of payment of any such taxes, duties or charges so withheld or deducted, Borrower shall 37 indemnify the affected Lender for any incremental taxes, duties, charges, interest or penalties that may become payable by such Lender as a result of any such failure. During the continuance of any Default, Administrative Agent may, but shall be under no obligation to, apply all payments received by Administrative Agent from Borrower pursuant to any of the Loan Documents in the following order of payment regardless of the application designated by Borrower: first to any interest owing under Section 2.4(b) or under any of the Loan Documents other than interest owing on the Loans and the Notes referred to below, second to any fees then payable to Agent, Administrative Agent or the Lenders, third to any amounts owing pursuant to Section 10.7, fourth to any amounts owing pursuant to Sections 2.13, 2.14 or 2.15, fifth to any other sums (other than principal on the Loans and the Notes and interest thereon referred to below) owing under any of the Loan Documents, sixth to any interest owing on the Loans and Notes and seventh to the repayment of the principal of the Loans and the Notes as designated by Administrative Agent; provided that if such application is other than in accordance with any express designation by Borrower, Administrative Agent shall promptly notify Borrower of such application. Administrative Agent will distribute each payment to the applicable Lenders promptly upon receipt thereof (and in any event on the same Business Day as the date when received, if such payment is received at or prior to 12:00 noon (New York time)). Each payment by Administrative Agent to a Lender shall be made for the account of such Lender's Lending Office as designated by such Lender to Administrative Agent in writing from time to time. Whenever any payment to be made hereunder or under any Loan Document, including, without limitation, any principal of or interest on any Loan, shall become due and payable, or whenever the last day of any Interest Period would otherwise occur, on a day which is not a Business Day, such payment shall be made and the last day of such Interest Period shall occur on the next succeeding Business Day and such extension of time shall in such case be included in computing interest on such payment; provided that if such extension would cause any such payment to be made in the next succeeding calendar month, or the last day of such Interest Period to occur in the next succeeding calendar month, such payment shall be made, and the last day of such Interest Period shall occur, on the next preceding Business Day. (b) A repayment or prepayment of a Loan or any part of a Loan is payable in the currency in which the Loan was denominated at the time at which such Loan was made to Borrower by Lenders. Interest in respect of a Loan is payable in the currency in which the principal portion of the respective Loan in respect of which it is payable is denominated. Fees in respect of Commitments or otherwise hereunder shall be payable in U.S. Dollars. Amounts payable in respect of costs, expenses and taxes and the like are payable in the currency in which they are incurred. Any other amount payable under this Agreement is, except as otherwise provided in this Agreement, payable in U.S. Dollars. 2.11. Use of Proceeds. The proceeds of the Loans hereunder shall be used by Borrower (either directly or indirectly through intercompany advances of such proceeds as permitted under Section 6.8(d) to its Subsidiaries; provided that, Church Creek Corporation may not receive any such proceeds) for (a) the acquisition of Properties; (b) the acquisition or funding of Mortgage Interests; and (c) the direct or indirect reimbursement of the issuing bank of the letter of credit supporting the obligations of Church Creek Corporation in respect of the IDFA Indebtedness; provided that the General Corporate Loans may be used by Borrower and its Subsidiaries for their respective general corporate purposes; provided further that the Existing Loans may be continued for the same purposes as they were made 38 under the Existing Loan Agreement, and shall not be treated as General Corporate Loans. 2.12. Increased Costs. (a) If any Requirement of Law or other event or condition, or any amendment, modification or interpretation thereof (including, without limitation, any request, recommendation, guideline or policy, whether or not having the force of law, of or from any central bank or other Governmental Authority), in any such case, adopted, effective, made or issued after the date hereof (but in any event including, without limitation, Regulation D and Section 1, 2 and/or 39 of the Massachusetts General Laws, Chapter 63 as currently in effect or as amended hereafter or any analogous provisions (or provisions having an analogous effect) of the laws, rules or regulations (or interpretations thereof) of Massachusetts or any other Governmental Authority) by any authority charged with the administration or interpretation thereof: (i) subjects Agent, Administrative Agent or any Lender or any branch or Affiliate of Agent, Administrative Agent or such Lender to any tax (except Excluded Taxes), fee, deduction, duty, withholding, levy, impost or other charge or reduction of any nature, on or with respect to, or which Agent, Administrative Agent or such Lender in its sole discretion deems applicable or attributable to this Agreement, any Note, any of the other Loan Documents, its Commitment or its pro rata share of the Loans, or interest, fees or other amounts attributable thereto or to any of the foregoing; or (ii) changes the basis of taxation of payments to any Lender or any branch or Affiliate of such Lender of principal of and/or interest on such share of the Loans and/or other fees and amounts payable hereunder or under any of the Loan Documents or with respect hereto or thereto (including in any event imposition of or change in any withholding taxes, but excluding any Excluded Taxes); or (iii) imposes upon, modifies, requires, makes or deems applicable to any Lender, or any of its branches or Affiliates, any regular, special, supplementary or other reserve or deposit requirement, insurance assessment or similar requirement against or affecting any assets held by, or liabilities of, or deposits with or for the account of, such Lender or such branch or Affiliate, with respect to or which Agent or such Lender in its sole discretion deems applicable or attributable to this Agreement, any Note, any of the other Loan Documents, its Commitment or its pro rata share of the Loans, or interest, fees or other amounts attributable thereto or to any of the foregoing; or (iv) imposes, modifies or deems applicable any condition or requirement upon or causes in any manner the addition of any supplement to, or increase of any kind to, the capital or cost base of Agent, Administrative Agent or any Lender or such branch or Affiliate, for extending or maintaining its Commitment or its pro rata share of the Loans which results in an increase in the capital requirement supporting such Commitment or its pro rata share of the Loans, or imposes upon, modifies, requires, makes or deems applicable to Agent, Administrative Agent or such Lender or any such branch or Affiliate any capital requirement, increased capital 39 requirement or similar requirement, with respect to or which Agent, Administrative Agent or such Lender in its sole discretion deems applicable or attributable to this Agreement, any Note, any of the other Loan Documents, its Commitment or its pro rata share of the Loans, or interest, fees or other amounts attributable thereto or to any of the foregoing; or (v) imposes upon Agent, Administrative Agent or any Lender or any branch or Affiliate of Agent, Administrative Agent or such Lender any other conditions with respect to, or allocable or attributable in good faith by Agent, Administrative Agent or the Lender to, this Agreement, any Note, any of the other Loan Documents or such share of the Loans or its Commitment hereunder or such interest, fees or other amounts; and the result of any of the foregoing, based solely upon the good faith determination and allocation by Agent, Administrative Agent or any Lender, as the case may be, of costs, decreased benefits and/or reduced amount of payments, is to increase the cost or decrease the benefit, in any way, to Agent, Administrative Agent or such Lender, as the case may be, or any branch or Affiliate of Agent, Administrative Agent or such Lender, as the case may be, of funding or maintaining its Commitment or its share of the Loans hereunder, or to reduce the amount of any payment (whether of principal, interest, or otherwise) received or receivable by Agent, Administrative Agent or such Lender, as the case may be, or any branch or Affiliate of Agent, Administrative Agent or such Lender, as the case may be, or to require Agent, Administrative Agent or such Lender, as the case may be, or any branch or Affiliate of Agent, Administrative Agent or such Lender, as the case may be, to make any payment, then and in any such case: (1) Agent, Administrative Agent or such Lender, as the case may be, shall promptly notify Borrower and the other Lenders in writing of the happening of such event; (2) Agent, Administrative Agent or such Lender, as the case may be, shall promptly deliver to Borrower and the other Lenders a certificate stating the change or event which has occurred or the reserve or capital requirements or other conditions which have been imposed on Agent, Administrative Agent or such Lender, as the case may be, or branch or Affiliate of Agent, Administrative Agent or such Lender, as the case may be, or the request, recommendation, guideline or policy with which it has complied, together with the date thereof, the amount of such increased cost, decreased benefit or reduction payment; and (3) Borrower shall pay Agent, Administrative Agent or such Lender, as the case may be, promptly on demand such an amount or amounts as: (A) in the case of events referred to in clauses (i), (ii), (iii) and (v) and, if applicable, clause (iv) above, shall be sufficient to compensate it or such branch or Affiliate for all such increased costs and/or payments and/or decreased benefits, and/or reduced amount of payment; and/or (B) in the case of events referred to in clause (iv) above, shall be an 40 amount equal to the reduction, as reasonably determined by Agent, Administrative Agent or such Lender, as the case may be, in the after-tax rate of return on Agent's, Administrative Agent's or such Lender's capital resulting from any such capital or increased capital or similar requirement, all as certified by Agent, Administrative Agent or such Lender or Lenders, as the case may be, in said written notice to Borrower. Such certification shall be conclusive and binding on Borrower absent manifest error. The certificate of Agent, Administrative Agent or such Lender as to the additional amounts payable pursuant to this Section 2.12 delivered to Borrower shall constitute prima facie evidence of the amount thereof. Agent, Administrative Agent and each Lender agree to use reasonable efforts, as determined by Agent, Administrative Agent or such Lender, as the case may be, to avoid or minimize the payment by Borrower of any additional amounts under this Section 2.12. The protection provided by this Section 2.12 shall be available to Agent, Administrative Agent and each Lender regardless of any possible contention of invalidity or inapplicability of the Requirement of Law, interpretation, recommendation, guideline, policy or event or condition which has been imposed or has occurred. In the event that after Borrower shall have paid any additional amount under this Section 2.12 with respect to the Loans Agent, Administrative Agent or such Lender shall have successfully contested such Requirement of Law, interpretation, recommendation, guideline, policy or event or condition then, to the extent that Agent, Administrative Agent or such Lender will be placed in the same position it was in prior to the incurrence of the increased cost or reduction in amount received or receivable (on an after-tax basis), but without giving effect to interest which may have been earned on the additional amount paid by Borrower (but with interest to the extent actually earned by Agent, Administrative Agent or such Lender, as the case may be, on such amount as determined by Agent, Administrative Agent or such Lender, as the case may be), Agent, Administrative Agent or such Lender, as the case may be, shall refund to Borrower such additional amount (with such interest, if any). 2.13. Change in Law Rendering Eurodollar Loans or Alternate Rate Loans Unlawful; Failure to Give Notice of Continuation. (a) Notwithstanding anything to the contrary herein contained, in the event that any Requirement of Law or any change in any existing Requirement of Law or in the interpretation thereof by any Governmental Authority charged with the administration thereof, in any case adopted, issued or effective after the date hereof, (i) shall make it unlawful for any Lender to fund any portion of the Eurodollar Loans or to give effect to its obligations as contemplated hereby with respect to its making or maintaining its pro rata share of the Eurodollar Loans, or (ii) shall make it unlawful for any Lender to fund any portion of the Alternate Rate Loans or to give effect to its obligations as contemplated hereby with respect to its Commitment or making or maintaining its pro rata share of the Alternate Rate Loans, such Lender shall, upon the happening of such event, notify Agent, Administrative Agent, the other Lenders and Borrower thereof in writing stating the reason therefor and the effective date of such event, and (x) upon the effectiveness of any such event referred to in clause (i) above, the obligation of such Lender to make or maintain its pro rata share of the Eurodollar Loans to Borrower shall forthwith be suspended for the duration of such illegality and during such illegality such Lender shall, upon payment of any amounts owing under Section 2.15 with respect to such conversion, convert its share of the Eurodollar 41 Loans to Alternate Rate Loans or (upon effectiveness of any such event referred to in clause (ii) and during the continuance of such event) Base Rate Loans in the case of Loans denominated in U.S. Dollars or Alternate GBP Rate Loans in the case of Loans denominated in GBP, and (y) upon the effectiveness of any such event referred to in clause (ii), the obligation of such Lender to make or maintain its pro rata share of the Alternate Rate Loans to Borrower shall forthwith be suspended for the duration of such illegality and during such illegality such Lender shall, upon payment of any amounts owing under Section 2.15 with respect to such conversion, convert its share of the Alternate Rate Loans to Base Rate Loans in the case of Loans denominated in U.S. Dollars or Alternate GBP Rate Loans in the case of Loans denominated in GBP. If and when such illegality with respect thereto ceases to exist, such suspension shall cease and such affected Lender shall similarly notify Agent, Administrative Agent, the other Lenders and Borrower and the Alternate Rate Loan or Base Rate Loan or Alternate GBP Rate Loan into which such share of the Eurodollar Loans or Alternate Rate Loans (as applicable) was converted pursuant to this Section 2.13 shall be reconverted to a Eurodollar Loan or Alternate Rate Loan, respectively, on the first day of the next succeeding Interest Period. (b) If Borrower fails to give a valid Notice of Continuation/Conversion in respect of any portion of a Eurodollar Loan which is not repaid in accordance with the terms hereof at the end of the relevant Interest Period in respect thereto, such portion shall be converted automatically into Base Rate Loans in the case of Loans denominated in U.S. Dollars or Alternate GBP Rate Loans in the case of Loans denominated in GBP; provided that if Borrower subsequently gives a valid Notice of Continuation/Conversion in respect of such Base Rate Loans or Alternate GBP Rate Loans, such Loans shall be converted into Eurodollar Loans in accordance with the requirements for a continuation/conversion under Section 2.5. (c) If any Loan is converted to an Alternate Rate Loan pursuant to this Section 2.13, Borrower and Lenders, acting through Administrative Agent, shall enter into negotiations in good faith with a view to agreeing upon a substitute basis for determining the rate or rates of interest from time to time applicable to such Loan, which shall be acceptable to each Lender, and the rate or rates so determined shall constitute the Alternate Rate for that Loan from the date of such conversion. If, however, Borrower and Majority Lenders fail to agree to such substitute basis within thirty (30) days after such conversion, such Loan shall be deemed to have been converted to (i) in the case of Loans denominated in U.S. Dollars, a Base Rate Loan, and (ii) in the case of Loans denominated in GBP, an Alternate GBP Rate Loan effective (in the case of clauses (i) and (ii)) from the date of such conversion. 2.14. Eurodollar Availability. (a) In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for any Eurodollar Loans, Administrative Agent shall have determined (which determination shall, in the absence of manifest error, be conclusive and binding upon Borrower) that U.S. Dollar or GBP (as the case may be) deposits in the amount of the principal amount of the Eurodollar Loans which is to have such Interest Period are not generally available in the London interbank market, or that the rate at which such U.S. Dollar or GBP (as the case may be) deposits are being offered will not accurately reflect the cost to any of the Lenders of making or funding such principal amount of such Eurodollar Loans during such Interest Period, or that reasonable means do not exist for ascertaining the LIBO Rate, Administrative Agent 42 shall, as soon as practicable thereafter, give written or telephonic notice (which telephonic notice shall be followed immediately with a notice by facsimile telecopy) of such determination to Agent, the Lenders and Borrower and (i) such principal amount of such Eurodollar Loans shall automatically be converted, as of the last day of the Interest Period during which such determination is made, to Alternate Rate Loans subject to the last sentence of this paragraph and (ii) any request by Borrower for such Eurodollar Loans pursuant to Section 2.3 hereof shall thereupon, and until the circumstances giving rise to such notice no longer exist (as notified by Administrative Agent to Borrower and the Lenders), be deemed a request for the making of Alternate Rate Loans. If at any time Administrative Agent shall have determined (which determination shall, in the absence of manifest error, be conclusive and binding upon Borrower) that any contingency has occurred which adversely affects the London interbank market or that any Requirement of Law or any change in any existing Requirement of Law or in the interpretation thereof or other circumstance affecting the Lenders or the London interbank market makes the funding of the Eurodollar Loans impracticable, Administrative Agent shall, as soon as practicable thereafter, give written or telephonic notice (which telephonic notice shall be followed immediately with a notice by facsimile telecopy) of such determination to Agent, the Lenders and Borrower and (i) the Eurodollar Loans shall automatically be converted, as of the last day of each Interest Period during which such determination is made and in each case in respect of the principal amount of the Eurodollar Loans having an Interest Period ending on such date, to Alternate Rate Loans, subject to the last sentence of this paragraph, and (ii) any request by Borrower for the Eurodollar Loans pursuant to Section 2.3 hereof shall thereupon, and until the circumstances giving rise to such notice no longer exist (as notified by Administrative Agent to Borrower, Agent and the Lenders), be deemed a request for the making of Alternate Rate Loans. If, in the circumstances specified in this paragraph or in Section 2.13, Administrative Agent determines that no reasonable alternate source of funding for the Eurodollar Loans, or no reasonable basis for determining the Alternate Rate, is available or practicable, Administrative Agent shall promptly so notify the other Lenders, Agent and Borrower thereof and any notice of borrowing under Section 2.3 shall be deemed rescinded and each principal amount of the Eurodollar Loans, if outstanding, having an Interest Period then current, together with all interest thereon, shall be due and payable by Borrower on the last day of the Interest Period then applicable to it. (c) If any Loan is converted to an Alternate Rate Loan pursuant to this Section 2.14, Borrower and Lenders, acting through Administrative Agent, shall enter into negotiations in good faith with a view to agreeing upon a substitute basis for determining the rate or rates of interest from time to time applicable to such Loan, which shall be acceptable to each Lender, and the rate or rates so determined shall constitute the Alternate Rate for that Loan from the date of such conversion. If, however, Borrower and Majority Lenders fail to agree to such substitute basis within thirty (30) days after such conversion, such Loan shall be deemed to have been converted to (i) in the case of Loans denominated in U.S. Dollars, a Base Rate Loan, and (ii) in the case of Loans denominated in GBP, an Alternate GBP Rate Loan, effective (in the case of clauses (i) and (ii)) from the date of such conversion. 2.15. Indemnities. Borrower shall indemnify each Lender on demand for, from and against any actual loss (including, without limitation, any loss of anticipated profits) or expense (including but not limited to any loss or expense sustained or incurred in liquidating or employing or redeploying deposits from third parties acquired to effect or 43 maintain any Loan or any portion thereof) which such Lender or its branch or Affiliate may sustain or incur as a consequence of (i) any default in payment or prepayment of the principal amount of any Loan or any portion thereof or interest accrued thereon, as and when due and payable (at the due date thereof, by irrevocable notice of payment or prepayment, or otherwise), (ii) the effect of the occurrence of any Event of Default upon any Loan, (iii) the payment or prepayment of any principal amount of any Loan or the conversion of any portion of any Eurodollar Loan to Alternate Rate Loans or Base Rate Loans on any day other than the last day of an Interest Period or the payment of any interest on such Loan, or portion thereof, on a day other than an Interest Payment Date for the Loan or (iv) any failure of Borrower to accept or make a borrowing of the Loans or continue or convert a Loan after delivery of a notice requesting a Loan under Section 2.3 or, as the case may be, a notice requesting a continuation or conversion under Section 2.5 or any failure by Borrower to satisfy any of the conditions precedent to the making of Loans hereunder after it has requested the borrowing thereof (other than any such conditions that are waived in accordance with the provisions hereof). The determination of each Lender of any amount payable under this Section 2.15 shall, in the absence of manifest error, be conclusive and binding upon Borrower. 2.16 Eligible Mortgages and Eligible Properties No Mortgage Interest shall be an Eligible Mortgage and no Property shall be an Eligible Property unless, on any relevant date, there has been no MAC in respect of such (i) Property (or any Operator or Credit Support Obligor for the Lease thereof), or (ii) Mortgaged Property (or any Mortgagor or Credit Support Obligor for the Mortgage Interest Agreements in respect thereof), in each case since December 31, 1995 or, if later, the date on which Borrower or any of its Subsidiaries acquired an interest in such Property or Mortgaged Property other than, in each case, a MAC which has ceased to be in effect; provided that for the purposes of this Section 2.16, failure to comply with clause (ii) of Section 5.5(a) in connection with an Eligible Property or an Eligible Mortgage shall be deemed to constitute a MAC in respect of such Eligible Property or Eligible Mortgage. SECTION 3. REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Agreement and to make the Loans herein provided for, Borrower hereby covenants, represents and warrants to Agent, Administrative Agent and each Lender that: 3.1. Financial Condition. The balance sheet of Borrower and its Subsidiaries (if any) as at December 31, 1991, December 31, 1992, December 31, 1993, December 31, 1994 and December 31, 1995 and the related consolidated statements of income, stockholders' equity and cash flows for the fiscal years ended on such dates, certified by Ernst & Young, copies of which have heretofore been furnished to Agent, are complete and correct and present fairly the financial condition of Borrower and its Subsidiaries (if any) on a consolidated basis as at such dates, and stockholders' equity and cash flows for the fiscal years then ended. All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or Responsible Officer, as the case may be, and as disclosed therein). Borrower and its Subsidiaries have no material Contingent 44 Obligation, contingent liabilities or liability for taxes, long-term lease or unusual forward or long-term commitment, which is not reflected in the foregoing statements or in the notes thereto. 3.2. No Material Adverse Effect. Since December 31, 1995 (a) there has been no Material Adverse Effect, and no event has occurred and no condition exists which could reasonably be expected to have a Material Adverse Effect and (b) no dividends or other distributions have been declared the payment of which could result in a Default or Event of Default nor have any Common Shares, Preferred Shares or other equity securities of Borrower been redeemed, retired, purchased or otherwise acquired for value by Borrower or any of its Subsidiaries. 3.3. Existence; Compliance with Law. Borrower and each of its Subsidiaries (a) is, in the case of Borrower, a real estate investment trust duly organized, validly existing and in good standing under the laws of the State of Maryland and, in the case of each such Subsidiary, a corporation duly organized, validly and existing and in good standing under the laws of its respective jurisdiction of incorporation, (b) has full power and authority and the legal right to own its property, to lease (as lessee) the property that it leases as lessee, to lease (as lessor) or sublease the property it owns and/or leases (as lessee) and to conduct the business in which it is currently engaged, (c) is duly qualified or licensed and is in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business require such qualification, and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith is not reasonably likely to have, in the aggregate, a Material Adverse Effect. 3.4. Operator, Advisor, Credit Support Obligors; Compliance with Law. (a) To the best knowledge of Borrower, each Operator and Mortgagor (i) has full power and authority and the legal right to own, lease (or sublease) and operate (as applicable) the properties it operates and to conduct the business in which it is currently engaged with respect to any Facility, (ii) is duly qualified or licensed and is in good standing under the laws of each jurisdiction where its ownership, lease (or sublease) or operation of any Facility requires such qualification, and (iii) is in compliance with all Requirements of Law applicable to the Facilities operated by it, or applicable to the operation thereof except to the extent that the failure to comply therewith is not reasonably likely to have, in the aggregate, a Material Adverse Effect. (b) To the best knowledge of Borrower, the Advisor (i) has full power and authority and legal right to conduct the business in which it is presently engaged and to perform its obligations under the Advisory Agreement, (ii) is duly qualified or licensed and is in good standing under the laws of each jurisdiction where the conduct of its business requires such qualification, and (iii) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith is not reasonably likely to have, in the aggregate, a Material Adverse Effect. (c) To the best knowledge of Borrower, the Credit Support Obligors (i) have full power and authority and legal right to conduct the business in which they are presently engaged and to perform their obligations under the Credit Support Agreements to which they 45 are parties, and (ii) are in compliance with all Requirements of Law, except, in the case of clauses (i) and (ii), to the extent that the failure to comply therewith is not reasonably likely to have, in the aggregate, a Material Adverse Effect. 3.5. Power; Authorization; Enforceable Obligations. Borrower and each of its Subsidiaries has the power and authority and the legal right to make, deliver and perform each of the Loan Documents to which it is a party and, in the case of Borrower, to borrow hereunder; and Borrower has taken all necessary action to authorize the borrowings hereunder, on the terms and conditions of the Loan Documents, and Borrower and each of its Subsidiaries has taken all necessary action to authorize the execution, delivery and performance of each of the Loan Documents to which it is a party. No consent or authorization of, filing with, or other act by or in respect of any Governmental Authority is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of the Loan Documents. This Agreement has been, and each other Loan Document will be, duly executed and delivered on behalf of Borrower and each of its Subsidiaries which is a party thereto and this Agreement constitutes, and each other Loan Document when executed and delivered will constitute, a legal, valid and binding obligation of Borrower and each of its Subsidiaries which is a party thereto enforceable against Borrower and each of its Subsidiaries which is a party thereto in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally. 3.6. No Legal Bar. The execution, delivery and performance of this Agreement and the other Loan Documents, the borrowings hereunder and the use of the proceeds thereof, will not violate any Requirement of Law or any Contractual Obligation of Borrower or any of its Subsidiaries, and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or Contractual Obligation. 3.7. No Material Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the best knowledge and belief of Borrower, threatened by or against Borrower or any of its Subsidiaries or against any of their respective properties or revenues or, to the best knowledge and belief of Borrower, by or against any of the Operators and Mortgagors or against any of their respective properties (a) with respect to this Agreement or the other Loan Documents, the Leases, the Mortgage Interest Agreements, or any of the transactions contemplated hereby or thereby, or (b) relating to the Properties, the Mortgaged Properties or the ownership or the operation thereof or the conduct of business thereon as presently conducted, which, in the case of (a) or (b), is reasonably likely to have, in the aggregate, a Material Adverse Effect. 3.8. No Default. Neither Borrower nor any of its Subsidiaries is in default under or with respect to any Contractual Obligation in any respect which could have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 46 3.9. Ownership of Mortgage Interests and Property; Liens. (a) In the case of a Mortgage Interest, Borrower or one of its Subsidiaries has good record, marketable and indefeasible title to such Mortgage Interest. In the case of a Property which is a Fee Interest, Borrower or one of its Subsidiaries has good record, marketable and indefeasible fee simple absolute title to such Fee Interest. In the case of a Property which is a Leasehold Interest, Borrower or one of its Subsidiaries has good record and marketable title to such Leasehold Interest. In the case of a Mortgage Interest in respect of which all or any part of the Mortgaged Property is a fee interest in land and/or buildings, structures, improvements and fixtures, the Mortgagor with respect to such Mortgaged Property has good record, marketable and indefeasible fee simple absolute title to such Mortgaged Property. In the case of a Mortgage Interest in respect of which all or any part of the Mortgaged Property is a leasehold estate, the Mortgagor with respect to such Mortgaged Property has good record and marketable title to such leasehold estate. In each of the cases described in this Section 3.9, such title shall be free and clear of all Liens and other matters affecting title except for such other matters not reasonably likely to have, in the aggregate, a Material Adverse Effect. (b) The buildings, structures, and other improvements located on each Facility are in good operating condition and repair (ordinary wear and tear which are not such as to materially and adversely affect the operations of the business conducted thereon, excepted), free of any material structural or engineering defects known to Borrower or any of its Subsidiaries on the date hereof and are suitable for their present uses, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. (c) All water, sewer, gas, electricity, telephone and other utilities serving each Facility are supplied directly to such Facility by public utilities and enter such Facility through adjoining public streets or, if they pass through adjoining private land, do so in accordance with valid public easements which inure to the benefit of Borrower or one of its Subsidiaries (in the case of a Facility in which Borrower or such Subsidiary has a Fee Interest) or a mortgagor's or beneficiary's benefit (in the case of a Facility in which Borrower or such Subsidiary is a mortgagor or beneficiary, as applicable, of a loan secured in whole or in part by a Lien on a Facility), subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. All of such utilities are presently installed and operating and are in good and safe condition, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. All material assessments for public improvements that have been made against the Facilities have been paid or provided for, except that in the case of any assessments that are payable in installments, all installments due as of the date hereof have been paid or provided for, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. (d) None of Borrower or any of its Subsidiaries or to the best knowledge and belief of Borrower, the Operators and Mortgagors, has received notice of any pending, threatened or contemplated condemnation proceeding or similar taking affecting the Facilities, or any portion thereof, or any sale or other disposition of the Facilities or any portion thereof in lieu of condemnation or similar taking, in each case, subject to such 47 exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. (e) All Real Property Permits from all Governmental Authorities having jurisdiction over the Facilities or any portion thereof, the absence of which could materially impair the use of any Facility for the purposes for which it is currently used, and from all insurance companies and fire rating and similar boards and organizations required to have been issued to Borrower or any of its Subsidiaries or any Operators and Mortgagors of such Facility, as the case may be, to enable such Facility or any portion thereof to be lawfully occupied and used as currently so occupied or used have been issued and are in full force and effect, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. Neither Borrower nor any of its Subsidiaries has received or been informed by a third party, including the Operators and Mortgagors of the Facilities, of the receipt by it of any notice from any Governmental Authority having jurisdiction over the Facilities or any portion thereof or from any insurance company or fire rating or similar board or organization threatening a suspension, revocation, modification or cancellation of any Real Property Permit, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. (f) Each of the Leases, Mortgage Interest Agreements and Credit Support Agreements relating to Properties and Mortgage Interests (including Properties which are not Eligible Properties and Mortgage Interests which are not Eligible Mortgages) is in full force and effect and is a legally valid and binding obligation of Borrower or its Subsidiaries and the other parties thereto, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. Neither Borrower nor any of its Subsidiaries has mortgaged, pledged or otherwise encumbered any of the Leases or Mortgage Interest Agreements or its right to obtain rental, interest or other payments thereunder except for the Liens permitted by Section 6.9. Neither Borrower nor any of its Subsidiaries has collected any rents becoming due under any Lease more than 30 days in advance (except (i) an amount equal to one month's instalment of rent under a Lease or (ii) in the case of a lease acquired from Host Marriott Corporation and its Affiliates pursuant to the transaction (or one on substantially similar terms) described in the Form S-3 Registration Statement of Borrower filed with the Commission on March 29, 1994, an amount equal to no more than three months' instalment of rent under such lease). All rent and other sums and charges payable by any Operator under each Lease to which it is a party are current, no notice of default or termination under any such Lease is outstanding, no termination event or condition or uncured default on the part of an Operator exists under any Lease, and no event of default has occurred which, with the giving of notice or the lapse of time or both, would constitute such a default or termination event or condition or uncured default on the part of Borrower or its Subsidiaries or the Operators (as the case may be), subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. Except as set forth on Schedule 6, all payments required from any Mortgagor under any Mortgage Interest Agreement to which it is a party are current, no notice of default or acceleration under any such Mortgage Interest Agreement is outstanding, no default or condition or uncured default on the part of the Mortgagor exists under any Mortgage Interest Agreement, and no event of default has occurred which, with the giving of notice or the lapse of time or both, would constitute such a default or termination event or condition or uncured default on the part of the Mortgagor, subject to such exceptions which are not reasonably likely to have, in the 48 aggregate, a Material Adverse Effect. All payments required from any Credit Support Obligor in respect of any Credit Support Agreement for the Lease of a Property or for a Mortgage Interest are current, no notice of default or acceleration under any such Credit Support Agreement is outstanding, and no default or condition or uncured default on the part of such Credit Support Obligor exists under any such Credit Support Agreement, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. As to all of the Leases, Borrower and each of its Subsidiaries has performed all of its repair and maintenance obligations (if any) and, to the best knowledge and belief of Borrower, each Operator and Mortgagor under each Lease and Mortgage to which it is a party has performed all of its repair and maintenance obligations, subject to such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect. (g) Borrower and each of its Subsidiaries has good record and marketable title in fee simple to or valid mortgage interests in all its real property, other than the Properties and Mortgaged Properties, as to which Borrower has made the representation set forth in subsection (a) of this Section 3.9, and good title to all its other property other than the Properties, and none of such property is subject to any Lien for borrowed money as of the date hereof, except for Liens permitted by Section 6.9. 3.10. No Burdensome Restrictions. No Contractual Obligation of Borrower or any of its Subsidiaries or, to Borrower's best knowledge and belief, of any of the Operators and Mortgagors and no Requirement of Law currently has a Material Adverse Effect, or insofar as Borrower may reasonably foresee may have a Material Adverse Effect. 3.11. Taxes. Borrower and each of its Subsidiaries has filed or caused to be filed all tax returns which to the best knowledge and belief of Borrower are required to be filed, and has paid or caused to be paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than those the amount or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of Borrower or such Subsidiary); and no tax Liens have been filed and, to the knowledge of Borrower, no claims are being asserted with respect to any such taxes, fees or other charges. 3.12. Federal Regulations. Neither Borrower nor any of its Subsidiaries is engaged and nor will it engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. No part of the proceeds of the Loans hereunder will be used for "purchasing" or "carrying" "margin stock" as so defined or for any purpose which violates, or which would be inconsistent with, the provisions of the Regulations of such Board of Governors. If requested by Agent, Borrower will furnish to Agent and each Lender a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in said Regulation U to the foregoing effect. 3.13. Employees. Neither Borrower nor any of its Subsidiaries has any 49 employees and none of them has ever engaged any employees. 3.14. ERISA. No ERISA Affiliate has been, since July 1, 1974, an "employer", as defined in Section 3(5) of ERISA, in respect of any Plan or making contributions to any Multiemployer Plan. 3.15. Status as REIT. Borrower is organized in conformity with the requirements for qualification as a real estate investment trust under the Code. Borrower's failure to elect to be treated as a real estate investment trust under the Code for its fiscal year ended December 31, 1986 has not had and will not have any Material Adverse Effect. Borrower has met all of the requirements for qualification as a real estate investment trust under the Code for its fiscal years ended December 31, 1991, 1992, 1993, 1994 and 1995. Borrower is in a position to qualify for its current fiscal year as a real estate investment trust under the Code and its proposed methods of operation will enable it to so qualify. 3.16. Restrictions on Incurring Indebtedness. Neither Borrower nor any of its Subsidiaries is (a) an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended, or (b) a "holding company" as defined in, or otherwise subject to, regulation under the Public Utility Holding Company Act of 1935. Neither Borrower nor any of its Subsidiaries is subject to regulation under any federal or state statute or regulation which limits its ability to incur the indebtedness or give the guaranties described in this Agreement. 3.17. Subsidiaries. Set forth on Schedule 4 annexed hereto is a complete and accurate list of all of Borrower's Subsidiaries showing as of the date hereof (as to each Subsidiary) the jurisdiction of its incorporation, the number of shares of each class of capital stock authorized, and the number outstanding, and the percentage of each class of capital stock owned by Borrower, all of which capital stock is owned free and clear of all Liens; all of the issued and outstanding shares of capital stock of such Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable. 3.18. Compliance with Environmental Laws. Borrower and each of its Subsidiaries and, to the best knowledge of Borrower, each Operator and each Mortgagor of the Facilities is in compliance with all applicable statutes, laws, rules, regulations and orders of all Governmental Authorities relating to environmental protection, pollution control and Hazardous Materials and with respect to the conduct of its business and the ownership of its properties, except for such noncompliance which would not result in imposition of Liens, fines, penalties, injunctive relief or other civil or criminal liabilities and which, in the aggregate, could not have a Material Adverse Effect. 3.19. Pollution; Hazardous Materials. In connection with the acquisition and ownership of its interests in the Properties and Mortgage Interests, Borrower and each of its Subsidiaries has made and will continue to make such inquiries, and has and will continue to cause such testing, surveying, inspection or other action, with respect to each Facility as is necessary or desirable in connection with Hazardous Materials which might be present in the air, soil, surface water or groundwater at such Facility. Except for such exceptions which are not reasonably likely to have, in the aggregate, a Material Adverse Effect, there are not, and, 50 to the knowledge of Borrower after diligent inquiry, were not previously, any Hazardous Materials present in the air, soil, surface water or groundwater at any Facility and no Hazardous Materials (except Hazardous Materials maintained in accordance with all Requirements of Law and necessary for the business operations of any such Facility as a health care facility, including, without limitation, petroleum used for heating oil and certain medications) are used in the operation of any Facility. Borrower is not aware of any claim or notice of violation, alleged violation, noncompliance, liability or potential liability relating to any Facility nor any judicial proceedings or governmental or administrative actions pending or, to the knowledge of Borrower, threatened, to which Borrower or any of its Subsidiaries would be named a party in connection with any Facility which, if adversely determined, would be reasonably likely to result in a Material Adverse Effect. 3.20. Securities Laws. None of the Common Shares, Preferred Shares or other equity securities of Borrower has been issued in violation of the Securities Act of 1933, as amended, or the securities or "blue sky" or other applicable laws or regulations of any applicable jurisdiction. 3.21. Declaration of Trust, By-Laws, Advisory Contract, etc. The copies of the Declaration of Trust and by-laws of Borrower and the Advisory Agreement which have been furnished to Agent are true, correct and complete copies thereof as in effect on the date of this Agreement. 3.22. Disclosures. The financial statements referred to in Section 3.1 do not, nor does this Agreement, the other Loan Documents, or any other written statement furnished by or on behalf of Borrower to any Lender in connection with the transactions contemplated hereby or thereby, contain any untrue statement of a material fact or omit a material fact necessary to make the statement contained therein or herein not misleading. 3.23. Medicare and Medicaid Certification. Subject to such exceptions which, in the aggregate, are not reasonably likely to have a Material Adverse Effect, to the best knowledge of Borrower after reasonable investigation, each Operator with respect to each of the Properties that it operates, and each Mortgagor with respect to each of the Mortgaged Properties that it owns, (a) is validly licensed under applicable law to operate such Property or Mortgaged Property and to conduct the business in which it is currently engaged, (b) has received any applicable certificate of need, determination of need or similar approval, and any amendments or supplements, and such approvals are in full force and effect, (c) (except in the case of non-healthcare Properties and Mortgaged Properties, United Kingdom located Properties or Mortgaged Properties or otherwise where participation in Medicare or Medicaid is deemed undesirable in the reasonable business judgment of the Operator or Mortgagor) is validly certified or approved for participation in Medicare and Medicaid by the applicable federal and state authorities and is a party to provider agreements with respect to its participation in Medicare and Medicaid, which provider agreements are in full force and effect, in each case only to the extent that such Property or Mortgaged Property is of a character eligible for participation in Medicare or Medicaid, and (d) no proceedings have been initiated or notices issued to suspend or revoke any such license, approval, certification or provider agreement, except for notices of deficiency which are issued and corrected in the ordinary course of business. 51 3.24. Offering, Etc., of Securities. Neither Borrower nor any agent with the authority of Borrower has offered any securities similar to the Notes, nor solicited any offer to buy any such securities, in a manner which would render the offering, sale or issuance of the Notes subject to the registration requirements of the Securities Act of 1933, as amended. SECTION 4. CONDITIONS PRECEDENT 4.1. Conditions to Effectiveness. This Agreement shall become effective only upon satisfaction of all of the following conditions precedent: (a) Note. Agent shall have received for the account of each Lender a Note conforming to the requirements hereof and executed by a duly authorized officer of Borrower. (b) Legal Opinion. Agent shall have received, with a counterpart for each Lender, a favorable opinion of Sullivan & Worcester, as counsel to Borrower and its Subsidiaries and the Advisor, addressed to Agent and the Lenders and dated the Effective Date, and in form and substance satisfactory to Agent. (c) Organizational Documents. Agent shall have received certified copies of the Declaration of Trust for Borrower and Articles of Organization or a Certificate of Incorporation for each Subsidiary of Borrower, by-laws of Borrower and each of its Subsidiaries and all resolutions of the Board of Trustees of Borrower and the board of directors of each of its Subsidiaries approving this Agreement and the other Loan Documents to which each is a party and the transactions contemplated hereby and thereby, and of all documents evidencing other necessary corporate action and approvals, if any, of Governmental Authorities with respect to this Agreement and the other Loan Documents and the transactions contemplated hereby and thereby. (d) Good Standing and Existence. Agent shall have received certificates of the appropriate governmental officials of the State of Maryland and of any other State where Borrower conducts business and the State of incorporation of each of Borrower's Subsidiaries and of any other State where such Subsidiary conducts business, each dated a recent date prior to the Effective Date, to the effect that Borrower or such Subsidiary (as the case may be) is validly existing and is in good standing with respect to payment of franchise and similar taxes and is duly qualified to transact business therein. (e) Advisory Agreement and Subordination Agreement. Agent shall have received copies of the Advisory Agreement and the Subordination Agreement each certified by a Responsible Officer. (f) Debt Rating. Agent shall have received evidence that Borrower's long-term unsecured senior debt is rated BBB- or higher by Standard & Poor's Ratings Group or Baa3 or higher by Moody's Investors Service. (g) Existing Loan Agreement 52 (i) Borrower shall have paid all accrued interest, fees, commissions and other amounts (other than principal) accrued or owed under the Existing Loan Agreement, whether or not presently due and payable. (ii) No Default or Event of Default (both such terms being used as defined in the Existing Loan Agreement) shall have occurred and be continuing under the Existing Loan Agreement. (h) No Material Adverse Effect. No Material Adverse Effect specified in clause (a)(i), (b), (c)(i) or (d) of the definition thereof shall have occurred since December 31, 1995. (i) Compensation. All obligations of Borrower to pay fees and provide compensation and reimbursement of costs and expenses to Agent, Administrative Agent and the Lenders or their designees as of the Effective Date hereunder or otherwise in connection with the financing contemplated hereby shall have been satisfied. (j) Real Property Statement. Agent shall have received a Real Property Statement dated the Effective Date. (k) Additional Matters. Agent shall have received such other approvals, opinions or documents as it may reasonably request and all documents and legal matters in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be satisfactory in form and substance to Agent and its counsel. 4.2. Conditions Precedent to Loans. The obligations of Lenders to make Loans on each Borrowing Date and to continue any Existing Loans on the Effective Date (which, for purposes of this Section 4.2 shall be deemed to be a Borrowing Date) are subject to the following further conditions precedent: (a) Representations and Warranties. The representations and warranties made by Borrower herein or made by any Person in the other Loan Documents or which are contained in any certificate, document or financial or other statement furnished at any time under or in connection with any of the Loan Documents, shall be true, correct and accurate in all material respects on and as of the Borrowing Date for the Loan as if made on and as of such date unless stated to relate to a specific earlier date, in which case such representations and warranties shall be true, correct and complete in all material respects as of such earlier dates. (b) No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing on such date either before or after giving effect to the Loan to be made on the Borrowing Date. (c) Legality of Loans. The making of the Loans hereunder by the Lenders and the acquisition of the Notes shall be permitted as of the Borrowing Date by all applicable Requirements of Law and shall not subject any Lender to any penalty or other onerous condition in or pursuant to any such Requirement of Law or result in a Material Adverse 53 Effect. (d) No Material Adverse Effect. No Material Adverse Effect specified in clause (a)(i), (b), (c)(i) or (d) of the definition thereof shall have occurred since December 31, 1994. (e) Solvency. Both after and immediately before the making of any Loans on the Borrowing Date, Borrower and each of its Subsidiaries shall be Solvent. (f) Borrowing Certificate. Administrative Agent shall have received, with a counterpart for each Lender, a Notice of Borrowing, dated the Borrowing Date, substantially in the form of Exhibit B, with appropriate insertions and attachments satisfactory in form and substance to Agent and its counsel, executed by a Responsible Officer; provided that while no Notice of Borrowing shall be required with respect to any Existing Loans continued on the Effective Date, on the Effective Date Agent shall have received a certificate of a Responsible Officer certifying as to the matters set forth in clauses (vi)-(viii) of the Notice of Borrowing with respect to such Existing Loans. (g) Borrowing Limits. After the making of the Loans on any Borrowing Date, the aggregate principal amount of all Loans outstanding shall not exceed the Commitments, the aggregate principal amount of all General Corporate Loans outstanding shall not exceed 25% of the Commitments and the aggregate principal amount of all Loans outstanding denominated in GBP shall not exceed the Equivalent Amount of $100,000,000 (as determined in accordance with Section 1.3(b)) and Agent and Administrative Agent shall have received a certificate dated as of a date not more than five (5) Business Days prior to the relevant Borrowing Date to such effect. (h) Real Property Statement. Administrative Agent shall have received a Real Property Statement dated, or dated as of, the Borrowing Date. SECTION 5. AFFIRMATIVE COVENANTS. Borrower hereby agrees that, so long as the Commitments remain in effect, any Note remains Outstanding and unpaid or any other amount is owing to any Lender, Agent or Administrative Agent hereunder or under any other Loan Document, Borrower shall (and shall cause each of its Subsidiaries to): 5.1. Financial Statements. Furnish to Administrative Agent, with sufficient copies for each Lender: (a) as soon as available, but in any event within ninety days after the end of each fiscal year of Borrower and within one hundred thirty-five days after the end of each fiscal year of each Primary Operator/Mortgagor and Primary Credit Support Obligor, a copy of each of the following (except for any thereof to the extent none of the related Leases, Mortgage Interest Agreements or Credit Support Agreements requires the provision of any of the following to Borrower or one of its Subsidiaries within such period, in respect of which Borrower's obligation to furnish copies to each Lender shall be satisfied by furnishing copies 54 as soon as practicable after Borrower or such Subsidiary receives one or more copies thereof): the audited balance sheet prepared on a consolidated basis (and, if ever prepared on a consolidating basis, on a consolidating basis) for Borrower and its Subsidiaries and on a consolidated basis for each Primary Operator/Mortgagor and Primary Credit Support Obligor, each as at the end of such year and the related statements or income, stockholders' equity and cash flows for such year (on a consolidated basis (and, if ever prepared on a consolidating basis, on a consolidating basis) for Borrower and its Subsidiaries and on a consolidated basis for each Primary Operator/Mortgagor and Primary Credit Support Obligor), setting forth in each case in comparative form the figures for the previous year, certified without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by independent certified public accountants of nationally recognized standing; and (b) as soon as available, but in any event not later than forty-five days after the end of each of the first three quarterly periods of each fiscal year of Borrower and not later than seventy-five days after the end of each of the first three quarterly periods of each fiscal year of each Primary Operator/ Mortgagor and Primary Credit Support Obligor, copies of each of the following (except for any thereof to the extent none of the related Leases, Mortgage Interest Agreements or Credit Support Agreements requires the provision of any of the following to Borrower or one of its Subsidiaries within such period, in respect of which Borrower's obligation to furnish copies to each Lender shall be satisfied by furnishing copies as soon as practicable after Borrower or such Subsidiary receives one or more copies thereof): the unaudited balance sheet prepared on a consolidated basis (and, if ever prepared on a consolidating basis, on a consolidating basis) for Borrower and its Subsidiaries and on a consolidated basis for each Primary Operator/Mortgagor and Primary Credit Support Obligor, each as at the end of each such quarter and the related unaudited statements of income, stockholders' equity and cash flows for such quarterly period and the portion of the fiscal year through such date (on a consolidated basis (and, if ever prepared on a consolidating basis, on a consolidating basis) for Borrower and its Subsidiaries and on a consolidated basis for each Primary Operator/Mortgagor and Primary Credit Support Obligor), setting forth in each case in comparative form the figures for the previous year, certified by a responsible officer of such entity as being fairly stated and complete and correct in all material respects (subject to normal year-end audit adjustments); all such financial statements referred to in clauses (a) and (b) above to be complete and correct in all material respects and be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein (except as approved by such accountants or officer, as the case may be, and disclosed therein). 5.2. Certificates; Other Information. Furnish to Administrative Agent, with sufficient copies for each Lender: (a) concurrently with the delivery of the financial statements of Borrower and its Subsidiaries referred to in Section 5.1(a) above, a certificate of Borrower's independent certified public accountants certifying such financial statements of Borrower and its Subsidiaries stating that in making the examination necessary therefor, no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements of Borrower and 55 its Subsidiaries referred to in Sections 5.1(a) and (b) above, (i) a certificate of a Responsible Officer (A) stating that, to the best of such officer's knowledge, Borrower and each of its Subsidiaries during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in the Loan Documents to be observed, performed or satisfied by it, and that such officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate, and (B) showing in detail the calculations supporting such statement in respect of Sections 6.1(a), 6.1(b) and 6.1(c) and 6.8 (including, without limitation, certification and details as to all Indebtedness of Borrower and its Subsidiaries, if any), (ii) a Real Property Statement and (iii) with respect to each Property or Mortgaged Property for which Marriott International, Inc. is the Operator or Mortgagor, a certificate of a senior officer of Marriott International, Inc. as to the Cash Flow and Fixed Charges of Marriott International, Inc. attributable to that Property or Mortgaged Property for the last reported financial year of Marriott International, Inc.; (c) within forty-five days after the end of each calendar quarter following the Effective Date, a written report signed by a Responsible Officer describing in reasonable detail any acquisitions or dispositions of any Fee Interests or Mortgage Interests by Borrower and its Subsidiaries or any other material property of Borrower and its Subsidiaries which shall include, without limitation (i) in the case of acquisitions of property, a description of (A) the geographic area and type of property, (B) the current and anticipated cash flow from the property, (C) the operators of such property and (D) financing of the acquisition, (ii) with respect to dispositions of property, a description of (A) the amount and use of proceeds from such disposition and (B) the reasons for the disposition, and (iii) a copy of any appraisals of the property acquired or disposed of; (d) within 30 days prior to the first day of each fiscal year of Borrower, a copy of the projections by Borrower of the operating budget and cash flow of Borrower and its Subsidiaries for such fiscal year, such projections to be accompanied by a certificate of a Responsible Officer to the effect that such projections have been prepared on the same basis as the financial statements of Borrower and its Subsidiaries then current and that such officer has no reason to believe they are incorrect or misleading in any material respect; (e) promptly after the same are sent, copies of all financial statements and reports which Borrower sends to its holders of Common Shares, Preferred Shares or other equity securities, and promptly after the same are filed by Borrower copies of all financial statements and reports which Borrower or any of its Subsidiaries may make to, or file with, the Commission or any successor or analogous Governmental Authority; and (f) promptly, such additional financial and other information respecting the financial or other condition of the Primary Operators/Mortgagors, the Primary Credit Support Obligors, the Advisor or Borrower or any of its Subsidiaries or the status or condition of the Facilities or the operation thereof which Borrower is entitled to or can otherwise reasonably obtain as Agent may from time to time reasonably request. 5.3. Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its Indebtedness and other obligations of whatever nature, except, in the case of Indebtedness other than that described in Section 7.1(e), when the amount or validity thereof is currently being contested 56 in good faith by appropriate proceedings, and reserves in conformity with GAAP with respect thereto have been provided on the books of Borrower and its Subsidiaries. 5.4. Conduct of Business and Maintenance of Existence. (a) Continue to engage in business of the same general type as now conducted by it (except that Borrower and its Subsidiaries will not own, operate or finance Psychiatric Care Assets and will not own, operate or finance hotels or other lodging facilities; provided that nothing in this Section 5.4(a) shall prohibit Borrower from indirectly owning hotels or other lodging facilities through Borrower's ownership of shares in Hospitality Properties Trust, but only to the extent that the same is permitted by Section 6.7 hereof); (b) preserve, renew and keep in full force and effect its existence and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business; and (c) comply with all Contractual Obligations and Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, have a Material Adverse Effect. 5.5. Leases and Mortgage Interests; Credit Support Agreements. (a) (i) Maintain the Leases, Mortgage Interests and Credit Support Agreements in full force and effect and enforce the obligations of the Operators under the Leases, the Mortgagors under the Mortgage Interests and the Credit Support Obligors under the Credit Support Agreements in a timely manner and (ii) obtain the consent of Agent in connection with any materially adverse change in or waiver of any obligation of any Operator, Mortgagor or Credit Support Obligor contained in, or any right or remedy of Borrower or any of its Subsidiaries under, any Lease, Mortgage Interest Agreement or Credit Support Agreement, including, without limitation, any renewal, amendment, modification or termination thereof, except to the extent that the failure to comply with this Section 5.5(a) could not, in the aggregate, have a Material Adverse Effect; and (b) give notice to Agent of each waiver, renewal, amendment, modification or termination of the Leases, Mortgage Interests and Credit Support Agreements in respect of any Eligible Property or Eligible Mortgage, together with a copy of such waiver, renewal, amendment, modification or termination. 5.6. Maintenance of Property, Insurance. Keep all property useful and necessary in its business in good working order and condition; maintain or cause the Operators of its Properties to maintain with financially sound and reputable insurance companies insurance with respect to its property and business of such a nature, with such terms and in such amounts, as is customary in the case of business entities of established reputation engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against and for by such business entities, and to cause the Mortgagors of each of its Mortgaged Properties to maintain comparable insurance. Borrower shall furnish to each Lender, upon written request, full information as to the insurance carried. 5.7. Inspection of Property; Books and Records; Discussions. Keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and permit representatives of Agent and/or Administrative Agent and, after the occurrence of a Default, any Lender, to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired, and to discuss the business, 57 operations, properties, prospects and financial and other condition of Borrower and its Subsidiaries with officers and employees of Borrower or such Subsidiaries and the Advisor and with its independent certified public accountants. 5.8. Notices. Promptly, and in any event within ten Business Days after an officer of Borrower obtains knowledge thereof, give notice to Agent, Administrative Agent and each Lender: (a) of the occurrence of any Default or Event of Default; (b) of (i) any default or event of default or termination under any Lease, Credit Support Agreement, Mortgage Interest Agreement or any other Contractual Obligation of or in favor of Borrower or any of its Subsidiaries which could have a Material Adverse Effect and (ii) any litigation, investigation or proceeding which may exist at any time between Borrower or any of its Subsidiaries or any Operator, Mortgagor or Credit Support Obligor and any Governmental Authority or other Person, which if adversely determined could have a Material Adverse Effect; (c) of any litigation or proceeding affecting Borrower in which the amount involved is $1,000,000 or more and is not fully covered by insurance or in which injunctive or similar relief is sought; (d) of the following events, as soon as possible and in any event within 30 days after Borrower knows or has reason to know thereof (provided that with respect to any Multiemployer Plan in which neither Borrower nor any ERISA Affiliate is a substantial employer Borrower shall only be deemed to have knowledge of facts concerning which it has actual knowledge): (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan, or (ii) the institution of proceedings or the taking or expected taking of any other action by PBGC or Borrower or any ERISA Affiliate to terminate or withdraw from any Plan, and in addition to such notice, deliver to each Lender whichever of the following may be applicable: (A) a certificate of the chief financial officer or treasurer of Borrower setting forth details as to such Reportable Event and the action that Borrower or ERISA Affiliate proposes to take with respect thereto, together with a copy of any notice of such Reportable Event that may be required to be filed with PBGC, or (B) any notice delivered by PBGC evidencing its intent to institute such proceedings or any notice to PBGC that such Plan is to be terminated, as the case may be; (e) of the adoption by Borrower or any ERISA Affiliate of any Plan or of any Plans maintained by any Person that becomes an ERISA Affiliate after the date hereof; (f) of any proposed transaction or event which may give rise to Net Property Proceeds, Net Mortgage Proceeds or Net Securities Proceeds in excess of $5,000,000; (g) of the occurrence or existence of any event or condition which could reasonably be expected to have, or which has had, a Material Adverse Effect; and (h) of the occurrence or existence of any event or condition which would cause any of the representations and warranties set forth in Section 3.9 to be untrue if 58 repeated after the occurrence, or during the existence, of such event or condition. Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action Borrower proposes to take with respect thereto. For all purposes of clause (d) of this Section, Borrower shall be deemed to have all knowledge or knowledge of all facts attributable to the administrator of such Plan. 5.9. Appraisals and Other Valuations. (a) From time to time during the term of this Agreement, Agent may, in its sole discretion, order an Appraisal of one or more of the Eligible Properties and/or Mortgaged Properties covered by Eligible Mortgages. Any such Appraisal shall be at Borrower's cost if (i) Agent shall have obtained a letter from an expert appraiser or evaluator of real property, health care or retirement facilities to the effect that, or Agent shall otherwise in good faith have determined that, facts or circumstances exist, or changes in market conditions have occurred, as a result of which there exists a reasonable possibility that Appraisals of the Eligible Properties and Mortgaged Properties covered by Eligible Mortgages, might result in an aggregate valuation thereof reflecting a material loss of value as compared to the value thereof indicated in the certificate of a Responsible Officer delivered to Agent pursuant to Section 4.1(j) or 4.2(h), or (ii) an Event of Default has occurred. (b) In addition to the Appraisals referred to in Section 5.9(a), from time to time during the term of this Agreement, if so requested by Agent, in its sole discretion, Borrower shall furnish to Administrative Agent, with sufficient copies for each Lender, a certificate of a Responsible Officer certifying as to the value of one or more of the Eligible Properties and/or Mortgaged Properties covered by Eligible Mortgages. 5.10. Meetings. Within one hundred days after the end of each fiscal year of Borrower, one or more Responsible Officers of Borrower shall attend an annual informational meeting with the Lenders, for the purpose of answering reasonable questions of any Lender, Agent and/or Administrative Agent relating to the Facilities and/or the Loan Documents, to be held at Borrower's cost and at such time and place to be determined by Agent as is reasonably requested by Agent; provided that each Lender shall bear the costs of transportation and accommodation for any of its representatives attending such meeting. 5.11. REIT Requirements. Operate its business at all times so as to satisfy or be deemed to have satisfied all requirements necessary to qualify as a real estate investment trust under Section 856 through 860 of the Code. Borrower will maintain adequate records so as to comply with all record-keeping requirements relating to the qualification of Borrower as a real estate investment trust as required by the Code and applicable regulations of the Department of the Treasury promulgated thereunder and will properly prepare and timely file with the Internal Revenue Service all returns and reports required thereby. Borrower will request from its shareholders all shareholder information required by the Code and applicable regulations of the Department of Treasury promulgated thereunder. 5.12. Indemnification. Borrower agrees to indemnify, defend (with counsel selected by Agent) and hold Agent, Administrative Agent, Lenders and the directors, officers, 59 shareholders, employees and agents of each of them harmless for, from and against any claims (including without limitation third party claims for personal injury or real or personal property damage), actions, administrative proceedings, judgments, damages, punitive damages, penalties, fines, costs, expenses disbursements, liabilities (including sums paid in settlements of claims), obligations, interest or losses, including attorneys' fees, consultant fees and expert fees, that arise at any time (including, without limitation, at any time after the payment of the Notes) directly or indirectly from or in connection with the presence, suspected presence, release or suspected release of any Hazardous Material in the air, soil, surface water or groundwater at or from the real property or any portion thereof with respect to a Facility, or any other real property in which Borrower or any of its Subsidiaries has any interest (all of the foregoing real property shall be referred to collectively as the "Real Property"). Without limiting the generality of the foregoing, the indemnification provided by this Section shall specifically cover (i) costs, including capital, operating and maintenance costs, incurred in connection with any investigation or monitoring of site conditions or any clean-up, remedial, removal or restoration work required or performed by any federal, state or local governmental agency or political subdivision or performed by any non-governmental Person, including any Operator or Mortgagor of a Facility, because of the presence, suspected presence, release or suspected release of Hazardous Material in the air, soil, surface water or groundwater at or from the Real Property; and (ii) costs incurred in connection with (A) Hazardous Material present or suspected to be present in the air, soil, surface water or groundwater at the Real Property before the date of this Agreement, or (B) Hazardous Material that migrates, flows, percolates, diffuses or in any way moves onto or under or from the Real Property after the date of this Agreement, or (C) Hazardous Material present at the Real Property as a result of any release, discharge, disposal, dumping, spilling or leaking (accidental or otherwise) onto or from the Property before or after the date of this Agreement by any Person. 5.13. Changes in GAAP. Borrower and the Lenders hereby agree that in the event of a change in GAAP which would cause the financial covenants set forth herein to provide less protection to the Lenders than presently provided for hereunder, such financial covenants shall be reset, in good faith, by the Majority Lenders to maintain the protection to the Lenders equivalent to that in place prior to such change and Borrower agrees to execute one or more amendments to this Agreement to effect such reset. 5.14. Clean-Down Period. If at any date of determination (the "Trigger Date"), Loans are outstanding in an aggregate principal amount equal to or greater than 66- 2/3% of the Commitments, Borrower shall prepay the Loans within 12 months of the Trigger Date in an amount such that the aggregate principal amount of the Loans outstanding for a period of 30 consecutive days commencing on such prepayment date shall be equal to or less than $100,000,000. 5.15. Further Assurances; Restrictions on Negative Pledges. (a) At any time upon the request of Agent, Borrower will, promptly and at its expense, execute, acknowledge and deliver such further documents and do such other acts and things as Agent may reasonably request to provide for payment of the Loans made hereunder and interest thereon in accordance with the terms of this Agreement. 60 (b) If Borrower or any of its Subsidiaries shall agree to any "negative pledge" or like agreement more restrictive (or otherwise more generous to its beneficiaries) in its scope than Section 6.9, then, without any further action being required, the provisions of such agreement relating to the prohibition on Liens shall be deemed incorporated by reference (with appropriate modifications as may be necessary) into this Agreement for the benefit of Lenders. 5.16. Currency Arrangements. (a) Borrower shall at all times maintain agreements or other arrangements, practices or procedures in form and substance satisfactory to Agent which will protect Borrower and its Subsidiaries against fluctuations in foreign currency values against the U.S. Dollar. (b) Borrower shall only enter into interest rate and currency exchange or similar or analogous arrangements as are (in Borrower's reasonable judgment) necessary for the hedging or other protection to exposure of Borrower and its Subsidiaries, and not those which are of a purely speculative nature. SECTION 6. NEGATIVE COVENANTS. Borrower hereby agrees that, so long as the Commitments remain in effect or any Note remains Outstanding and unpaid or any other amount is owing to any Lender, Agent or Administrative Agent hereunder or under any other Loan Document, Borrower shall not (and shall not permit any of its Subsidiaries to) directly or indirectly: 6.1. Financial Covenants. (a) Tangible Net Worth. Suffer or permit Tangible Net Worth at any time to be less than the aggregate of (i) $609,000,000, plus (ii) 75% of the Net Securities Proceeds of all issues of any Common Shares, Preferred Shares or other equity securities by Borrower in one or more transactions received after the date hereof. (b) Interest Coverage. Suffer or permit the ratio of EBI for any fiscal quarter to the Interest Charges of Borrower and its Subsidiaries for such quarter to be less than 3 to 1. (c) Debt to Net Worth. Suffer or permit the ratio of the Total Liabilities of Borrower and its Subsidiaries to Tangible Net Worth to be greater than 1 to 1 at any time. 6.2. Restricted Payments. (a) Declare, make or pay any Restricted Payment except where (i) no Default or Event of Default is continuing either before or after giving effect to such Restricted Payment, (ii) Borrower has sufficient funds or availability under its credit facilities (including this Agreement) to pay the next installment of interest payable in respect of the Loans and (iii) immediately upon declaring, making or paying any such Restricted Payment a Responsible Officer shall certify to Administrative Agent in writing that Borrower is in compliance with each condition hereof with respect to the declaration, making or payment, as the case may be, of such Restricted Payment; or 61 (b) directly or indirectly make any payment of Indebtedness of Borrower or any of its Subsidiaries in contravention of the terms of any agreement or instrument subordinating or purporting to subordinate any rights to receive payments in respect of any Indebtedness of Borrower or such Subsidiary to any rights to receive payments under this Agreement. 6.3. Merger; Sale of Assets; Termination and Other Actions. (a) Cause to be organized or assist in organizing any Person under the laws of any jurisdiction to acquire all or substantially all of its assets, terminate, wind up, liquidate or dissolve its affairs or enter into any reorganization, merger or consolidation or, in the case of Borrower, take any other action whatsoever under or pursuant to Articles 6.15, 8.1, 8.2 and 8.5 of the Declaration of Trust or agree to do any of the foregoing at any future time, except that Borrower or any Subsidiary of Borrower other than Church Creek Corporation may acquire all or substantially all of the assets of a Subsidiary of Borrower and any Subsidiary of Borrower may reorganize, merge or consolidate with Borrower (so long as Borrower is the surviving entity) or any other Subsidiary of Borrower other than Church Creek Corporation, or (b) convey, sell, lease or otherwise dispose of (i) any of the Properties, the Mortgage Interests or its other interests in Facilities or (ii) any substantial part of its property or assets (other than the Properties) or (iii) any shares of stock in any of its Subsidiaries; except that the foregoing will be permitted in the case of sub-clauses (i) and (ii) of this clause (b), but only if (A) the consideration therefor shall be equal to the fair market value thereof (or, in the case of a Mortgage Interest where the consideration is less than fair market value, the Board of Trustees of Borrower or the board of directors of the relevant Subsidiary of Borrower shall have determined that the consideration received or to be received is in an amount consistent with the best financial interests of Borrower or such Subsidiary, as the case may be) and no default under any other provision hereof results therefrom or (B) such conveyance, sale, lease or other disposition is pursuant to the exercise of an option contained in a Lease, and, in either case, the proceeds of such disposition (whether received by Borrower or one of its Subsidiaries) are used to prepay the Loans to the extent required by Section 2.8(b). 6.4. Transactions with Affiliates. Enter into or be a party to any transaction directly or indirectly with or for the benefit of any Affiliate of Borrower, other than (i) in the ordinary course of business and (ii) for fair consideration and on terms no less favorable to Borrower or any of its Subsidiaries than are available in an arm's-length transaction from unaffiliated third parties and (iii) if the Independent Trustees determine in their reasonable good faith judgment that such transaction is in the best interests of Borrower or such Subsidiary based on full disclosure of all relevant facts and circumstances. 6.5. Subsidiaries. (a) Without the prior written consent of Agent, create, or permit to exist, any Subsidiary other than (i) those named on Schedule 4 and (ii) any Subsidiary (A) one hundred percent (100%) of all of the equity interests (except directors' qualifying shares) and voting interests of which are owned by Borrower, (B) which has no Indebtedness other than to Borrower or another wholly-owned Subsidiary of Borrower, (C) which has agreed to provide the guarantee set forth in Section 9 and (D) which is formed in the ordinary course of Borrower's business and has the same business purpose as Borrower, (b) sell or otherwise dispose of any of the capital stock owned by Borrower in any Subsidiary or (c) permit any Subsidiary to issue any shares of capital stock to any Person other than Borrower. 62 6.6. Accounting Changes. Make any significant change in accounting treatment and reporting practices, except as required by GAAP or with which Borrower's independent certified public accountants have agreed. Borrower will advise Agent sufficiently in advance of any proposed change to permit representatives of Agent to discuss the proposed change with the officers of Borrower. 6.7. Change in Nature of Business. Make any material change in the nature of its business as presently conducted (where a "material change" shall mean any change in the type of industry then invested in in accordance with this Section 6.7, regardless of the amount or size of such new investment); the business of Borrower and its Subsidiaries as presently conducted being the business of acquiring and operating, and acquiring or funding Mortgage Interests in, income producing real property interests and facilities which offer health care or related services or rehabilitation or retirement services, and activities incidental to any of the foregoing, but which shall not include any acquisition, operating or funding either of Psychiatric Care Assets or of hotels or other lodging facilities; provided that (i) such property interests and facilities shall be located in either the United States of America or the United Kingdom, (ii) the aggregate Allowed Value of all Properties and Mortgage Interests located in the United Kingdom shall not exceed 10% of the aggregate Allowed Value of all Properties and Mortgage Interests, (iii) Church Creek Corporation shall not engage in any business or activities other than those engaged in by it on the Effective Date, and activities incidental thereto and (iv) Borrower may indirectly own interests in hotels or other lodging facilities through Borrower's ownership of shares in Hospitality Properties Trust, provided that (y) Borrower shall not increase its equity investment in or make any other investment in or make any loans to, guaranties for the benefit of or other support whatsoever to or for the benefit of Hospitality Properties Trust aside from the aggregate of 4,000,000 shares (which shall be construed to include any substitute or replacement shares) of stock of Hospitality Properties Trust acquired by Borrower prior to or in connection with the initial public offering of shares in Hospitality Properties Trust and (z) Hospitality Properties Trust shall not be or become a Subsidiary of Borrower. 6.8. Indebtedness. (a) Suffer or permit the total Indebtedness (determined without duplication) of Borrower and its Subsidiaries (other than the IDFA Indebtedness, Indebtedness in the nature of bridge financings described in the exception to Section 6.8(b) and Indebtedness described in Section 6.8(c)), at any time to be greater than 50% of the aggregate Allowed Value of all Eligible Properties and all Eligible Mortgages. (b) Incur any Indebtedness unless, in the case of Borrower, the earliest date for any payment of principal or other settlement thereof is at least three months after the Termination Date, except for (i) Borrower's guaranty of the IDFA Indebtedness, the terms of which Indebtedness provide for mandatory redemption prior to the Termination Date upon the occurrence of certain extraordinary events, and (ii) Indebtedness of Borrower in the nature of bridge financings to effect acquisitions of Fee Interests or Mortgage Interests by Borrower so long as the final date for payment or other settlement of all such bridge financing Indebtedness is less than one year from the date of its incurrence or issuance and Borrower promptly commences (and diligently pursues) the refinancing thereof; provided that, at any time either after total Indebtedness in the nature of bridge financings exceeds $100,000,000 or would as a result of any proposed further bridge financing exceed $100,000,000, not less than thirty days prior to the incurrence or issuance of any additional 63 bridge financing, Borrower shall provide Lenders with such details of the terms and conditions thereof as Lenders (acting through Agent) may reasonably request (and Borrower shall promptly advise Agent of any subsequent material changes to such details), and if after a review of such details Majority Lenders (each in its respective absolute discretion) determine that no further Loans may be made and the Termination Date shall be brought forward to a date which is the earlier of the maturity date for such additional bridge Indebtedness and a date eleven months after the incurrence or issuance thereof, then, effective upon the incurrence or issuance of such Indebtedness and without any further action being required, no further Loans shall be made and the definition of "Termination Date" shall be so amended; provided that if Majority Lenders (acting through Agent) have not advised Borrower of such a determination within fifteen days of receipt of all such details as they may have requested, then, subject to the opportunity to review any subsequent material changes to the details provided and to make a contrary determination based thereon, Majority Lenders shall be deemed not to have made such a determination and no change to this Agreement shall be effected pursuant to this Section 6.8(b). (c) Suffer or permit the aggregate of Indebtedness which is (i) secured by a Lien covering property or assets acquired by Borrower or any of its Subsidiaries, (ii) Indebtedness of a Person acquired by Borrower or any of its Subsidiaries or (iii) Indebtedness to which the assets of a Person acquired by Borrower or any of its Subsidiaries are subject, which in the case of any of clause (i), (ii) or (iii) is outstanding at the time of the relevant acquisition and remains outstanding following such acquisition, to exceed $50,000,000 at any time; provided that, in addition to Indebtedness otherwise permitted under this Section 6.8(c), Borrower and Church Creek Corporation may suffer or permit to exist the IDFA Indebtedness. (d) In the case of Subsidiaries of Borrower, suffer or permit to exist any Indebtedness, except for (i) intercompany Indebtedness owed to Borrower which is incurred as the result of the direct or indirect advance by Borrower of the proceeds of Loans and used for purposes described in Section 2.11 and (ii) in the case of Subsidiaries other than Church Creek Corporation, the Contingent Obligations arising from the guarantees given under Section 9 and (iii) in the case of Church Creek Corporation, the IDFA Indebtedness. 6.9. No Liens. Suffer or permit after the date hereof any Lien on any Facility, Lease, Mortgage Interest, or Credit Support Agreement, except (i) in the case of Borrower, Liens granted to secure Indebtedness in the nature of bridge financings (but not any subsequent refinancing or any other restructuring of such bridge financing) permitted under Section 6.8(b), so long as such Liens are granted only on the properties or interests acquired with such Indebtedness; provided that any such property or interest which is the subject of such a Lien shall not be an Eligible Property or an Eligible Mortgage, (ii) Permitted Exceptions, (iii) with respect to either (A) Properties that are not Eligible Properties or (B) Mortgaged Properties that are subject to Mortgage Interest Agreements which are not Eligible Mortgages only, Liens that are not created or granted by Borrower or any of its Subsidiaries, which Liens, in the aggregate, would not be reasonably likely to cause or create a Material Adverse Effect and (iv) (A) Liens securing Indebtedness permitted by Section 6.8(c) (other than the IDFA Indebtedness) so long as neither such Indebtedness nor such Liens were incurred or granted in contemplation of such acquisition and such Liens are granted only on the related properties or interests acquired by Borrower or its Subsidiaries 64 and (B) Liens existing on the Effective Date securing the IDFA Indebtedness and any Liens in continuation thereof or replacement or substitution therefor so long as the Allowed Value of the subject property or interest is not greater than the Allowed Value on the Effective Date of the property or interest then the subject of such permitted Liens; provided that any property or interest which is the subject of a Lien permitted under this clause (iv) shall not be an Eligible Property or an Eligible Mortgage. 6.10. Fiscal Year. Change the fiscal year end of Borrower or any of its Subsidiaries from December 31 to any other date without the prior written consent of Agent. 6.11. Chief Executive Office. Change the name of Borrower or the chief executive office of Borrower unless Borrower has given Administrative Agent at least 15 Business Days' prior written notice of any such change. 6.12. Amendment of Certain Agreements. Amend, supplement or otherwise modify (a) the Advisory Agreement, or (b) the Declaration of Trust in a manner which would be reasonably likely to cause a Material Adverse Effect, in either case without the prior written consent of Agent. 6.13. Payments Not to Exceed Appraised Value. Pay consideration in an amount greater than the Appraised Value for the acquisition of any Facility or, in the case of a group of Facilities acquired in a single transaction, the aggregate Appraised Value of such group of Facilities. SECTION 7. EVENTS OF DEFAULT 7.1. Events of Default. Upon the occurrence of any of the following events (each an "Event of Default"): (a) Payments. Borrower shall fail to pay any principal of or interest on any Note, or Borrower or any of its Subsidiaries shall fail to pay any other amount payable hereunder, when due in accordance with the terms thereof or hereof; or (b) Representations and Warranties. Any representation or warranty made or deemed made by Borrower or any of its Subsidiaries herein or by any Person in any other Loan Document or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement or any other Loan Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) Certain Covenant Defaults. Borrower shall default in the observance or performance of any agreement contained in Section 6 of this Agreement, or the Advisor shall default in the observance or performance of any material provision of the Subordination Agreement; or (d) Certain Other Covenant Defaults. Borrower or any other party to any of 65 the Loan Documents (other than Agent, Administrative Agent and the Lenders hereunder) shall default in the observance or performance of any other provision of this Agreement or any of the other Loan Documents, and such default shall continue unremedied for a period of 20 days; or (e) Cross-Default. Borrower or any of its Subsidiaries shall (i) default in any payment of principal of or interest on any Indebtedness (other than the Notes) in respect of money borrowed or Capitalized Lease Obligations or incurred for the deferred purchase price of property or services or evidenced by a note, debenture or other similar written obligation to pay money, or in the payment of any Contingent Obligation (other than the guarantees of Subsidiaries of Borrower given in Section 9, which shall be subject to Section 7.1(d)), beyond the period of grace (not to exceed 30 days), if any, provided in the instrument or agreement under which such Indebtedness or Contingent Obligation was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or Contingent Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Contingent Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or such Contingent Obligation to become payable; or (f) Qualification as REIT. Either Agent or the Majority Lenders shall have determined in good faith, and shall have so given notice to Borrower, that Borrower has at any time ceased to be in a position to qualify, or has not qualified, as a real estate investment trust for any of the purposes of the provisions of the Code applicable to real estate investment trusts; provided that no Event of Default under this Section 7.1(f) shall be deemed to have occurred and be continuing if, within 10 days after notice of any such determination is given to Borrower, Borrower shall have furnished each Lender with an opinion of Borrower's tax counsel (who shall be satisfactory to the Majority Lenders provided that the Majority Lenders may not unreasonably withhold their approval) to the effect that Borrower is then in a position to so qualify, or has so qualified, as the case may be, which opinion shall not contain any material qualification unsatisfactory to the Majority Lenders; or (g) Insolvency, Etc. There shall be an Insolvency Event with respect to Borrower or any of its Subsidiaries or the Advisor; or (h) ERISA. (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, (iii) a Termination Event shall occur or (iv) any other event or condition shall occur or exist with respect to a Plan or a Multiemployer Plan; and in each case in clauses (i) through (iv) above, such event or condition, together with all other such events or conditions, if any, could subject Borrower or any of its Subsidiaries to any tax, penalty or other liabilities in the aggregate material in relation to the business, operations, property or financial or other condition of Borrower and its Subsidiaries, taken as a whole; or 66 (i) Certain Judgments. One or more judgments or decrees shall be entered against Borrower or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance) of $1,000,000 or more, and either (x) all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal or (y) funds in the amount of the liability thereunder (not paid or fully covered by insurance) shall not have been deposited in escrow with Agent upon terms and conditions satisfactory to Agent, in each case under clause (x) or (y), within 60 days from the entry thereof; or (j) Certain Ownership of Borrower. Barry M. Portnoy and Gerard M. Martin (or any Person in respect of which either or both of them own more than 50% of the securities having ordinary voting power for the election of directors) shall cease at any time to hold beneficially and of record, in the aggregate, at least 750,000 shares of the issued and outstanding Common Shares and each other class of equity securities of Borrower (adjusted for any division, reclassification or stock dividend in respect of Common Shares) or such lesser amount as shall be approved by Agent; or (k) Change of Control of Advisor. Barry M. Portnoy and Gerard M. Martin shall cease at any time to have the power to direct the management and policies of HRPT Advisors; or (l) Investment Grade Operators and Mortgagors. More than 50% of the aggregate Allowed Value of the Properties and Mortgage Interests shall be attributable to Properties and Mortgage Interests having the same "investment grade Person" (or any of that Person's Affiliates; provided that for the purposes of this Section 7.1(l), so long as there is no material change in their practices and procedures in place at the Effective Date to provide for arm's-length dealings, Marriott International, Inc. and its Affiliates and Host Marriott Corporation and its Affiliates will not be treated as Affiliates of each other) as Mortgagor or Operator thereof (with an "investment grade Person" being one whose long-term senior debt is rated BBB- or higher by Standard & Poor's Ratings Group or Baa3 or higher by Moody's Investors Service (or similarly rated by any successor to either of such rating agencies)); or (m) Operators and Mortgagors Generally. Except in the case of Mortgagors or Operators which are "investment grade Persons" (as defined in Section 7.1(l)), more than 40% of the aggregate Allowed Value of the Properties and Mortgage Interests shall be attributable to Properties and Mortgage Interests having the same Person (or any of that Person's Affiliates; provided that for the purposes of this Section 7.1(m) so long as there is no material change in their practices and procedures in place at the Effective Date to provide for arm's-length dealings, Marriott International, Inc. and its Affiliates and Host Marriott Corporation and its Affiliates will not be treated as Affiliates of each other) as Mortgagor or Operator thereof; or (n) Rehabilitation Treatment Assets. More than 40% of the aggregate Allowed Value of the Properties and Mortgage Interests shall be attributable to Properties and Mortgages consisting of Rehabilitation Treatment Assets; or (o) Acute Care Assets. More than 15% of the aggregate Allowed Value of the Properties and Mortgage Interests shall be attributable to Properties and Mortgages consisting of Acute Care Assets; or 67 (p) Psychiatric Care Assets. Any of the aggregate Allowed Value of the Properties and Mortgage Interests shall be attributable to Properties or Mortgages consisting of Psychiatric Care Assets; or (q) Hotels and Lodging Facilities. Any of the aggregate Allowed Value of the Properties and Mortgage Interests shall be attributable to Properties and Mortgages consisting of hotels or other lodging facilities; or (r) Medical Office Assets. More than 15% of the aggregate Allowed Value of the Properties and Mortgage Interests shall be attributable to Medical Office Assets; or (s) Clinics. More than 25% of the aggregate Allowed Value of the Properties and Mortgage Interests shall be attributable to Clinics; or (t) Advisor. HRPT Advisors shall cease to be the sole Advisor to Borrower pursuant to and in accordance with the Advisory Agreement, without Agent's prior written consent or the Advisory Agreement shall be materially amended, supplemented or modified without Agent's prior written consent; or (u) Loan Documents. From and after the Effective Date, any guarantee given by a Subsidiary of Borrower in Section 9 or any Loan Document shall be terminated or otherwise shall cease to be in full force and effect or shall cease to give the Lenders the rights, powers and privileges purported to be created thereby or any party thereto other than Agent and the Lenders shall cease to be, or shall assert that it is not, bound thereby in accordance with its terms; then, and in any such event, (a) if such event is an Event of Default specified in paragraph (g) above, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement, the Notes and any other Loan Document shall immediately become due and payable, and (b) if such event is any other Event of Default, either or both of the following actions may be taken: (i) Agent may, or upon the request of the Majority Lenders, Agent shall, by notice to Borrower, declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) Agent may, or upon the request of the Majority Lenders, Agent shall, by notice of default to Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement, the Notes and any other Loan Document to be due and payable forthwith, whereupon the same shall immediately become due and payable. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. 7.2. Annulment of Acceleration. If payment on the Loans and the Notes is accelerated in accordance with Section 7.1 of this Agreement, then and in every such case, the Majority Lenders may, by an instrument delivered to Borrower (and to Agent and/or Administrative Agent, as applicable, to the extent it is or they are not participating in the giving of notice) annul such acceleration and the consequences thereof; provided that at the time such acceleration is annulled: (a) all arrears or interest on the Loans and the Notes and all other sums 68 payable in respect of the Loans and pursuant to this Agreement, the Notes and each other Loan Document (except any principal of or interest or premium on the Loans and the Notes and other sums which have become due and payable only by reason of such acceleration) shall have been duly paid; and (b) every other Default or Event of Default shall have been duly waived or otherwise cured; provided, further, that no such annulment shall extend to or affect any subsequent Default or Event of Default or impair any right consequent thereon. 7.3. Cooperation by Borrower. To the extent that it lawfully may, Borrower agrees that it will not (and that it will cause its Subsidiaries not to) at any time insist upon or plead, or in any manner whatever claim or take any benefit or advantage of any applicable present or future stay, extension or moratorium law, which may affect observance or performance of the provisions of this Agreement or of any Note or any other Loan Document. SECTION 8. THE AGENTS 8.1. Appointment of Agent and Administrative Agent. (a) Each Lender hereby irrevocably designates and appoints Kleinwort Benson as Agent of such Lender and each of Wells Fargo Bank, National Association and the GBP Agent (as defined in the definition of "Administrative Agent"), as Administrative Agent of such Lender (with their respective functions as set forth in the definition of "Administrative Agent") (the Agent and Administrative Agent collectively being the "Loan Agents", and, for the purposes of Sections 8.1(c), 8.1(g), 8.1(h) and 8.1(l), Co-Agent shall also be deemed to be a "Loan Agent") under this Agreement and the Loan Documents and the other documents or instruments delivered pursuant to or in connection herewith or therewith and each such Lender hereby irrevocably authorizes each Loan Agent, for such Lender, to take such action on behalf of each Lender under the provisions of the Loan Documents and to exercise such powers and perform such duties as are expressly delegated to such Loan Agent by the terms of the Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in the Loan Documents, no Loan Agent shall have any duties or responsibilities other than those expressly set forth in the Loan Documents, nor any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into the Loan Documents or otherwise exist against either Loan Agent. (b) Each Loan Agent may execute any of its duties under the Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. No Loan Agent shall be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. (c) None of the Loan Agents nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully 69 taken or omitted to be taken by it under or in connection with the Loan Documents (except for its gross negligence or willful misconduct), or (ii) responsible in any manner to any Lender for any recitals, statements, representations or warranties made by Borrower or any of its Subsidiaries or any other Person contained in the Loan Documents or in any certificate, report, statement or other document referred to or provided for in, or received by either Loan Agent under or in connection with, the Loan Documents (including, without limitation, any Appraisal or valuation or any certificate or other report relating to the value of any Property or any Mortgage Interest), or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of the Loan Documents or otherwise or for any failure of Borrower or any of its Subsidiaries or any other Person to perform its obligations under the Loan Documents. The Loan Agents shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, the Loan Documents, or to inspect the properties, books or records of Borrower or any of its Subsidiaries or any other Person or to insure, protect or preserve any of the property of Borrower or any of its Subsidiaries or any other Person. (d) Each Loan Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation reasonably believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to Borrower or its Subsidiaries), independent accountants and other experts selected by such or the other Loan Agent. Each Loan Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with such Loan Agent. (e) Each Loan Agent shall be fully justified in failing or refusing to take any action under the Loan Documents unless it shall first receive such advice or concurrence of the Majority Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Each Loan Agent shall in all cases be fully protected in acting, or in refraining from acting, under the Loan Documents in accordance with a request of the Majority Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. (f) No Loan Agent shall be deemed to have knowledge or notice of the occurrence of any Event of Default or event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default hereunder unless such Loan Agent shall have received notice from the other Loan Agent, a Lender or Borrower referring to this Agreement, describing such event, act or condition or Event of Default and stating that such notice is a "notice of default". In the event that a Loan Agent receives such a notice, such Loan Agent shall give prompt notice thereof to the Lenders and (provided such notice is not received from the other Loan Agent) to the other Loan Agent. Each Loan Agent shall take such action with respect to the rights and remedies given to such Loan Agent pursuant to the terms of the Loan Documents as shall be reasonably directed by the Majority Lenders; provided that, unless and until such Loan Agent shall have received such directions, such 70 Loan Agent may (but shall not be obligated to) take such action, or refrain from taking such action, as it shall deem advisable in the best interests of the Lenders. (g) Each Lender expressly acknowledges that none of the Loan Agents nor any of their officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by either Loan Agent hereinafter taken or hereinbefore taken in connection with the Existing Loan Agreement, including any review of the affairs of Borrower or any of its Subsidiaries, shall be deemed to constitute any representation or warranty by that Loan Agent to any Lender. Each Lender represents to the Loan Agents that it has, independently and without reliance upon either Loan Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of Borrower and its Subsidiaries, each Operator, each Mortgagor and each Credit Support Obligor, and made its own decision to make its loans hereunder and enter into this Agreement, and that it has satisfied itself independently, without reliance on either of the Loan Agents or any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates, as to the compliance of the transactions contemplated hereby with all legal and regulatory requirements applicable to such Lender. Each Lender expressly acknowledges that its representation in the previous sentence shall not be restricted or construed in any way to import any reliance on either Loan Agent or any other Lender as a result of any duties or other actions which may have been undertaken by that Loan Agent or other Lender in connection with the Existing Loan Agreement, and, where such Lender is itself also a party to the Existing Loan Agreement, that such Lender's decision to make its Loans hereunder and enter into this Agreement is made independently of its decisions to enter into the Existing Loan Agreement and to make any loans thereunder. Each Lender also represents that it will, independently and without reliance upon either Loan Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of Borrower and its Subsidiaries, any Operator, any Mortgagor or any Credit Support Obligor. Except for notices, reports and other documents expressly required to be furnished to the Lenders by that Loan Agent hereunder, neither Loan Agent shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, financial and other condition or credit-worthiness of Borrower and its Subsidiaries which may come into its possession or the possession of any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. (h) Each Lender agrees to indemnify, defend (with counsel selected by each Loan Agent) and hold each Loan Agent in its capacity as such (to the extent not reimbursed by Borrower and without limiting the obligation of Borrower to do so), and such Loan Agent's respective officers, directors, shareholders, employees and agents, ratably according to the aggregate loan percentages set forth opposite its name on Schedule 1 hereto, harmless for, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the payment of the Notes) be imposed on, incurred by or asserted against such Loan Agent in any way relating to or arising out of the Loan Documents or the transactions contemplated thereby or any action taken or 71 omitted by such Loan Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgements, suits, costs, expenses or disbursements resulting primarily from such Loan Agent's willful misconduct or gross negligence. The agreements in this Section shall survive the payment of the Notes. (i) Each Loan Agent and its affiliates may make loans to and generally engage in any kind of business with Borrower or any of its Subsidiaries as though such Loan Agent were not a Loan Agent hereunder. With respect to its pro rata share of the Loan made or extended by it and any Note issued to it, each Loan Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not a Loan Agent. The terms "Lender" and "Lenders" shall include each Loan Agent in its individual capacity. (j) A Loan Agent may resign as Loan Agent upon 30 days' written notice to the Lenders. In the event that a Loan Agent shall enter receivership, then the Lenders (other than the Lender which is acting as such Loan Agent, if applicable) may, by unanimous consent, remove such Loan Agent as Loan Agent under this Agreement. If a Loan Agent shall resign as such Loan Agent under this Agreement or a Loan Agent shall be removed, then the Majority Lenders shall within 30 days of such resignation or removal or, in the absence of such appointment, the resigning or removed Loan Agent shall, appoint a successor agent for the Lenders, whereupon such successor agent shall succeed to the rights, powers and duties of such Loan Agent, and the term "Agent" or "Administrative Agent", as applicable, shall mean such successor agent effective upon its appointment, and the former Loan Agent's rights, powers and duties as Loan Agent shall be terminated, without any other or further act or deed on the part of such former Loan Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Loan Agent's resignation hereunder as Loan Agent or any Loan Agent's removal, the provisions of this Section 8.1 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was a Loan Agent under this Agreement. (k) Each Lender agrees to use its best efforts promptly upon an officer responsible for the administration of this Agreement becoming aware of any development or other information which may have a Material Adverse Effect or MAC to notify the other Lenders of the same. Each Loan Agent agrees that it shall promptly deliver to each Lender copies of all notices, demands, statements and communications which such Loan Agent gives to Borrower, except for routine notices of payment due under the Loan Documents and other miscellaneous notices, demands, statements and communications, the failure of delivery of which to each Lender shall not have a material adverse effect on any Lender. The foregoing notwithstanding, no Loan Agent shall have any liability to any Lender, nor shall a cause of action arise against any Loan Agent, as a result of the failure of such Loan Agent to deliver to any Lender any notice, demand, statement or communication required to be delivered by it under this Section 8.1(k), except to the extent such failure is due to the gross negligence or wilful misconduct of such Loan Agent. (l) Each Loan Agent shall endeavor to exercise the same care in administering the Loan Documents as it exercises with respect to similar transactions in which it is involved and where no other co-lenders or participants are involved; provided that the liability of such 72 Loan Agent for failing to do so shall be limited as provided in the preceding paragraphs of this Section 8.1. (m) Each Lender agrees that, as between it and any Loan Agent, any Loan Document or Appraisal, or other report or document with respect to which the approval of such Lender is required hereunder, sent to it for review shall be deemed consented to by it for purposes of any approval thereof by any Loan Agent if such Lender does not give to such Loan Agent written notice of its objection thereto within five Business Days of its receipt thereof. The foregoing shall be for the benefit of such Loan Agent only and shall not be deemed a consent under any other provision of this Agreement or to confer any rights on Borrower or any of its Subsidiaries under this Agreement in any manner whatsoever. SECTION 9. SUBSIDIARY GUARANTIES 9.1 Guaranties. In order to induce the Lenders to enter into this Agreement and to make the Loans to Borrower hereunder, each Subsidiary of Borrower other than Church Creek Corporation agrees as follows: (a) Each such Subsidiary of Borrower hereby unconditionally (subject to the next paragraph) and irrevocably guarantees, as primary obligor and not merely as surety, the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of the principal and interest (including, without limitation, interest which, but for the filing of a petition in bankruptcy with respect to Borrower would accrue hereunder) on all Loans made to Borrower, and the full and punctual payment of all other amounts payable by Borrower under this Agreement (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code). Upon failure by Borrower to pay punctually any such amount, each such Subsidiary shall forthwith on demand pay the amount not so paid as if that Subsidiary instead of Borrower were expressed to be the principal obligor. The obligations of each Subsidiary of Borrower under this Section 9 shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations subject to avoidance as a fraudulent transfer or conveyance under Section 548 of the United States Bankruptcy Code or any applicable provisions of comparable state law, in each case after giving effect to all other liabilities of the relevant Subsidiary (contingent or otherwise) that are relevant under those laws. In order to provide for just and equitable contribution among the Subsidiaries of Borrower, each such Subsidiary agrees that if any other Subsidiary makes payments under this Section 9 in an aggregate amount in excess of the net value of the benefits received by such other Subsidiary and its own Subsidiaries from extensions of credit under this Agreement, then the Subsidiary which has made such excess payments shall have a right of contribution against the other Subsidiaries of Borrower for such excess. However, this right of contribution shall be subject to Section 9.1(e) in all respects. 73 Each Subsidiary of Borrower acknowledges that the giving by it of this guarantee is a condition precedent to the making or maintenance of the Loans to Borrower and also acknowledges that a portion of the proceeds of the Loans may be advanced to it by Borrower, and accordingly the obligations guaranteed are being incurred for, and will inure to, its benefit. (b) The obligations of each Subsidiary of Borrower hereunder shall be unconditional, irrevocable, direct and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by (and, to the fullest extent permitted by law, each such Subsidiary waives its rights in connection with): (i) any extension, increase, renewal, settlement, compromise, waiver or release in respect of any obligation of Borrower hereunder, by operation of law or otherwise; (ii) any modification or amendment of or supplement to this Agreement; (iii) any release, impairment, non-perfection or invalidity of any direct or indirect security (if any) for any obligation of Borrower under this Agreement; (iv) any change in the trust existence, structure or ownership of Borrower, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting Borrower or its assets or any resulting release or discharge of any obligation of Borrower contained in the Agreement; (v) the existence of any claim, set-off or other rights which such Subsidiary may have at any time against Borrower, any Lender or any other Person, whether in connection herewith or any unrelated transactions; provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; (vi) any invalidity or unenforceability relating to or against Borrower for any reason of this Agreement, or any provision of applicable law or regulation purporting to prohibit the payment by Borrower of the principal or interest on any Loan or any other amount payable by Borrower under this Agreement; or (vii) any other act or omission to act or delay of any kind by Borrower, any Lender or any other Person or any other circumstance whatsoever which might, but for the provisions of this Section 9, constitute a legal or equitable discharge of or defense to such Subsidiary's obligations hereunder. (c) Each such Subsidiary's obligations hereunder shall remain in full force and effect until this Agreement shall have terminated and the principal and interest on all Loans and all other amounts payable by Borrower hereunder shall have been paid in full. Each such Subsidiary further agrees that its guarantee hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payments, or any part thereof, of principal of or interest on any obligation of Borrower is rescinded or must otherwise be restored by Agent or any Lender upon the bankruptcy or reorganization of Borrower or otherwise. 74 (d) Each such Subsidiary irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against Borrower or any other Person. (e) Each Subsidiary irrevocably waives any and all rights to which it may be entitled, by operation of law or otherwise, upon making any payment hereunder to be subrogated to the rights of the payee against Borrower with respect to such payment or against any direct or indirect security therefor, or otherwise to be reimbursed, indemnified or exonerated by or for the account of Borrower in respect thereof. SECTION 10. GENERAL 10.1 CHOICE OF LAW. THIS AGREEMENT AND THE NOTES SHALL BE CONTRACTS UNDER AND SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 10.2 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; ETC. NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT, THE NOTES OR ANY OTHER LOAN DOCUMENT, EACH OF BORROWER AND EACH OF ITS SUBSIDIARIES HEREBY IRREVOCABLY (a) SUBMITS TO THE NON-EXCLUSIVE PERSONAL JURISDICTION OF ANY STATE OR FEDERAL COURT IN THE STATE OF NEW YORK IN ANY SUIT, ACTION OR OTHER LEGAL PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS; (b) AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH SUIT, ACTION OR OTHER LEGAL PROCEEDING MAY BE HEARD AND DETERMINED IN, AND ENFORCED IN AND BY, ANY SUCH COURT; (c) WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO VENUE IN ANY SUCH COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM; (d) AGREES TO SERVICE OF PROCESS IN ANY SUCH PROCEEDING BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, OR IN ANY OTHER MANNER PERMITTED BY LAW, TO ANY THEN ACTIVE AGENT FOR SERVICE OF PROCESS ("PROCESS AGENT") AT ANY SPECIFIED ADDRESS OR TO BORROWER AT ITS ADDRESS SET FORTH HEREIN OR TO SUCH OTHER ADDRESS OF WHICH ADMINISTRATIVE AGENT (WITH A COPY TO AGENT TO FOLLOW) SHALL HAVE BEEN NOTIFIED IN WRITING (SUCH SERVICE TO BE EFFECTIVE ON THE EARLIER OF RECEIPT THEREOF OR, IN THE CASE OF SERVICE BY MAIL, THE 5TH DAY AFTER DEPOSIT OF SUCH SERVICE IN THE MAILS AS AFORESAID), AND HEREBY WAIVES ANY CLAIM OF ERROR ARISING OUT OF SERVICE OF PROCESS BY ANY METHOD PROVIDED FOR HEREIN OR ANY CLAIM THAT SUCH SERVICE WAS NOT EFFECTIVELY MADE; (e) AGREES THAT THE FAILURE OF ITS PROCESS AGENT TO GIVE ANY NOTICE OF ANY SUCH SERVICE OF PROCESS TO IT SHALL NOT IMPAIR OR AFFECT THE VALIDITY OF SUCH SERVICE OR ANY JUDGMENT BASED THEREON; (f) TO THE 75 EXTENT THAT BORROWER OR ANY SUCH SUBSIDIARY HAS ACQUIRED, OR HEREAFTER MAY ACQUIRE, ANY IMMUNITY FROM JURISDICTION OF ANY SUCH COURT OR FROM LEGAL PROCESS THEREIN, WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, SUCH IMMUNITY; (g) WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN CONNECTION WITH, OR WITH RESPECT TO, ANY SUIT, ACTION OR OTHER LEGAL PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS, (i) ANY CLAIM THAT IT IS IMMUNE FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO IT OR ANY OF ITS PROPERTY, (ii) ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, AND (iii) ANY RIGHT TO A JURY TRIAL; AND (h) AGREES THAT AGENT AND EACH LENDER SHALL HAVE THE RIGHT TO BRING ANY LEGAL PROCEEDINGS (INCLUDING A PROCEEDING FOR ENFORCEMENT OF A JUDGMENT ENTERED BY ANY OF THE AFOREMENTIONED COURTS) AGAINST BORROWER OR SUCH SUBSIDIARY IN ANY OTHER COURT OR JURISDICTION IN ACCORDANCE WITH APPLICABLE LAW. NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF AGENT AND EACH LENDER TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS IN THE COURTS OF ANY OTHER JURISDICTION OR THE RIGHT, IN CONNECTION WITH ANY LEGAL ACTION OR PROCEEDING WHATSOEVER, TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. EACH OF BORROWER AND EACH OF ITS SUBSIDIARIES HEREBY IRREVOCABLY DESIGNATES THE FIRM OF SULLIVAN & WORCESTER, WITH OFFICES AT 767 THIRD AVENUE, NEW YORK, NEW YORK 10017, ATTENTION: CHARLES M. DUBROFF, AS ITS PROCESS AGENT TO RECEIVE SERVICE OF ANY AND ALL PROCESS AND DOCUMENTS ON ITS BEHALF IN ANY LEGAL PROCEEDING IN THE STATE OF NEW YORK AND SUCH PROCESS AGENT, BY ITS ACKNOWLEDGEMENT BELOW, IRREVOCABLY AGREES TO SO ACT AS PROCESS AGENT FOR SERVICE OF PROCESS. IF SUCH PROCESS AGENT SHALL FOR ANY REASON FAIL TO ACT, OR BE PREVENTED FROM ACTING, AS PROCESS AGENT, NOTICE THEREOF SHALL IMMEDIATELY BE GIVEN TO AGENT BY REGISTERED OR CERTIFIED MAIL AND BORROWER AGREES (FOR ITSELF AND ITS SUBSIDIARIES) PROMPTLY TO DESIGNATE ANOTHER PROCESS AGENT IN THE CITY OF NEW YORK, SATISFACTORY TO AGENT UNDER THIS AGREEMENT, TO SERVE IN PLACE OF SUCH PROCESS AGENT AND DELIVER TO AGENT WRITTEN EVIDENCE OF SUCH SUBSTITUTE PROCESS AGENT'S ACCEPTANCE OF SUCH DESIGNATION. SUCH ACTING PROCESS AGENT SHALL NEVERTHELESS CONTINUE TO SERVE AS PROCESS AGENT UNTIL ITS SUCCESSOR IS DULY APPOINTED. 10.3 Notices; Certain Payments. (a) All notices, consents and other communications to Borrower or any of its Subsidiaries, Agent, Administrative Agent or any 76 Lender relating hereto to be effective shall be in writing and shall be deemed made (i) if by certified mail, return receipt requested, or facsimile, when received, (ii) if by telex, when sent answerback received, and (iii) if by courier, when receipted for, in each case addressed to them as follows or at such other address as either of them may designate by written notice to the other: (w) Borrower and its Subsidiaries: Health and Retirement Properties Trust, 400 Centre Street, Newton, Massachusetts 02158, Attention: President and Treasurer (telecopier no. (617) 332-2261) with a copy to Sullivan & Worcester, One Post Office Square, Boston, Massachusetts 02109, Attention: Jennifer B. Clark, Esq. (telecopier no. (617) 338-2880); (x) Agent: Kleinwort Benson Limited, P.O. Box 560, 20 Fenchurch Street, London, EC3P 3DB, England, Attention: Robin Tilbury, Loans Administration (telecopier no. 011-44-171-956-6105) with a copy to Kleinwort Benson (North America), Incorporated, 200 Park Avenue, 25th Floor, New York, New York 10166, Attention: Peter Kettle and Abbie Baynes (telecopier no. 1-212-983-5981); (y) Administrative Agent: Wells Fargo Bank, National Association, Corporate Banking, 420 Montgomery Street, San Francisco, California 94163, Attention: (in the case of a Notice of Borrowing) Lupe Barajas (telecopier no. 1-415-989-4319) or (in all other cases) Brian O'Melveny (telecopier no. 1-415-421-1352); and (z) the Lenders : to the addresses specified opposite such Lenders' respective names on Schedule 1 hereto, with a copy to O'Melveny & Myers, 153 East 53rd Street, New York, New York 10022, Attention: Christopher D. Hall, Esq. (telecopier no. (212) 326-2061). (b) All payments on account of the Loans and the related Notes pursuant hereto or pursuant to the other Loan Documents shall be made to the Borrower's account with Administrative Agent at: Wells Fargo Bank, N.A. San Francisco, California ABA No. 121000248 Account Name: Health and Retirement Properties Trust Account No. 4518073184 together with irrevocable instructions to Administrative Agent to apply such payments under this Agreement. Administrative Agent may by written notice to Borrower specify or change its account and address for payment instructions hereunder. 10.4 No Waivers; Cumulative Remedies; Entire Agreement; Headings; Successors and Assigns; Counterparts; Severability. (a) No action, failure, delay or omission by Agent, Administrative Agent or any Lender in exercising any rights, powers, privileges and remedies under this Agreement, the Notes or any other Loan Document, or otherwise, shall constitute a waiver of, or impair, any of the rights, powers, privileges or remedies of Agent, Administrative Agent or any Lender hereunder or thereunder. (b) No single or partial exercise of any such right, power, privilege or remedy shall preclude any other or further exercise thereof or the exercise of any other right, power, privilege or remedy. Such rights, powers, privileges and remedies are cumulative and not exclusive of any rights, powers, privileges and remedies provided by law or otherwise available, including, but not limited to, rights to specific performance (to the extent permitted by law) or any covenant or agreement contained in this Agreement or any of the Loan Documents. No waiver of any such right, power, privilege or remedy shall be effective 77 unless given in writing by the Majority Lenders or as otherwise provided in Section 10.6. No waiver of any such right, power, privilege or remedy shall be deemed a waiver of any other right, power, privilege or remedy hereunder or thereunder. Every right, power, privilege and remedy given by this Agreement or by applicable law to Agent, Administrative Agent or any Lender may be exercised from time to time and as often as may be deemed expedient by Agent, Administrative Agent or any Lender. (c) This Agreement, the Notes and the other Loan Documents constitute the entire agreement of the parties relating to the subject matter hereof and thereof and there are no verbal agreements relating hereto or thereto. Section headings herein shall have no legal effect. (d) This Agreement, the Notes and the other Loan Documents (including all covenants, representations, warranties, rights, powers, privileges and remedies made or granted herein or therein) shall inure to the benefit of, and be enforceable by, Agent, Administrative Agent and each Lender and their respective successors and assigns, except as otherwise expressly provided in this Agreement. Neither Borrower nor any of its Subsidiaries may directly or indirectly assign or transfer (whether by agreement, by operation of law or otherwise) any of its rights or obligations and liabilities hereunder without the prior written consent of each Lender. Each of the Lenders may make, carry or transfer its pro rata share of the Loans at, to or for the account of, any of its branch offices or the office of one or more of its Affiliates. Further, each Lender may sell participations in all or any part of its pro rata share of the Loans or its Commitments or any other interest herein or in its Notes to another bank or Person, or with the prior written consent of Agent and Borrower (not to be unreasonably withheld; provided that Borrower's consent shall not be required if an Event of Default has occurred and is continuing) each Lender may assign its rights and delegate its obligations under this Agreement and any of the other Loan Documents and with the prior written consent of Agent and Borrower (not to be unreasonably withheld; provided that Borrower's consent shall not be required if an Event of Default has occurred and is continuing) may assign all or any part of its pro rata share of the Loans or its Commitment or any other interest herein or in its Notes to another bank or other Person in amounts not less than $5,000,000 (or any lesser amount in the case of an assignment by one Lender to another Lender) to any one assignee, in which event (i) in the case of an assignment, upon notice thereof by such Lender to Borrower, Agent and Administrative Agent, the assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights and benefits as it would have if it were such Lender hereunder and the holder of a Note and to such extent shall be deemed a "Lender" for all purposes of this Agreement and the other Loan Documents, and (ii) in the case of a participation, the participant shall not have any rights under this Agreement or any Note or any other Loan Document (the participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto). In the case of such a participation, the terms of the agreement or agreements pursuant to which any such participation is created shall not confer upon the participant any right to vote its interest as a participant in respect of any matter relating to the Loans other than (w) the extension of the maturity of any Note or the time of payment of interest thereon, (x) the reduction of the rate of interest payable hereunder, (y) the reduction of any other amount payable hereunder or (z) the increase of such participant's share of the relevant Lender's Commitment hereunder. Each Lender may furnish any information concerning Borrower and its Subsidiaries, the 78 Advisor, any Operator, any Mortgagor and any Credit Support Obligor in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants). In the event that any Lender shall assign or sell any of its Notes, such Lender shall at the time of such assignment or sale give written notice to Agent, Administrative Agent and Borrower of the name and address of the assignee (including the name of the account officer if applicable). (e) Each Lender agrees that such Lender shall not assign or offer to assign interests in its Notes in such a manner which would require that the Notes be registered under applicable securities laws. Each Lender represents that it is acquiring its respective Note for investment and not with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act of 1933, as amended; provided that the disposition of the Notes in accordance with the other provisions of this Section 10.4 shall at all times remain within the Lenders' control. (f) This Agreement may be executed in any number of separate counterparts, each of which shall be deemed an original and all of which taken together shall be deemed to constitute one and the same instrument. (g) In the event any one or more of the provisions contained in this Agreement or any Notes or any other Loan Documents should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal, or unenforceable provisions. 10.5 Survival. The obligations of Borrower under Sections 2.6, 2.10, 2.12, 2.13, 2.14, 2.15, 5.12 and 10.7 (and all other indemnification and expense reimbursement obligations of Borrower under this Agreement) shall survive the repayment of the Loans and the cancellation of the Notes and the termination of the other obligations of Borrower hereunder and under the other Loan Documents. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes and the funding of the Loans. 10.6 Amendments and Waivers. With the written consent of the Majority Lenders, Agent and Borrower may, from time to time, enter into written amendments, supplements or modifications hereto or to any of the other Loan Documents and with the written consent of the Majority Lenders, Agent on behalf of the Lenders may execute and deliver to Borrower a written instrument waiving, on such terms and conditions as Agent may specify in such instrument, any of the requirements of this Agreement or the Notes or any Default or Event of Default and its consequences; provided that no such waiver and no such amendment, supplement or modification shall (a) extend the maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce or postpone the due date for the principal amount thereof or any other amount payable in connection herewith, or change the amount or terms of any Lender's Commitment or amend, modify or waive any provision of this Section or reduce the percentage specified in the definition of Majority 79 Lenders, or consent to the assignment or transfer by Borrower or any of its Subsidiaries of any of its rights and obligations under this Agreement, in each case without the written consent of all the Lenders, (b) amend, modify or waive any provision of Section 8 or otherwise change any of the rights or obligations of either or both of the Loan Agents under any of the Loan Documents without the written consent of the affected Loan Agent or Loan Agents (as applicable) at the time, (c) with respect to Section 6.7, amend, modify or waive (y) any provision thereof in a manner which permits Borrower or any of its Subsidiaries to own, operate, acquire or fund income producing real property interests or facilities which do not offer health care or related services or rehabilitation or retirement services, or incidental activities to any of the foregoing, or (z) the proviso to Section 6.7, without, in the case of both clauses (y) and (z) of this clause (c), the written consent of the Majority Lenders, Agent, Co-Agent and Borrower (provided that any other type of amendment, modification or waiver of Section 6.7 shall only require the written consent of the Majority Lenders, Agent and Borrower) or (d) amend, modify or waive any provision of this Section 10.6 without the written consent of all Lenders. In the case of any waiver, Borrower, Agent, Administrative Agent and the Lenders shall be restored to their former position and rights hereunder and under the Outstanding Notes, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 10.7 Payment of Expenses and Taxes. Borrower agrees (a) to pay or reimburse each of Agent and Administrative Agent on demand for all its out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement, the Notes and any other Loan Documents or other documents prepared in connection herewith, and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to Agent and Administrative Agent, (b) to pay or reimburse each Lender, Agent and Administrative Agent on demand for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the Notes, the other Loan Documents and any such other documents, or the satisfaction or review of conditions precedent to any borrowing other than that occurring on the Effective Date, including, without limitation, reasonable fees and disbursements of counsel to Agent and Administrative Agent and, in the case of enforcement or preservation of any rights under this Agreement, counsel to the several Lenders, and (c) to pay, indemnify, and to hold each Lender, Agent and Administrative Agent and their respective officers, directors, employees and agents harmless for, from and against, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the Notes, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and hold each Lender, Agent and Administrative Agent and their respective officers, directors, employees and agents harmless for, from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of, or in any other way arising out of or relating to, this Agreement, the Notes, the other Loan Documents and any such other documents, including, without limitation, any 80 claim resulting or arising out of the presence of Hazardous Materials in any of the Properties (all the foregoing, collectively, the "Indemnified Liabilities"), provided that Borrower shall have no obligation hereunder with respect to Indemnified Liabilities arising from (i) the willful misconduct of any such Lender or (ii) legal proceedings commenced against any such Lender by any security holder or creditor thereof arising out of and based upon rights afforded any such security holder or creditor solely in its capacity as such. 10.8 Adjustments; Setoff. (a) If any Lender (a "benefitted Lender") shall at any time receive any payment of all or part of its Loan, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in clause (g) of Section 7.1, or otherwise) in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lenders' Loan, or interest thereon, such benefitted Lender shall purchase for cash from the other Lenders such portion of each such other Lender's Loan, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. Borrower expressly consents to the foregoing arrangements and agrees that each Lender so purchasing a portion of another Lender's Loan may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to Borrower, any such notice being expressly waived by Borrower to the extent permitted by applicable law, upon (i) the filing of a petition under any of the provisions of the federal bankruptcy act or amendments thereto, by or against; (ii) the making of an assignment for the benefit of creditors by; (iii) the application for the appointment, or the appointment, of any receiver of, or of any of the property of; (iv) the issuance of any execution against any of the property of; (v) the issuance of a subpoena or order, in supplementary proceedings, against or with respect to any of the property of; and/or (vi) or the issuance of a warrant of attachment against any of the property of; Borrower to set off and apply against any indebtedness, whether matured or unmatured, of Borrower to such Lender, any amount owing from such Lender to Borrower, at or at any time 81 after, the happening of any of the above-mentioned events, and the aforesaid right of set off may be exercised by such Lender against Borrower or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver, or execution, judgment or attachment creditor of Borrower, or against anyone else claiming through or against Borrower or such trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver, or execution, judgment or attachment creditor, notwithstanding the fact that such right of set off shall not have been exercised by such Lender prior to the making, filing or issuance, or service upon such Lender of, or of notice of, any such petition; assignment for the benefit of creditors; appointment or application for the appointment of a receiver; or issuance of execution, subpoena or order of warrant. Each Lender agrees promptly to notify Borrower, Agent and Administrative Agent after any such set off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set off and application. The proceeds of any set off or application pursuant to this subsection (b) of Section 10.8 shall be distributed in accordance with the preceding subsection (a). 10.9 NONLIABILITY OF TRUSTEES. THE DECLARATION OF TRUST ESTABLISHING BORROWER, DATED OCTOBER 9, 1986, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HEALTH AND RETIREMENT PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF BORROWER SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, BORROWER. ALL PERSONS DEALING WITH BORROWER, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF BORROWER FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. [Remainder of page left blank intentionally] 82 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. HEALTH AND RETIREMENT PROPERTIES TRUST By: /s/ Ajay Saini Name: Ajay Saini Title: Treasurer KLEINWORT BENSON LIMITED, as Agent and as a Lender By: /s/ Patrick F. Donelan Name: Patrick F. Donelan Title: Director WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent and as a Lender By: /s/ Brian S. O'Melveny Name: Brian S. O'Melveny Title: Vice President NATWEST BANK N.A., as Co-Agent and as a Lender By: /s/ Alfred R. Bonfantini Name: Alfred R. Bonfantini Title: Vice President FLEET BANK OF MASSACHUSETTS, as a Lender By: /s/ Ginger Stolzenthaler Name: Ginger Stolzenthaler Title: Vice President S-1 THE SUMITOMO BANK, LIMITED, Chicago Branch, as a Lender By: /s/ Daniel G. Eastman Name: Daniel G. Eastman Title: Vice President and Manager By: /s/Stephen F. O'Sullivan Name: Stephen F. O'Sullivan Title: Ass't. Vice President MITSUI LEASING (USA) INC., as a Lender By: /s/ Masato Utsumi Name: Masato Utsumi Title: President BANK HAPOALIM B.M., as a Lender By: /s/ Laura Anne Raffy Name: Laura Anne Raffy Title: Executive Vice President By: /s/ Shaun Breidhart Name: Shaun Breidhart Title: Ass't. Vice President DRESDNER BANK AG, New York Branch and Grand Cayman Branch, as a Lender By: /s/ Andrew P. Nesi Name: Andrew P. Nesi Title: Vice President By: /s/ Andrew E. Schroeder Name: Andrew E. Schroeder Title: Ass't. Vice President CREDIT LYONNAIS Cayman Island Branch, as a Lender By: /s/ Farboud Tavangar Name: Farboud Tavangar Title: Authorized Signature S-2 BANK OF MONTREAL, as a Lender By: /s/ Irene M. Geller Name: Irene M. Geller Title: Director RIGGS NATIONAL BANK, as a Lender By: /s/ David H. Olson Name: David H. Olson Title: Vice President VIA BANQUE, as a Lender By: /s/ Christel Prot Name: Christel Prot Title: Sous Directeur By: /s/ P. Arnout Name: P. Arnout Title: Directeur DG BANK Deutsche Genossenschaftsbank, as a Lender By: /s/ Linda J. O'Connell Name: Linda J. O'Connell Title: Vice President By: Name: Title: S-3 SOCIETY NATIONAL BANK, as a Lender By: /s/ Angela G. Mago Name: Angela G. Mago Title: Vice President For the purposes of Section 9: HEALTH AND RETIREMENT PROPERTIES INTERNATIONAL, INC. By: /s/ Ajay Saini Name: Ajay Saini Title: Treasurer CAUSEWAY HOLDINGS INC. By: /s/ Ajay Saini Name: Ajay Saini Title: Treasurer SJO CORPORATION By: /s/ Ajay Saini Name: Ajay Saini Title: Treasurer S-4 EXHIBIT A [FORM OF PROMISSORY NOTE] PROMISSORY NOTE $___________ New York, New York March ___, 1996 FOR VALUE RECEIVED, the undersigned, HEALTH AND RETIREMENT PROPERTIES TRUST, a real estate investment trust organized under the laws of the State of Maryland (the "Borrower"), hereby unconditionally promises to pay to the order of ___________ (the "Lender") in lawful money of the United States of America and in immediately available funds, the lesser of (a) ____________ or (b) the unpaid outstanding principal amount from time to time of the Loans from the Lender to the Borrower pursuant to the Loan Agreement hereinafter referred to, on the Termination Date; provided that Loans denominated in GBP shall be repaid in the currency required by and otherwise in accordance with and subject to the terms of the Loan Agreement. The undersigned further agrees to pay interest in like money on the unpaid principal amount of such Loans (including, without limitation, any interest accrued and unpaid as at the date of this Note) on the dates and at the rate or rates and in the currency provided for in the Loan Agreement until paid in full (both before and after judgment). The holder of this Note is authorized to endorse from time to time the date and amount of the Loans, any conversions or continuations thereof, each payment of principal with respect thereto and whether such Loans are Base Rate Loans, Eurodollar Loans or Alternate Rate Loans on the schedule annexed hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part hereof, which endorsements shall constitute prima facie evidence of the accuracy of the information endorsed. Any failure to make any such endorsement, however, shall not limit or otherwise affect the obligations of Borrower under this Note. All payments of principal and interest hereunder shall be made to the account of the Administrative Agent referred to below designated in or pursuant to the Loan Agreement for payments thereunder for the benefit of the Lender named herein. This Note is one of the Notes referred to in the Third Amended and Restated Revolving Loan Agreement dated as of March 15, 1996 among the Borrower, the Lenders named therein, Kleinwort Benson Limited, as Agent, Wells Fargo Bank, National Association, as Administrative Agent, and NatWest Bank N.A., as Co-Agent (as the same may be or may have been amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement"). The holder of this Note is entitled to the benefits of the Loan Agreement. Terms defined in the Loan Agreement and not otherwise defined herein are used herein with the same meanings. Reference is made to the Loan Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. The Borrower promises to pay all costs and expenses, including reasonable attorneys' fees, incurred in the collection or enforcement of this Note. The Borrower hereby waives diligence, presentment, protest, demand and notice of every kind and, to the full A-1 extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder. The Declaration of Trust of the Borrower provides that the name "Health and Retirement Properties Trust" refers to the Trustees under the Declaration of Trust (the "Trustees") collectively as Trustees, but not individually or personally, and that no Trustee, officer, shareholder, employee or agent of the Borrower shall be held to any personal liability, jointly or severally, for any obligation of, as claims against, the Borrower. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of New York. HEALTH AND RETIREMENT PROPERTIES TRUST By: __________________________________ Name: ____________________________ Title: ____________________________ A-2
Amount and Currency Date of Loan, of Loan, Eurodollar, Base Amount of Conversion or Conversion or Rate or Alternate Principal Notation Continuation Continuation Rate Loan Repaid Made By
A-3 EXHIBIT B [FORM OF NOTICE OF BORROWING] NOTICE OF BORROWING Pursuant to that certain Third Amended and Restated Revolving Loan Agreement dated as of March 15, 1996 (such agreement, as it may be or may have been amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement"; capitalized terms used herein without definition shall have the respective meanings assigned to those terms in the Loan Agreement) among Health and Retirement Properties Trust (formerly known as Health and Rehabilitation Properties Trust) ("Borrower"), the Lenders party thereto, Kleinwort Benson Limited, as Agent, Wells Fargo Bank, National Association, as Administrative Agent, and NatWest Bank N.A., as Co-Agent, this certificate represents Borrower's Notice of Borrowing under Section 2.3(a) of the Loan Agreement for the borrowing described below (the "Borrowing"). The information relating to the Borrowing required by Section 2.3(a) of the Loan Agreement is as follows: (i) The proposed Borrowing Date is [date]. (ii) The proposed Borrowing is to be denominated in [U.S.$] [GBP]. (iii) The proposed Borrowing is of $_________ [in Eurodollar Loans] [and] [$__________ in Base Rate Loans]. [(iv) The initial Interest Period applicable to the Eurodollar Loans, if applicable, is [one, two, three or six months][state other period].] [(v) [$__________ of the proposed Borrowing of Eurodollar Loans] [and] [$__________ of the proposed Borrowing of Base Rate Loans] shall be General Corporate Loans.] [(vi)] Borrower's representations and warranties contained in the Loan Documents are true, correct and accurate in all material respects to the same extent as though made on and as of the date hereof unless stated in the relevant Loan Document to relate to a specific earlier date, in which case such representations and warranties are true, correct and complete in all material respects as of such earlier date. [(vii)] No event has occurred and is continuing or would result from the proposed Borrowing that would constitute a Default or Event of Default. [(viii)] The amount of the proposed Borrowing will not cause the aggregate outstanding principal amount of the Loans to exceed the Commitments currently in effect. [(ix)] The amount of the proposed Borrowing will not cause the aggregate amount of all General Corporate Loans outstanding to exceed 25% of the Commitments currently in effect. [(x) ]The amount of the proposed Borrowing will not cause the aggregate B-1 amount of the Loans outstanding denominated in GBP to exceed the Equivalent Amount of $100,000,000 (as determined in accordance with Section 1.3(b) of the Loan Agreement). [(xi)] The proceeds of the proposed Borrowing (other than any proceeds in respect of General Corporate Loans) shall be used to make payment on the proposed Borrowing Date for the purchase price and costs of acquiring interests in one or more Facilities due and payable on such Borrowing Date. [(xii)] With respect to the proceeds of the proposed Borrowing (other than any proceeds of General Corporate Loans): (a) the name (s) of the proposed [Operators] [and/or Mortgagors] of the Facility or Facilities to which such Borrowing relates are ______________, and the name (s) of any Credit Support Obligors in relation thereto are ___________; (b) the name (s) and location (s) of such Facility or Facilities are ___________; (c) (1) [with respect to each Eligible Property or Property: the Appraised Value (s) thereof in the most recent Appraisal (s) are $__________; the acquisition costs to Borrower or to one of its Subsidiaries therefor are $_____________; the value (s) attributable to any capital improvements made and financed by such Operators are $___________; and the minimum purchase prices which would be payable to Borrower or such Subsidiary by such Operators or any other Person if purchased on the date of this Notice pursuant to the exercise of any right of purchase are $_________;] and [with respect to each Eligible Mortgage or Mortgage Interest: the Appraised Value (s) of the Mortgaged Properties in the most recent Appraisal (s) are $___________; and the outstanding principal amounts due to Borrower or one of its Subsidiaries from Mortgagors are: $____________;] and (2) description of interests of Borrower or one of its Subsidiaries to be acquired with proceeds of such Borrowing: _________________________; and (d) the proceeds of such Loan [will/will not] be used to acquire an interest in any Facility which interest is required to be an [Eligible Property] [Eligible Mortgage] included in the calculation of Indebtedness permitted under Section 6.8(a) after giving effect to such Loan. [Borrower confirms to you pursuant to Section 2.3(a) of the Loan Agreement that Borrower has irrevocably given telephonic notice of such borrowing under the Loan Agreement pursuant to the telephone conversation on [date] between ____________ and __________.] Please pay the proceeds of such Loans into the account whose details are given below: B-2 DATED: HEALTH AND RETIREMENT PROPERTIES TRUST By: Its: B-3 EXHIBIT C [FORM OF NOTICE OF CONTINUATION/CONVERSION] NOTICE OF CONTINUATION/CONVERSION Pursuant to that certain Third Amended and Restated Revolving Loan Agreement dated as of March 15, 1996 (such agreement, as it may be or may have been amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement"; capitalized terms used herein without definition shall have the respective meanings assigned to those terms in the Loan Agreement) among Health and Retirement Properties Trust ("Borrower"), the Lenders party thereto, Kleinwort Benson Limited, as Agent, Wells Fargo Bank, National Association, as Administrative Agent, and NatWest Bank N.A., as co-agent, this certificate represents Borrower's Notice of Continuation/Conversion under Section 2.5(b) of the Loan Agreement for the Loans specified below. Borrower hereby requests to [continue as Eurodollar Loans $__________ in aggregate principal amount of the outstanding Eurodollar Loans, the current Interest Period of which ends on __________, 19__][and][convert to [Base Rate Loans][Eurodollar Loans] $__________ in aggregate principal amount of the outstanding [Eurodollar Loans, the current Interest Period of which ends on __________][Base Rate Loans][Alternate Rate Loans]]. The date for such [continuation] [and] [conversion] shall be . [The Interest Period for such continued or converted (as applicable) Eurodollar Loans is requested to be [a __________ month period][a __________ period, if agreed by all Lenders.] Borrower hereby certifies that: (i) No event has occurred and is continuing or would result from the proposed Borrowing that would constitute a Default or Event of Default. (ii) Borrower's representations and warranties contained in the Loan Documents are true, correct and accurate in all material respects to the same extent as though made on and as of the date hereof unless stated in the relevant Loan Document to relate to a specific earlier date, in which case such representations and warranties are true, correct and complete in all material respects as of such earlier date. C-1 [Borrower confirms to you pursuant to Section 2.5(b) of the Loan Agreement that Borrower has irrevocably given telephonic notice of such continuation/conversion under the Loan Agreement pursuant to the telephone conversation on [date] between ____________ and __________.] DATED: HEALTH AND RETIREMENT PROPERTIES TRUST By: Its: C-2 SCHEDULE 1 LENDERS' COMMITMENTS LENDER COMMITMENT Kleinwort Benson Limited $ 10,000,000 Wells Fargo Bank, National Association $ 20,000,000 NatWest Bank N.A. $ 25,000,000 The Sumitomo Bank, Limited, Chicago Branch $ 20,000,000 Fleet Bank of Massachusetts $ 20,000,000 Bank Hapoalim B.M. $ 20,000,000 Dresdner Bank AG, New York Branch and Grand Cayman Branch $ 20,000,000 Credit Lyonnais Cayman Island Branch $ 20,000,000 Mitsui Leasing (USA) Inc. $ 12,500,000 Bank of Montreal $ 20,000,000 Riggs National Bank $ 12,500,000 Via Banque $ 20,000,000 DG Bank $ 15,000,000 Society National Bank $ 15,000,000 Total $ 250,000,000 ----------- CERTAIN LENDING OFFICES Kleinwort Benson Limited 20 Fenchurch Street London EC3P 3DB Tel: (44) 171-623-8000 Fax: (44) 171-623-3598 Attn: Robin Tilbury Wells Fargo Bank, National Association Corporate Banking S1-1 420 Montgomery Street San Francisco, California 94163 Tel: (415) 396-4065 Fax: (415) 421 1352 Attn: Brian O'Melveny NatWest Bank N.A. 175 Water Street, 27th Floor New York, New York 10038 Tel: (212) 602 2330 Fax: (212) 602 2671 Attn: Pauline T. McHugh The Sumitomo Bank, Limited, Chicago Branch (USCBD) 233 S. Wacker Drive Suite 5400 Chicago, Illinois 60606 Tel: (312) 993 6210 Fax: (312) 876 1995 Attn: VP + Manager - Operations Fleet Bank of Massachusetts 75 State Street Boston, Massachusetts 02109 Tel: (617) 346-1647 Fax: (617) 346-1634 Attn: Ginger Stolzenthaler Mitsui Leasing (U.S.A.) Inc. 200 Park Avenue, Suite 3214 New York, New York 10166 Tel: (212) 557 0455 Fax: (212) 490 1684 Attn: Jeff Fishman Bank Hapoalim B.M. 1177 Avenue of the Americas New York, NY 10036 Tel: (212) 782 2187 Fax: (212) 782 2172 Attn: Shaun Breidbart Dresdner Bank, New York Branch and Grand Cayman Branch 75 Wall Street S1-2 New York, New York 10005-2889 Tel: (212) 429-2201 Fax: (212) 429-2129 Attn: Andrew Nesi Credit Lyonnais Cayman Island Branch 1301 Avenue of the Americas 20th Floor New York, New York 10019 Tel: (212) 261 7748 Fax: (212) 261 3440 Attn: Francoise Giacalone Bank of Montreal 115 S. La Salle Street, 12 West Chicago, IL 60603 Tel: (312) 750-4368 Fax: (312) 750-4314 Attn: Irene Geller Riggs National Bank 808 17th Street, NW 10th Floor Washington, DC 20006 Tel: (202) 835-5105 Fax: (202) 835-5977 Attn: Dave Olson Via Banque 10 Rue Volney 75002 Paris, France Tel: 011-331-4926-2913 Fax: 011-331-4926-2993 Attn: Christel Prot Society National Bank 127 Public Square, 6th Floor Cleveland OH 44114-1306 Tel: (216) 689-3247 S1-3 Fax: (216) 689-5970 Attn: Angela Mago S1-4 SCHEDULE 2 PERMITTED EXCEPTIONS 1. Liens of landlords, mechanics, materialmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith; provided that, in each case, any such Lien is not reasonably likely to cause a MAC; and provided further that, in the case of any Liens being so contested, (v) the amount secured thereby is not material in relation to the Allowed Value of the affected Property or Mortgage Interest, (w) such Property or any interest therein would not be in any danger of being sold, forfeited or lost by reason of such contest; (y) no insurance coverage required to be maintained pursuant to this Agreement shall be cancelled or jeopardized as a result of the contest; and (z) if required by Agent, Borrower shall have furnished to Agent a bond, or other security satisfactory to Agent, to protect Lenders from any liability to which it may be exposed as a result of such contest. 2. In the case of a Property, all Leases for such Property and the rights of the Operators under such Leases and any Credit Support Agreements relating to such Leases. 3. In the case of a Mortgaged Property, the Mortgaged Interest Agreements for such Mortgaged Property and any Credit Support Agreements relating thereto. 4. Liens for taxes, assessments, water rates, sewer or other governmental charges or claims, the payment of which is not, at the time, due. 5. Easements, rights-of-way, rights of access, encroachments upon or by any Property, in respect of which affirmative insurance, without payment of additional premiums, has been provided by a reputable title insurance company. 6. Easements, rights-of-way, restrictions, minor defects, encroachments or irregularities in title and other similar charges or encumbrances that, in respect of any Property, could not reasonably be likely to result in a MAC. 7. Liens resulting from equipment financings or similar security arrangements entered into by an Operator. S2-1 SCHEDULE 3 AMOUNTS OWED UNDER THE EXISTING LOAN AGREEMENT Kleinwort Benson Limited 1. Aggregate principal amount of Existing Loans outstanding on March 29, 1996 $5,600,000.00 ------------- 2. Aggregate interest accrued (whether or not due and payable) on March 29, 1996 $128,116.66 ----------- 3. Aggregate commitment fee accrued (whether or not due and payable) on March 29, 1996 $9,543.34 --------- Wells Fargo Bank, N.A. 1. Aggregate principal amount of Existing Loans outstanding on March 29, 1996 $5,600,000.00 ------------- 2. Aggregate interest accrued (whether or not due and payable) on March 29, 1996 $28,116.66 ---------- 3. Aggregate commitment fee accrued (whether or not due and payable) on March 29, 1996 $9,543.34 --------- NatWest Bank, N.A. 1. Aggregate principal amount of Existing Loans outstanding on March 29, 1996 $7,000,000.00 ------------- 2. Aggregate interest accrued (whether or not due and payable) on March 29, 1996 $35,145.83 ---------- 3. Aggregate commitment fee accrued (whether or not due and payable) on March 29, 1996 $11,929.16 ---------- Fleet Bank of Massachusetts S3-1 1. Aggregate principal amount of Existing Loans outstanding on March 29, 1996 $5,600,000.00 ------------- 2. Aggregate interest accrued (whether or not due and payable) on March 29, 1996 $28,116.66 ---------- 3. Aggregate commitment fee accrued (whether or not due and payable) on March 29, 1996 $9,543.34 --------- The Sumitomo Bank, Limited, Chicago Branch 1. Aggregate principal amount of Existing Loans outstanding on March 29, 1996 $5,600,000.00 ------------- 2. Aggregate interest accrued (whether or not due and payable) on March 29, 1996 $28,116.66 ---------- 3. Aggregate commitment fee accrued (whether or not due and payable) on March 29, 1996 $9,543.34 --------- Mitsui Leasing (USA) Inc. 1. Aggregate principal amount of Existing Loans outstanding on March 29, 1996 $3,500,000.00 ------------- 2. Aggregate interest accrued (whether or not due and payable) on March 29, 1996 $17,572.91 ---------- 3. Aggregate commitment fee accrued (whether or not due and payable) on March 29, 1996 $5,964.58 --------- Bank Hapoalim B.M. 1. Aggregate principal amount of Existing Loans outstanding on March 29, 1996 $5,600,000.00 ------------- 2. Aggregate interest accrued (whether or not due and payable) on March 29, 1996 $28,116.66 ---------- 3. Aggregate commitment fee accrued (whether or not due and payable) on March 29, 1996 $9,543.34 --------- Dresdner Bank 1. Aggregate principal amount of Existing S3-2 Loans outstanding on March 29, 1996 $5,600,000.00 ------------- 2. Aggregate interest accrued (whether or not due and payable) on March 29, 1996 $28,116.66 ---------- 3. Aggregate commitment fee accrued (whether or not due and payable) on March 29, 1996 $9,543.34 --------- Credit Lyonnais 1. Aggregate principal amount of Existing Loans outstanding on March 29, 1996 $5,600,000.00 ------------- 2. Aggregate interest accrued (whether or not due and payable) on March 29, 1996 $28,116.66 ---------- 3. Aggregate commitment fee accrued (whether or not due and payable) on March 29, 1996 $9,543.34 --------- Bank of Montreal 1. Aggregate principal amount of Existing Loans outstanding on March 29, 1996 $2,800,000.00 ------------- 2. Aggregate interest accrued (whether or not due and payable) on March 29, 1996 $14,058.33 ---------- 3. Aggregate commitment fee accrued (whether or not due and payable) on March 29, 1996 $4,771.67 --------- Riggs National Bank 1. Aggregate principal amount of Existing Loans outstanding on March 29, 1996 $3,500,000.00 ------------- 2. Aggregate interest accrued (whether or not due and payable) on March 29, 1996 $17,572.91 ---------- 3. Aggregate commitment fee accrued (whether or not due and payable) on March 29, 1996 $5,964.58 --------- Via Banque 1. Aggregate principal amount of Existing Loans outstanding on March 29, 1996 $5,600,000.00 ------------- S3-3 2. Aggregate interest accrued (whether or not due and payable) on March 29, 1996 $28,116.66 ---------- 3. Aggregate commitment fee accrued (whether or not due and payable) on March 29, 1996 $9,543.34 --------- DG Bank 1. Aggregate principal amount of Existing Loans outstanding on March 29, 1996 $4,200,000.00 ------------- 2. Aggregate interest accrued (whether or not due and payable) on March 29, 1996 $21,087.50 ---------- 3. Aggregate commitment fee accrued (whether or not due and payable) on March 29, 1996 $7,157.50 --------- Society National Bank 1. Aggregate principal amount of Existing Loans outstanding on March 29, 1996 $4,200,000.00 ------------- 2. Aggregate interest accrued (whether or not due and payable) on March 29, 1996 $21,087.50 ---------- 3. Aggregate commitment fee accrued (whether or not due and payable) on March 29, 1996 $7,157.50 --------- S3-4
SCHEDULE 4 BORROWER'S SUBSIDIARIES Name of Jurisdiction of Shares Shares % Subsidiary Incorporation Authorized Outstanding Owned 1. Church Creek Massachusetts 200,000 100 100% Corporation common stock ($0.01 par value) 2. Health and Delaware 3,000 100 100% Retirement common Properties stock International, ($0.01 par Inc. value) 3. Causeway Holdings Inc. Massachusetts 200,000 100 100% Common Stock ($0.01 par value) 4. SJO Corporation Massachusetts 200,000 100 100% Common Stock ($0.01 par value)
S4-1 SCHEDULE 5 Calculation of the Mandatory Liquid Asset Costs for any GBP Loans (a) The Mandatory Liquid Asset Costs for a Loan if denominated in GBP for each Interest Period for that Loan is calculated in accordance with the following formula: BY + L(Y-X) + S(Y-Z)% PER ANNUM -------------------- 100 - (B+S) where on the day of the application of the formula: B is the percentage of Agent's eligible liabilities which the Bank of England then requires Agent to hold on a non-interest-bearing deposit account in accordance with its cash ratio requirements; Y is the rate at which GBP deposits are offered by Agent to leading banks in the London interbank market at or about 11.00 A.M. on that day for the relevant period; L is the percentage of eligible liabilities which (as a result of the requirements of the Bank of England) Agent maintains as secured money with members of the London Discount Market Association or in certain marketable or callable securities approved by the Bank of England, which percentage shall (in the absence of evidence that any other figure is appropriate) be conclusively presumed to be 5 per cent.; X is the rate at which secured GBP deposits may be placed by Agent with members of the London Discount Market Association at or about 11.00 A.M. on that day for the relevant period or, if greater, the rate at which GBP bills of exchange (of a tenor equal to the duration of the relevant period) eligible for rediscounting at the Bank of England can be discounted in the London Discount Market at or about 11.00 A.M. on that day; S is the percentage for Agent's eligible liabilities which the Bank of England requires Agent to place as a special deposit; and Z is the interest rate per annum allowed by the Bank of England on special deposits. (b) For the purposes of this Schedule: (i) "eligible liabilities" and "special deposits" have the meanings given to them at the time of application of the formula by the Bank of England; and (ii) "relevant period" in relation to each Interest Period means: S5-1 (A) if it is 3 months or less, that Interest Period, or (B) if it is more than 3 months, 3 months. (c) In the application of the formula, B, Y, L, X, S and Z are included in the formula as figures and not as percentages, e.g. if B=0.5% and Y = 15%, BY is calculated as 0.5 x 15. (d) The formula is applied on the first day of each relevant period. Each amount is rounded up to the nearest one-sixteenth of one per cent. (e) If Agent determines that a change in circumstances has rendered, or will render, the formula inappropriate, Agent (after consultation with the Lenders) shall notify Borrower of the manner in which the Mandatory Liquid Asset Costs for such Loans will subsequently be calculated. The manner of calculation so notified by Agent shall, in the absence of manifest error, be binding on Borrower. S5-2
SCHEDULE 6 Health and Retirement Properties Trust Properties Currently in Default Beverley Manor River Park Health Care Valley View Retirement North 1317 North 36th Street 1432 North Waco Street 9120 Woodman Avenue Facility: St. Joseph, MO Wichita, KS Arieta, CA Investment Type: Lease Mortgage Mortgage Maturity: 4/30/01 8/10/95 12/01/96 Nature of Default: Non Monetary Monetary Monetary Roof in disrepair Current Amount to Cure as of 2/29/96: Repair Roof 2,118,542.30 2,333,685.32
S-6 EX-10.3 4 LETTER AGREEMENT October 21, 1996 Kleinwort Benson Limited, as Agent Wells Fargo Bank, National Association, as Administrative Agent NatWest Bank N.A., as Co-Agent c/o Kleinwort Benson Limited 20 Fenchurch Street London EC3P 3DB ENGLAND Re: Third Amended and Restated Revolving Loan Agreement Ladies and Gentlemen: As you have been advised, Health and Retirement Properties Trust ("HRP"), the Borrower under the Third Amended and Restated Revolving Loan Agreement, dated as of March 15, 1996 (the "Loan Agreement"), issued US$240,000,000 aggregate principal amount of convertible subordinated debentures on October 7, 1996. The Debentures consisted of three series: US$70,000,000 aggregate principal amount of 7.5% Convertible Subordinated Debentures due 2003, Series A (the "Series A Debentures"); US$130,000,000 aggregate principal amount of 7.5% Convertible Subordinated Debentures due 2003, Series B (the "Series B Debentures"), and US$40,000,000 aggregate principal of 7.25% Convertible Subordinated Debentures, due 2001 (the "7.25% Debentures"). The Debentures are subordinate to debt of HRP incurred under the Loan Agreement. The Series A Debentures mature on October 1, 2003 and the 7.25% Debentures mature on October 1, 2001, which in each case is more than three months after the Termination Date (as defined in the Loan Agreement), and neither such series of Debentures provides for required principal payments prior to maturity (other than by reason of an acceleration following default). The Series B Debentures were offered and sold outside of the United States pursuant to the provisions of Regulation S under the Securities Act of 1933, as amended. The Series B Debentures mature on October 1, 2003, which is more than three months after the Termination Date, and do not provide for required principal payments prior to maturity (other than by reason of an acceleration following default), except as follows: As is customary for debt offerings of this type in offshore transactions, the terms of the Series B Debentures provide that if (a) HRP Kleinwort Benson Limited, as Agent Wells Fargo Bank, National Association, as Administrative Agent NatWest Bank N.A., as Co-Agent October 21, 1996 Page 2 determines that the payment of principal of, premium, if any, or interest on Series B Debentures in bearer form ("Bearer Debentures") or related coupons outside of the United States would under any United States law or regulation be subject to a certification, identification or information reporting requirements with regard to the nationality, residence or identity of the beneficial owner of Bearer Debentures or coupons who is a United States alien (other than such a requirement (i) that would not be applicable to a payment make by the Company or its paying agent (A) directly to the beneficial owner or (B) to any custodian, nominee or other agent of the beneficial owner, or (ii) that can be satisfied by the custodian, nominee or other agent certifying that the beneficial owner is a United States alien, provided in the cases referred to in clauses (i)(B) and (ii) that payment to such a custodian, nominee or other agent is not otherwise subject to such requirement), and (b) either (i) the certification, identification or information reporting requirement cannot be fully satisfied by the payment of United States withholding, backup withholding or similar taxes or (ii) the Company has not agreed to pay additional amounts that are necessary to "gross up" payments on the Bearer Debentures for such United States withholding, backup withholding or similar taxes, then HRP may be required to redeem the Bearer Debentures, in whole and not in part, at 100% of their principal amount, plus accrued and unpaid interest, less applicable withholding taxes plus any applicable additional payments (the "Contingent Tax Redemption"). As discussed with the Agent, HRP requests that for purposes of Section 6.8(b) of the Loan Agreement, "the earliest date for any payment of principal or other settlement" of the Series B Debentures be deemed to be their October 1, 2003 maturity date, notwithstanding the Contingent Tax Redemption. HRP would appreciate your confirmation of its understanding as set forth above. Such confirmation will be considered by HRP to be effective as a written consent given pursuant to Section 10.6 of the Loan Agreement and, as such, will be considered to be effective when executed, in one or more counterparts, by the Majority Lenders and the Agent. Very truly yours, HEALTH AND RETIREMENT PROPERTIES TRUST By: /s/ Barry M. Portnoy Name: Barry M. Portnoy Title: Managing Trustee Kleinwort Benson Limited, as Agent Wells Fargo Bank, National Association, as Administrative Agent NatWest Bank N.A., as Co-Agent October 21, 1996 Page 3 THE FOREGOING IS HEREBY CONFIRMED. KLEINWORT BENSON LIMITED, as Agent and as a Lender By: /s/ Patrick F. Donelan Name: Patrick F. Donelan Title: Director WELLS FARGO BANK, NATIONAL ASSOCIATION By: Name: Title: FLEET BANK, N.A. (formerly Natwest Bank N.A.) By: /s/ W. Wakefield Smith Name: W. Wakefield Smith Title: Vice President FLEET NATIONAL BANK (successor to Fleet Bank of Massachusetts) By: /s/ Ginger Stolzenthaler Name: Ginger Stolzenthaler Title: Vice President Kleinwort Benson Limited, as Agent Wells Fargo Bank, National Association, as Administrative Agent NatWest Bank N.A., as Co-Agent October 21, 1996 Page 4 THE SUMITOMO BANK, LIMITED Chicago Branch By: /s/ Daniel G. Eastman Name: Daniel G. Eastman Title: Vice President and Manager By: /s/ Alfred DeGemmis Name: Alfred DeGemmis Title: Vice President MITSUI LEASING (USA) INC. By: /s/ Seiichiro Nozaki Name: Seiichiro Nozaki Title: Senior Vice President BANK HAPOALIM B.M. By: Name: Title: By: Name: Title: Kleinwort Benson Limited, as Agent Wells Fargo Bank, National Association, as Administrative Agent NatWest Bank N.A., as Co-Agent October 21, 1996 Page 5 DRESDNER BANK AG, New York Branch and Grand Cayman Branch By: /s/ Andrew P. Nesi Name: Andrew P. Nesi Title: Vice President By: /s/ B. C. Erickson Name: B. C. Erickson Title: Vice President CREDIT LYONNAIS Cayman Island Branch By: /s/ Farboud Tavangar Name: Farboud Tavangar Title: Authorized Signature BANK OF MONTREAL By: /s/ Irene M. Geller Name: Irene M. Geller Title: Director RIGGS NATIONAL BANK By: /s/ Craig Havard Name: Craig Havard Title: Vice President Kleinwort Benson Limited, as Agent Wells Fargo Bank, National Association, as Administrative Agent NatWest Bank N.A., as Co-Agent October 21, 1996 Page 6 VIA BANQUE By: /s/ Christel Prot Name: Christel Prot Title: Sous Directeur By: /s/ P. Arnoult Name: P. Arnoult Title: Directeur DG BANK Deutsche Genossenschafts Bank By: /s/ Linda J. O'Connell Name: Linda J. O'Connell Title: Vice President By: /s/ Wolfgang Bollman Name: Wolfgang Bollman Title: Senior Vice President KEYBANK NATIONAL ASSOCIATION By: /s/ Angela G. Mago Name: Angela G. Mago Title: Vice President EX-10.4 5 AMENDED AND RESTATED REVOLVING LOAN AGREEMENT HEALTH AND RETIREMENT PROPERTIES TRUST FIRST AMENDMENT TO THIRD AMENDED AND RESTATED REVOLVING LOAN AGREEMENT DATED AS OF DECEMBER 15, 1996 This FIRST AMENDMENT (this "Amendment") is dated as of December 15, 1996 among HEALTH AND RETIREMENT PROPERTIES TRUST, a real estate investment trust formed under the laws of the State of Maryland ("Borrower"), the several lenders listed on the signature pages hereof (the "Lenders"), KLEINWORT BENSON LIMITED, a bank organized under the laws of England, as agent for itself and the other Lenders (in such capacity, together with any successor in such capacity in accordance with the terms of the Loan Agreement, as defined below, "Agent"), WELLS FARGO BANK, NATIONAL ASSOCIATION, a bank organized under the laws of the United States of America, as administrative agent (in such capacity, together with any successor in such capacity in accordance with the terms of the Loan Agreement, "Administrative Agent"), and FLEET BANK N.A. (formerly NatWest Bank N.A.), a national banking association, as co-agent (in such capacity, "Co- Agent"), and is made with reference to the Third Amended and Restated Revolving Loan Agreement dated as of March 15, 1996 (as amended from time to time, the "Loan Agreement") among Borrower, the Lenders, Agent, Administrative Agent and Co-Agent and, in connection with Section 9 and the guaranties given therein, HEALTH AND RETIREMENT PROPERTIES INTERNATIONAL, INC., a Delaware corporation ("Retirement Properties"), CAUSEWAY HOLDINGS INC., a Massachusetts corporation ("Causeway"), SJO CORPORATION, a Massachusetts corporation ("SJO") and HUB PROPERTIES TRUST, a Maryland real estate investment trust ("HUB"), each being a direct wholly-owned Subsidiary of Borrower. Capital terms used herein without definition shall have the same meanings herein as set forth in the Loan Agreement. WHEREAS, Borrower has advised Lenders that it wishes to amend certain terms of the Loan Agreement; WHEREAS, subject to the terms set forth herein, Lenders have agreed to amend the Loan Agreement. NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows : 1. Amendments to Loan Agreement. (a) Section 1.1 of the Loan Agreement is hereby amended by inserting therein in proper alphabetical order the following new definition: "Convertible Subordinated Debt" means, without duplication, all Indebtedness of Borrower convertible only into common shares of Borrower which has no scheduled date for the maturity, redemption, sinking fund payment or other reduction or payment of principal that is on or before the Termination Date and which has terms for the acceleration and for mandatory prepayment of principal that are satisfactory to Agent, and the payment of which Indebtedness has been made expressly subordinate to the payment of the Indebtedness under this Agreement upon terms and conditions satisfactory to Agent, including $240,000,000 aggregate principal amount of convertible subordinated debentures issued on October 7,1 996 the terms and conditions of which are hereby approved by Agent." (b) Section 1.1 of the Loan Agreement is hereby amended by the amendment and restatement of the definition of "Reference Banks" as follows: "Reference Banks" means Dresdner Bank AG, New York Branch and Cayman Island Branch and Wells Fargo Bank, National Association" (c) Section 6.8(a) of the Loan Agreement is hereby amended and restated as follows: "(a) Suffer or permit the total Indebtedness (determined without duplication) of Borrower and its Subsidiaries (other than the (i) IDFA Indebtedness, (ii) Indebtedness in the nature of the bridge financings described in the exception to Section 6.8(b), (iii) Indebtedness described in Section 6.8(c) and (iv) Convertible Subordinated Debt) at any time to be greater than 50% of the aggregate Allowed Value of all Eligible Properties and all Eligible Mortgages." (d) Section 7.1(r) of the Loan Agreement is hereby amended by the deletion of the figure "15" and the substitution therefor of the figure "30" . 2 2. Conditions to Effectiveness. Section 1 of this Amendment shall become effective only upon the prior or concurrent satisfaction of the conditions that Borrower shall deliver to Agent for Lenders (with sufficient originally executed copies for each Lender) executed copies of this Amendment, executed by Borrower, Retirement Properties, Causeway, SJO, Agent, Co-Agent and the Majority Leaders. 3. Representations and Warranties. In order to induce Lenders and Agent to enter into this Amendment and to amend the Loan Agreement in the manner provided herein, Borrower represents and warrants to each Lender and Agent that the following statements are true, correct and complete: (a) Borrower has the power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Loan Agreement (as amended by this Amendment the "Amended Agreement"). (b) The execution and delivery of this Amendment and the performance of the Amended Agreement have been authorized by all necessary action on the part of Borrower. (c) The execution and delivery by Borrower of this Amendment and the performance by Borrower of the Amended Agreement and the use of proceeds thereunder do not violate any Requirement of Law or Contractual Obligation of Borrower and will not result in, or require, the creation or imposition of any Lien on any of its properties or revenues pursuant to any Requirement of Law or Contractual Obligation of Borrower. (d) This Amendment and the Amended Agreement have been duly executed and delivered by Borrower and are the legally valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally. (e) The representations and warranties contained in Section 3 of the Loan Agreement are and will be true, correct and complete in all material respects on and as of the effective date described in Section 2 to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically 3 relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. (f) No event has occurred and is continuing or will result from the consummation o the transactions described in or otherwise contemplated by this Amendment that would constitute a Default or an Event of Default. (g) The Declaration of Trust, By-Laws and other organizational documents of Borrower have not been amended since March 15, 1996, and the copies thereof delivered to Lenders under the Loan Agreement are true, correct and complete copies thereof as in effect on the effective date described in Section 2. 4. Addition of HUB as Guarantor. By execution and delivery of this Amendment, HUB hereby agrees to be bound by the terms of Section 9 of the Loan Agreement as of the date of this Amendment as if it were a party to the Loan Agreement. 5. Guarantors' Acknowledgment and Consent. Each of Retirement Properties, Causeway, SJO and HUB (each a "Subsidiary Guarantor") has guarantied the obligations of Borrower under Section 9 of the Loan Agreement. Each Subsidiary Guarantor hereby acknowledges that it has reviewed the terms and provisions of the Loan Agreement and this Amendment and consents to the amendment of the provisions of the Agreement effected pursuant to this Amendment. Each Subsidiary Guarantor hereby confirms that its guaranty under the Loan Agreement will continue to guaranty to the fullest extent possible the payments and performance of all obligations of Borrower now or hereafter existing under or in respect of the Amended Agreement and the Notes defined therein. Each Subsidiary Guarantor acknowledges and agrees that Section 9 of the Loan Agreement shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this Amendment. Each Subsidiary Guarantor acknowledges and agrees that (a) notwithstanding the conditions to effectiveness set forth in this Amendment, such Subsidiary Guarantor is not required by the terms of the Loan Agreement to consent to the amendments to the Loan Agreement effected pursuant to this Amendment and (b) nothing in the Loan Agreement or this Amendment shall be deemed to require the consent of such Subsidiary Guarantor to any future amendments or waivers to the Loan Agreement. 4 6. Reference to and Effect on the Loan Agreement and Other Loan Documents. Except as specifically amended hereby, the Loan Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. 7. Fees and Expenses. Borrower agrees to pay to Agent on deemed all reasonable costs, fees and expenses incurred by Agent (including, without limitation, legal fees and expenses) with respect to this Amendment and the documents and transactions contemplated hereby. 8. Execution in Counterparts. This Amendment may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts taken together shall constitute but one and the same instrument. 9. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. 10. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 5 11. Limitation of Amendment. Without limiting the generality of the provisions of Section 10.4 of the Loan Agreement, the amendments set forth above shall be limited precisely as written, and nothing in this Amendment shall be deemed to prejudice any right or remedy that any Lender may now have (except to the extent such right or remedy was based upon existing defaults that will not exist after giving effect to this Amendment) or may have in the future under or in connection with the Loan Agreement or any other instrument or agreement referred to therein. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. HEALTH AND RETIREMENT PROPERTIES TRUST By: /s/ Ajay Saini Name: Ajay Saini Title: Treasurer KLEINWORT BENSON LIMITED, as Agent By: /s/ Patrick F. Donelan Name: Patrick F. Donelan Title: Director WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent and as a Lender By: /s/ Edwin J. Sauve Name: Edwin J. Sauve Title: Vice President FLEET BANK N.A. (formerly Nat West Bank N.A.), as Co-Agent and as a Lender By: /s/ Pauline McHugh Name: Pauline McHugh Title: Vice President S-1 FLEET NATIONAL BANK (successor to Fleet Bank of Massachusetts), as a Lender By: /s/ Ginger Stolzenthaler Name: Ginger Stolzenthaler Title: Vice President THE SUMITOMO BANK, LIMITED Chicago Branch, as a Lender By: /s/ Daniel G. Eastman By: /s/ Alfred DeGemmis Name: Daniel G. Eastman Name: Alfred DeGemmis Title: Vice President & Manager Title: Vice President MITSUI LEASING (USA) INC., as a Lender By: /s/ Seiichiro Nozaki Name: Seiichiro Nozaki Title: Senior Vice President BANK HAPOALIM B.M., as a Lender By: /s/ Shaun Breidhart Name: Shaun Breidhart Title: Ass't. Vice President By: /s/ Conrad Wagner Name: Conrad Wagner Title: Exec. Vice President DRESDNER BANK AG, New York Branch and Grand Cayman Branch, as a Lender By: /s/ Andrew P. Nesi Name: Andrew P. Nesi Title: Vice President By: /s/ B. Craig Erickson Name: B. Craig Erickson Title: Vice President S-2 CREDIT LYONNAIS, Cayman Island Branch, as a Lender By: /s/ Farboud Tavangar Name: Farboud Tavangar Title: Authorized Signature BANK OF MONTREAL, as a Lender By: /s/ Irene M. Geller Name: Irene M. Geller Title: Vice President RIGGS BANK N.A., as a Lender By: /s/ Craig Havard Name: Craig Havard Title: Vice President S-3 VIA BANQUE, as a Lender By: /s/ Christel Prot Name: Christel Prot Title: Sous Directeur By: /s/ P. Arnoult Name: P. Arnoult Title: Directeur DG BANK, Deutsche GenossenschaftsBank, as a Lender By: /s/ Norah McCann Name: Norah McCann Title: Senior Vice President By: /s/ Pamela D. Fogerty Name: Pamela D. Fogerty Title: Ass't Vice President KEYBANK NATIONAL ASSOCIATION (formerly Society National Bank), as a Lender By: /s/ Angela Mago Name: Angela Mago Title: Vice President For the purposes of Section 9: HEALTH AND RETIREMENT PROPERTIES INTERNATIONAL, INC. By: /s/ Ajay Saini Name: Ajay Saini Title: Treasurer S-4 CAUSEWAY HOLDINGS INC. By: /s/ Ajay Saini Name: Ajay Saini Title: Treasurer SJO CORPORATION By: /s/ Ajay Saini Name: Ajay Saini Title: Treasurer HUB PROPERTIES TRUST By: /s/ Ajay Saini Name: Ajay Saini Title: Treasurer S-5 EX-23.1 6 CONSENT OF INDEPENDENT AUDITORS Exhibit 23.1 We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-02863) of Health and Retirement Properties Trust and in the related Prospectus of our report dated February 6, 1997, with respect to the consolidated financial statements of Health and Retirement Properties Trust included in the Current Report on Form 8-K of Health and Retirement Properties Trust dated February 17, 1997, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Boston, Massachusetts February 27, 1997 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-02863) of Health and Retirement Properties Trust and in the related Prospectus of our report dated January 31, 1997 (except for the last paragraphs of Note 1 and Note 12, as to which the date is February 18, 1997), with respect to the consolidated financial statements of Government Property Investors, Inc. included in the Current Report on Form 8-K of Health and Retirement Properties Trust dated February 17, 1997, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Washington, D.C. February 27, 1997 EX-27 7 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1995 DEC-31-1996 $21,853 0 161,817 0 0 0 1,005,739 (76,921) 1,229,522 18,319 492,175 0 0 669 707,379 1,229,522 120,183 120,183 3,776 0 29,161 0 22,545 77,164 77,164 77,164 0 (3,910) 0 73,254 $1.11 $1.12
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