EX-10 8 exhibit102915.txt SECOND AMENDMENT TO LEASE AGREEMENT This Second Amendment to Lease Agreement ("Second Amendment") is made effective as of June 30, 2003 (the "Effective Date") by and between HCRI COLD SPRING PROPERTIES, LLC, a limited liability company organized under the laws of the State of Delaware ("Landlord"), and EMERITUS CORPORATION, a corporation organized under the laws of the State of Washington ("Tenant"). R E C I T A L S A. Effective as of February 26, 1996, LM Rocky Hill Assisted Living Limited Partnership ("LM Rocky Hill"), as landlord, and Tenant entered into an Amended and Restated Lease Agreement ("Lease Agreement") of certain real property known as Cold Spring Commons and located at 60 Cold Spring Road, Rocky Hill, Connecticut ("Property"). Effective September 30, 1997, the Lease Agreement was amended pursuant to a certain First Amendment to Lease (hereinafter the Lease Agreement, as amended, referred to as the "Lease"). B. As of June 30, 2003, LM Rocky Hill has sold the Property to Emeritus Corporation, which in turn immediately sold the Property to Landlord and Landlord acquired all of the landlord's interest in the Lease. C. Landlord and Tenant desire to further amend the Lease with respect to the Basic Rent and as otherwise set forth herein. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows: 1. Rent. 3.1, 3.1.1, 3.1.2, Basic Rent, 3.3 Rent Increaser and 3.4 Rent ---- During Renewal Term are hereby amended in their entirety as follows: 3.1 Basic Rent. Tenant shall pay Landlord basic rent ("Basic Rent") in ---------- advance in consecutive monthly installments payable on the first day of each month during the Initial Lease Term commencing on the Effective Date of this Second Amendment. If the Effective Date is not the first day of a month, Tenant shall pay Landlord Basic Rent on the Effective Date for the partial month, i.e., for the period commencing on the Effective Date and ending on the last day of the month in which the Effective Date occurs. The Basic Rent payable from and after the Effective Date for the balance of the Initial Lease Term is as calculated on the Rent Schedule attached hereto as Schedule 1. The Rent Schedule accurately reflects the Base Rent for the first Lease Year and is only an example of the Base Rent for the remaining Lease Years. The Basic Rent for each Renewal Term will be determined in accordance with 3.7. Commencing on July 1, 2004 and on the first day of each July thereafter during the Initial Term and each Renewal Term, Landlord shall calculate the Basic Rent based upon the applicable increaser as shown on Schedule 1 and issue a revised Rent Schedule. Until Tenant receives a revised Rent Schedule, Tenant shall continue to make payments in accordance with the then applicable Rent Schedule. For purposes of calculating the annual increase in Base Rent, as shown on Schedule 1, the "CPI" means the United States Department of Labor, Bureau of Labor Statistics Revised Consumer Price Index for All Urban Consumers (1982-1984=100), U.S. City Average, All Items, or, if that index is not available at the time in question, the index designated by such Department as the successor to such index, and if there is no index so designated, an index for an area in the United States that most closely corresponds to the entire United States, published by such Department, or if none, by any other instrumentality of the United States. In no event shall the CPI be less than zero (0). 3.2 Additional Rent. In addition to Basic Rent, Tenant shall pay all other ---------------- amounts, liabilities, obligations and Impositions which Tenant assumes or agrees to pay under this Lease including any fine, penalty, interest, charge and cost which may be added for nonpayment or late payment of such items (collectively the "Additional Rent"). Hereinafter the Additional Rent together with the Basic Rent referred to collectively as "Rent". 3.3 Place of Payment of Rent. Tenant shall make all payments of Rent to ---------------------------- Landlord by electronic wire transfer in accordance with the wiring instructions set forth in Exhibit N attached hereto, subject to change in accordance with other written instructions provided by Landlord from time to time. 3.4 Rent During Renewal Term. Effective as of the first day of each Renewal ------------------------ Term, Landlord shall calculate Basic Rent for the Renewal Term in accordance with 2.1(c)(2) of the Commitment and shall issue a new Rent Schedule reflecting the Basic Rent adjustment. Until Tenant receives a revised Rent Schedule from Landlord, Tenant shall for each month [i] continue to make installments of Basic Rent according to the Rent Schedule in effect on the day before the Renewal Date; and [ii] within 10 days following Landlord's issuance of an invoice, pay the difference between the installment of Basic Rent paid to Landlord for such month and the installment of Basic Rent actually due for such month as a result of the renewal of the Lease. For purposes hereof, the Commitment shall be defined as the Commitment Letter dated March 5, 2002 as modified by the Project Approval Letter dated March 5, 2002. 2. Repair or Restoration after Major Casualty. 10.1 of the Lease is hereby ------------------------------------------ amended in its entirety to read as follows: 10.1 Repair or Restoration after Major Casualty. In the event that any ------------------------------------------ part of the Improvements or the Personal Property shall be damaged or destroyed by fire or other casualty (any such event being called a "Major Casualty"), Tenant shall promptly, after receipt of Landlord's approval of the Plans and Specifications as set forth below, replace, repair and restore the same as nearly as possible to its condition immediately prior to such Major Casualty, in accordance with all of the terms, covenants and conditions and other requirements of this Lease and any mortgage applicable in the event of such Major Casualty. If, pursuant to this 10, Tenant shall be obligated to make repairs, the Premises shall be so replaced, repaired and restored as to be substantially the same character as prior to such Major Casualty. The Plans and Specifications for such restoration shall be first submitted to and approved in writing by Landlord, which approval shall not be unreasonably withheld. Landlord may elect to retain, at its expense, an independent architect, reasonably approved by Tenant, who shall oversee such repairing, restoring or replacing. Tenant covenants that it will give to Landlord prompt notice of any casualty in excess of $150,000.00 affecting the Premises or any portion thereof. 3. Failure by Landlord to Complete Repairs. 10.3 is hereby amended to -------------------------------------------- delete the first and second sentences thereof. 4. Termination. 10.4 is hereby deleted in its entirety. ----------- 5. Abatement of Rent. 10.7 is hereby deleted in its entirety. ------------------- 6. Events of Default. 12.1.1 is hereby amended in its entirety to read as ------------------ follows: 12.1.1 Events of Default. Failure by Tenant to pay in full any ------------------- installment of Basic Rent, any Additional Rent or any other monthly obligation payable by Tenant under this Lease within 10 days after such payment is due. 7. Landlord's Remedies. 13.1 is hereby amended in its entirety to read as -------------------- follows: 13.1 Landlord's Remedies. If an Event of Default shall occur, Landlord ------------------- may, at its option, give to Tenant a written notice terminating this Lease upon a date specified in such notice and upon the date specified in said notice, the term and estate hereby vested in Tenant shall cease and any and all other right, title and interest of Tenant hereunder shall likewise cease without further notice or lapse of time, as fully and with like effect as if the entire Lease Term had elapsed, but Tenant shall continue to be liable to Landlord as hereinafter provided. 8. Notices. 16 is hereby amended to provide that notices to the Landlord ------- and Tenant shall be delivered as follows: To Landlord: HCRI Cold Spring Properties, LLC One SeaGate, Suite 1500 P.O. Box 1475 Toledo, OH 43603-1475 with a copy to: Oksana M. Ludd Shumaker, Loop & Kendrick, LLP 1000 Jackson Toledo, OH 43624 To Tenant: Emeritus Corporation 3131 Elliott Avenue, Suite 500 Seattle, WA 98121 with a copy to: Randi S. Nathanson The Nathanson Group PLLC 1520 Fourth Avenue, 6th Floor Seattle, WA 98101 9. Subordination. 17.4 is hereby amended to provide that any ------------- non-disturbance agreement shall be obtained at Tenant's expense and not at ------ Landlord's expense. 10. Financial Statements. 20 is hereby amended to provide that Tenant --------------------- shall deliver the information as set forth on Exhibit O. 11. Compliance with Loan Documents. Tenant acknowledges that Landlord is --------------------------------- acquiring the Property subject to a certain Open-End Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing Statement in the original principal sum of $16,500,000.00 to Teachers Insurance and Annuity Association of America dated September 25, 1997 and recorded in Book 19222, Page 69 ("Mortgage") and that Landlord will assume the obligation set forth in the Mortgage and Loan Documents, as defined in the Mortgage. Tenant has reviewed the Loan Documents and is familiar with the terms and conditions thereof. Tenant agrees to comply with the terms and conditions set forth in the Loan Documents in connection with its operation of the Facility and shall not create any condition that would cause a default under any such Loan Documents. Tenant's failure to comply with the Loan Documents and to cure same within any applicable cure period provided for in the Loan Documents shall be an event of default under this Lease, as amended from time to time. 12. Affirmation. Except as specifically amended by this Second Amendment, ----------- the terms and provisions of the Lease, as amended by the First Amendment, are hereby affirmed and shall remain in full force and effect. 13. Binding Effect. This Second Amendment will be binding upon and inure to -------------- the benefit of the successors and permitted assigns of all parties hereto. 14. Further Modification. The Lease may be further modified only by writing -------------------- signed by both Landlord and Tenant and approved by the holder of any Facility Mortgage if and to the extent required by the terms of such Facility Mortgage. 15. Counterparts. This Second Amendment may be executed in multiple ------------ counterparts, each of which shall be deemed an original. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, Tenant and Landlord have executed this Second Amendment effective as of the date first set forth above. EMERITUS CORPORATION By: Raymond R. Brandstrom Title: Vice President of Finance TENANT: Tax ID No.: 91-1605464 HCRI COLD SPRING PROPERTIES, LLC By: Health Care REIT, Inc., its Sole Member By: Erin C. Ibele LANDLORD: Title: V.P. & Corporate Secretary SCHEDULE 1: RENT SCHEDULE EMERITUS CORPORATION - ROCKY HILL, CT ------------------------------------------ HEALTH CARE REIT, INC. INITIAL TERM DATE 07/01/03 INITIAL TERM 15 Yrs INITIAL TERM EXPIRATION DATE 06/30/18 INITIAL INVESTMENT AMOUNT 7,800,000 RATE OF RETURN N/A (365/360 BASIS) INITIAL RATE OF RETURN 10.00% ------ INCREASER (*) ANNUAL RENT INCREASER IS EQUAL TO THE LESSER OF THREE TIMES CPI (BUT NEVER LESS THAN 0) OR 25 BASIS POINTS. THIS SCHEDULE WAS PREPARED USING THE CPI FOR THE PERIOD APRIL, 2002 TO APRIL, 2003 AND ASSUMED AS SUCH GOING FORWARD. ACTUAL INCREASERS WILL BE REVIEWED AND CALCULATED ANNUALLY. INITIAL MONTHLY RENT 65,000.00 LEASE YEAR DATES ACTUAL CPI *ESTIMATED INCREASER (BP) (LESSER OF 3 TIMES THE CPI INCREASE OVER PRIOR YEAR OR 25 BP) BEGINNING RENT RATE OF RETURN MONTHLY RENT AMOUNT ANNUAL RENT AMOUNT FROM TO 06/30/03 06/30/03 10.00% 2,136.99 1 07/01/03 06/30/04 N/A N/A 10.00% 65,000.00 780,000.00 2 07/01/04 06/30/05 3.20% 0.25% 10.25% 66,625.00 799,500.00 3 07/01/05 06/30/06 3.20% 0.25% 10.50% 68,250.00 819,000.00 4 07/01/06 06/30/07 3.20% 0.25% 10.75% 69,875.00 838,500.00 5 07/01/07 06/30/08 3.20% 0.25% 11.00% 71,500.00 858,000.00 6 07/01/08 06/30/09 3.20% 0.25% 11.25% 73,125.00 877,500.00 7 07/01/09 06/30/10 3.20% 0.25% 11.50% 74,750.00 897,000.00 8 07/01/10 06/30/11 3.20% 0.25% 11.75% 76,375.00 916,500.00 9 07/01/11 06/30/12 3.20% 0.25% 12.00% 78,000.00 936,000.00 10 07/01/12 06/30/13 3.20% 0.25% 12.25% 79,625.00 955,500.00 11 07/01/13 06/30/14 3.20% 0.25% 12.50% 81,250.00 975,000.00 12 07/01/14 06/30/15 3.20% 0.25% 12.75% 82,875.00 994,500.00 13 07/01/15 06/30/16 3.20% 0.25% 13.00% 84,500.00 1,014,000.00 14 07/01/16 06/30/17 3.20% 0.25% 13.25% 86,125.00 1,033,500.00 15 07/01/17 06/30/18 3.20% 0.25% 13.50% 87,750.00 1,053,000.00 EXHIBIT N: WIRE INSTRUCTIONS KeyBank BANK: Cleveland, Ohio ABA NUMBER: 041001039 ACCOUNT NAME: Health Care REIT, Inc. ACCOUNT NUMBER: 353321001011 NOTIFY: Michael A. Crabtree PHONE: (419) 247-2800 EXHIBIT O: DOCUMENTS TO BE DELIVERED Tenant shall deliver each of the following documents, as defined below, to Landlord, to the extent applicable, no later than the date specified for each document: 1. Annual Financial Statement of Tenant (audited) and Facility Financial Statement (audited) - within 90 days after the end of each fiscal year. 2. Annual Facility Budget not later than 45 days after the beginning of the next fiscal year. 3. Quarterly Variance Report for the Facility, including occupancy, census, capital expenditures and operating revenues and expenses by line item with a detailed explanation of the cause of all material variances from the Annual Facility Budget (i.e., more than 10% for that line item) and a description of Tenant's plans for eliminating all material variances - within 45 days after the end of each quarter. 4. Quarterly Healthcare Integrity and Protection Data Bank (HIPDB) Report (dated not earlier than the end of the quarter) - within 45 days after the end of each quarter. 5. Periodic Financial Statement of Tenant - within 45 days after the end of each quarter. 6. Monthly Facility Financial Statement - within 30 days after the end of each month. 7. Tenant's Certificate and Annual or Quarterly Facility Financial Report (Exhibit O-1) - with each delivery of Tenant's financial statements. 8. Annual Facility Financial Report (based upon internal financial records) - within 60 days after the end of each fiscal year. 9. Federal tax returns of Tenant - within 15 days after the filing of the return. If the filing date is extended, also provide a copy of the extension application within 15 days after filing. 10. If applicable, Medicaid cost reports for the Facility - within 15 days after filing of the report with the State agency. 11. State and federal health care survey and inspection reports, inspector exit interview notes and report (if delivered to Tenant), plans of correction, re-survey reports, evidence of annual license renewal - within 30 days after receipt by Tenant, HIPDB adverse action report, notice of licensure deficiencies or commencement of licensure revocation or decertification proceeding, notice of admissions ban, issuance of a provisional or temporary license and all correspondence regarding any of the foregoing for the Facility - within five days after receipt by Tenant. 12. Real estate taxes (a) Copy of invoice and check - within five days after the due date; and (b) Copy of official receipt or other satisfactory evidence of payment - within 30 days after the due date. 13. Certificate of insurance renewal, current Certificate of Compliance from insurance agent and evidence of payment of premium - at least 30 days prior to the expiration of each policy. 14. Facility information: [i] a security deposit report, including resident name, date of move-in, security deposit, and corresponding security deposit bank account balance, with a monthly update of any changes; [ii] a report accounting for all resident trust funds, including corresponding trust fund deposit bank accounts; [iii] a schedule and copies of any equipment leases and financings, including vendor, equipment descriptions, monthly payment, rate and maturity, with a monthly update of any changes and the required nondisturbance agreement if the original cost of the equipment exceeds $50,000.00; [iv] a schedule of all utility providers and utility deposits; [v] a list of all rent concessions, including, but not limited to, free rent, rent reduction, community fee waivers, rate locks, rate guaranties and waivers of security deposits; [vi] a copy of each private pay resident's occupancy agreement and the Facility's form of agreement; [vii] a schedule of all employee vacation and sick days; and [viii] employee policies and procedures handbook, including employee benefits - current and annually updated reports, schedules and copies to be delivered upon request. ~ ~ ~ ~ ~ The following definitions shall be applicable to this Exhibit O: "Annual Facility Budget" means Tenant's projection of the Facility Financial Statement for the next fiscal year (or the 12-month rolling forward period, if applicable). "Annual Financial Statements" means [i] for Tenant, an audited balance sheet, statement of income, and statement of cash flows for the most recent fiscal year on an individual facility and consolidated basis and [ii] for the Facility, an unaudited Facility Financial Statement for the most recent fiscal year. "Facility Financial Statement" means a financial statement for the Facility which shall include the balance sheet, statement of income, statement of cash flows, statement of shareholders' equity, occupancy census data (including payor mix), statement of capital expenditures and a comparison of the actual financial data versus the Annual Facility Budget for the applicable period. "Periodic Financial Statements" means [i] for Tenant, an unaudited balance sheet and statement of income for the most recent quarter; and [ii] for the Facility, an unaudited Facility Financial Statement for the most recent month. EXHIBIT O-1: TENANT'S CERTIFICATE AND FACILITY FINANCIAL REPORTS Report Period: Commencing _______________ and ending _______________ Lease: Lease made by HCRI Cold Spring Properties, LLC ("Landlord") to Emeritus Corporation ("Tenant") Tenant hereby certifies to Landlord to the best of Tenant's knowledge as follows: 1. The attached [specify audited or unaudited and annual or quarterly, and ------- --------- ------ --------- if consolidated, so state] financial statements of Tenant [i] have been prepared ------------ in accordance with generally accepted accounting principles consistently applied; [ii] have been prepared in a manner substantially consistent with prior financial statements submitted to Landlord; and [iii] fairly present the financial condition and performance of Tenant in all material respects. 2. The attached [Annual or Quarterly] Facility Financial Report and Facility Accounts Receivable Aging Report for the applicable reporting period is complete, true and accurate and has been prepared in a manner substantially consistent with prior schedules submitted to Landlord. 3. To the best of my knowledge, Tenant was in compliance with all of the provisions of the Lease and all other documents executed by Tenant in connection with the Lease at all times during the applicable reporting period, and no default, or any event which with the passage of time or the giving of notice or both would constitute a default, has occurred under the Lease. Executed this ___ day of _______________, _____. Name: Title: ANNUAL FACILITY FINANCIAL REPORT FACILITY NAME: FACILITY ADDRESS: REPORT PERIOD: Twelve (12) months beginning _______________ and ending _______________. All information reported should be for this period only. % RESIDENT OCCUPANCY DATA CENSUS DATA DAYS % REVENUES ----------- ---- ---------- Total Beds/Units: _______ Medicaid: _______% _______% ----------------- ------- --------- -------- -------- Total Available Days: _______ Medicare: _______% _______% Total Occupied Days: _______ Private & Other: _______% _______% Occupancy Percentage: _______% Total: _______% _______% OPERATING DATA 1. Gross Revenues $ 2. Contractual Allowances $ 3. Net Revenues $ 4. Operating Expenses(before interest, lease/rent, depreciation, amortization and management fees) $ --- 5. Net Operating Income $ 6. Interest Expense $ 7. Lease/Rent Expense $ 8. Depreciation Expense $ 9. Amortization Expense $ 10. Management Fees $ 11. Management Fees (as a percent of Gross Revenues) % 12. Overhead Allocation (if applicable) $ 13. Other (identify) $ 14. Income Taxes $ 15. Net Income (amount should agree with the facility's financial statements) $ FINANCING DATA (Note: This data breaks out Items 6 and 7 above.) Related to HCRI All Other Leases and/or Debt Total Lease Payments _________ _________ ________ ----------- ----------- ---------- Interest Payments _________ _________ ________ Principal Payments (if any) _________ _________ ________ $ $ $ = = = COVERAGE RATIO 1. Net Operating Income $______________ 2. Less Imputed Management Fee ( _____% of gross revenues) (______________) 3. Less Imputed Replacement Reserve for period ($_________ per bed [or unit] per year) (______________) 4. Adjusted Net Operating Income $______________ 5. Loan/Lease Payments to HCRI $______________ 6. Actual Coverage Ratio (Line 4 Line 5) ______________ CURRENT RATIO 1. Current Assets $______________ 2. Current Liabilities $______________ 3. Actual Current Ratio (Line 1 Line 2) ______________ Tenant hereby certifies that the foregoing is true and accurate. Date: Name: Phone Number: Title: QUARTERLY FACILITY FINANCIAL REPORT FACILITY NAME: FACILITY ADDRESS: REPORT PERIOD: Three (3) months beginning _______________ and ending _______________. All information reported should be for this period only. % RESIDENT OCCUPANCY DATA CENSUS DATA DAYS % REVENUES ---------- Total Beds/Units: _______ Medicaid: _______% _______% ----------------- ------- --------- -------- -------- Total Available Days: _______ Medicare: _______% _______% Total Occupied Days: _______ Private & Other: _______% _______% Occupancy Percentage: _______% Total: _______% _______% OPERATING DATA 1. Gross Revenues $ 2. Contractual Allowances $ 3. Net Revenues $ 4. Operating Expenses (before interest, lease/rent, depreciation, amortization and management fees) $ --- 5. Net Operating Income $ 6. Interest Expense $ 7. Lease/Rent Expense $ 8. Depreciation Expense $ 9. Amortization Expense $ 10. Management Fees $ 11. Management Fees (as a percent of Gross Revenues) % 12. Overhead Allocation (if applicable) $ 13. Other (identify) $ 14. Income Taxes $ 15. Net Income (amount should agree with the facility's financial statements) $ ------ FINANCING DATA (Note: This data breaks out Items 6 and 7 above.) Related to HCRI All Other Leases and/or Debt Total Lease Payments _________ _________ ________ ----------- ----------- ---------- Interest Payments _________ _________ ________ Principal Payments (if any) _________ _________ ________ $ $ $ = = = COVERAGE RATIO 1. Net Operating Income $______________ 2. Less Imputed Management Fee ( _____% of gross revenues) (______________) 3. Less Imputed Replacement Reserve for period ($_________ per bed [or unit] per year) (______________) 4. Adjusted Net Operating Income $______________ 5. Loan/Lease Payments to HCRI $______________ 6. Actual Coverage Ratio (Line 4 Line 5) ______________ CURRENT RATIO 1. Current Assets $______________ 2. Current Liabilities $______________ 3. Actual Current Ratio (Line 1 Line 2) ______________ Tenant hereby certifies that the foregoing is true and accurate. Date: Name: Phone Number: Title: QUARTERLY FACILITY ACCOUNTS RECEIVABLE AGING REPORT FACILITY NAME: FACILITY ADDRESS: ACCOUNTS RECEIVABLE AGING AS OF ____________ (MOST RECENT QUARTER ENDED) PAYOR 0-30 DAYS % 31-60 DAYS % 61-90 DAYS % OVER 90 DAYS % TOTALS % Medicaid $__________ ____% $__________ ____% $__________ ____% $__________ ____% $__________ ____% Medicare $__________ ____% $__________ ____% $__________ ____% $__________ ____% $__________ ____% Commercial Insurance $__________ ____% $__________ ____% $__________ ____% $__________ ____% $__________ ____% Other -_____________ $__________ ____% $__________ ____% $__________ ____% $__________ ____% $__________ ____% TOTALS $__________ 100% $__________ 100% $__________ 100% $__________ 100% $__________ 100% % OF TOTALS $ ___________% ___________% ___________% ___________% 100% ACCOUNTS RECEIVABLE AGING AS OF ____________ (2ND RECENT QUARTER ENDED) PAYOR 0-30 DAYS % 31-60 DAYS % 61-90 DAYS % OVER 90 DAYS % TOTALS % Medicaid $__________ ____% $__________ ____% $__________ ____% $__________ ____% $__________ ____% Medicare $__________ ____% $__________ ____% $__________ ____% $__________ ____% $__________ ____% Commercial Insurance $__________ ____% $__________ ____% $__________ ____% $__________ ____% $__________ ____% Other -_____________ $__________ ____% $__________ ____% $__________ ____% $__________ ____% $__________ ____% TOTALS $__________ 100% $__________ 100% $__________ 100% $__________ 100% $__________ 100% % OF TOTALS $ ___________% ___________% ___________% ___________% 100%