-----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, GdmHtDccHU/xdtKoy85UjTn1hO8qVGgxmgf/JXNjLvoEwk3R64N8zI1bdOI+zGmi Lq1LR50OJwCdVCVkmrrHJQ== 0000908737-98-000279.txt : 19980313 0000908737-98-000279.hdr.sgml : 19980313 ACCESSION NUMBER: 0000908737-98-000279 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980312 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: 10-K SEC ACT: SEC FILE NUMBER: 001-09317 FILM NUMBER: 98564006 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 10-K 1 HEALTH AND RETIREMENT PROPERTIES TRUST UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1997 OR [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission File Number 1-9317 HEALTH AND RETIREMENT PROPERTIES TRUST (Exact name of registrant as specified in its charter) Maryland 04-6558834 (State or other jurisdiction of incorporation) (IRS Employer Identification No.) 400 Centre Street, Newton, Massachusetts 02158 (Address of principal executive offices) (Zip Code) 617-332-3990 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on Title of each class which registered - ----------------------------------------------------------------------------------------------------- Common Shares of Beneficial Interest New York Stock Exchange 7.25% Convertible Subordinated Debentures due 2001 New York Stock Exchange 7.5% Convertible Subordinated Debentures due 2003, Series A New York Stock Exchange Remarketed Reset Notes New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] HEALTH AND RETIREMENT PROPERTIES TRUST The aggregate market value of the voting stock of the registrant held by non-affiliates was $1.9 billion based on the $19.6875 closing price per share for such stock on the New York Stock Exchange on March 5, 1998. For purposes of this calculation, 3,912,138 shares held by HRPT Advisors, Inc. (the "Advisor"), including a total of 2,777,766 shares held by Advisor solely in its capacity as voting Trustee under certain voting Trust agreements, 4,019,429 shares held by Government Properties Investors, Inc. subject to certain voting agreements with the Company and an aggregate of 30,550 shares held by the Trustees and executive officers of the registrant, have been included in the number of shares held by affiliates. Number of the registrant's Common Shares of Beneficial Interest, $.01 par value ("Shares"), outstanding as of March 1, 1998: 104,467,050. DOCUMENTS INCORPORATED BY REFERENCE Part III of this Annual Report on Form 10-K is incorporated herein by reference from the Company's definitive Proxy Statement for the annual meeting of shareholders currently scheduled to be held on May 12, 1998. The financial statements and financial statement schedules for Marriott International, Inc. ("Marriott") are incorporated herein by reference to Marriott's Annual Report on Form 10-K for the year ended January 2, 1998, Commission file No. 1-12188. CERTAIN IMPORTANT FACTORS The Company's Annual Report on Form 10-K contains statements which constitute forward looking statements within the meaning of the Securities Litigation Reform Act of 1995. Those statements appear in a number of places in this Form 10-K and include statements regarding the intent, belief or expectations of the Company, its Trustees or its officers with respect to expansion of the Company's portfolio, its ability to pay dividends, its tax status as a real estate investment trust and the Company's access to debt or equity capital markets or to other sources of funds and statements of assumptions underlying such statements as to intent, belief or expectations. Readers are cautioned that any such forward looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those contained in the forward looking statements as a result of various factors. Such factors include the status of the economy, compliance with and changes to regulations and payment and reimbursement policies within the health care industry, competition within the health care industry, and changes to federal, state and local legislation. The accompanying information contained or incorporated by reference in this Annual Report on Form 10-K, including under the heading "Business" and in the Company's Current Report on Form 8-K dated February 27, 1998, under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations", identifies other important factors that could cause such differences. THE AMENDED AND RESTATED DECLARATION OF TRUST OF THE COMPANY, DATED JULY 1, 1994, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HEALTH AND 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 THE COMPANY SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE COMPANY. ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
HEALTH AND RETIREMENT PROPERTIES TRUST 1997 FORM 10-K ANNUAL REPORT Table of Contents Part I Page Item 1. Business........................................................................ 1 Item 2. Properties...................................................................... 20 Item 3. Legal Proceedings............................................................... 22 Item 4. Submission of Matters to a Vote of Security Holders............................. 23 Part II Item 5. Market for the Registrant's Common Stock and Related Stockholders Matters....... 23 Item 6. Selected Financial Data......................................................... 25 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................................. 25 Item 8. Financial Statements and Supplementary Data..................................... 26 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................................................. 26 Part III Item 10. Directors and Executive Officers of the Registrant.............................. * Item 11. Executive Compensation.......................................................... * Item 12. Security Ownership of Certain Beneficial Owners and Management.................. * Item 13. Certain Relationships and Related Transactions.................................. * * Incorporated by reference from the Company's Proxy Statement for the Annual Meeting of Shareholders currently scheduled to be held on May 12, 1998, to be filed pursuant to Regulation 14A. Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................. 26
References in this Annual Report on Form 10-K to the "Company" or "HRP" include consolidated subsidiaries, unless the context indicates otherwise. PART I Item 1. Business The Company. Health and Retirement Properties Trust (the "Company") was organized on October 9, 1986 as a Maryland real estate investment trust. The Company invests in income producing real estate, including retirement communities, assisted living centers, long-term care facilities, medical office and other office buildings and office buildings leased to various agencies of the United States Government. The facilities in which the Company has made investments by mortgage, purchase/lease or merger transactions are hereinafter referred to individually as a "Property" and collectively as "Properties". As of December 31, 1997, the Company directly owned 183 Properties representing an aggregate investment of $2.0 billion (at cost), had mortgage investments in 34 Properties aggregating $104.3 million and had a 10.3% equity investment in Hospitality Properties Trust ("HPT") of approximately $111.1 million (carrying value), for total real estate investments of approximately $2.2 billion. The Properties are described in -"Business Developments Since January 1, 1997" and "Properties". Number of Total Investment State Properties at December 31, 1997 - ----- ---------- -------------------- (in thousands) Alaska ................................... 1 $ 1,000 Arizona .................................. 9 64,490 California ............................... 31 318,861 Colorado ................................. 11 52,434 Connecticut .............................. 9 96,476 District of Columbia ..................... 4 145,124 Florida .................................. 6 136,989 Georgia .................................. 5 15,181 Illinois ................................. 3 101,454 Iowa ..................................... 7 8,205 Kansas ................................... 4 7,544 Louisiana ................................ 1 19,185 Maryland ................................. 6 147,661 Massachusetts ............................ 30 203,016 Michigan ................................. 2 9,267 Missouri ................................. 3 11,424 Nebraska ................................. 10 10,733 New Hampshire ............................ 1 3,689 New Jersey ............................... 1 13,007 New Mexico ............................... 2 10,813 New York ................................. 5 164,848 North Carolina ........................... 6 15,944 Ohio ..................................... 4 17,712 Oklahoma ................................. 1 24,426 Pennsylvania ............................. 8 127,287 Rhode Island ............................. 1 8,100 South Dakota ............................. 3 7,589 Texas .................................... 12 112,635 Vermont .................................. 8 29,766 Virginia ................................. 5 81,703 Washington ............................... 4 40,548 West Virginia ............................ 1 4,792 Wisconsin ................................ 9 44,029 Wyoming................................... 4 17,379 ----- --------- Total..................................... 217 2,073,311 === Investment in HPT......................... 111,134 --------- Total Investments......................... $2,184,445 ========== 1 The Company's principal executive offices are located at 400 Centre Street, Newton, Massachusetts 02158, and its telephone number is (617) 332-3990. Investment Policy and Method of Operation. The Company's investment goals are current income for distribution to shareholders, capital growth resulting from appreciation in the residual value of owned Properties, and preservation and protection of shareholders' capital. The Company's income is derived primarily from rent and interest payments under its leases and mortgages. The Company's day to day operations are conducted by REIT Management and Research, Inc. ("RMR"), the Company's investment manager. RMR provides investment, management, property management and administrative services to the Company. RMR originates and presents investment opportunities to the Company's Board of Trustees (the "Trustees"). In evaluating potential investments, the Company considers such factors as: the historical and projected rents received and likely to be received from the property to meet operational needs and financing obligations and to provide a competitive market return on investment to the Company; the historic and expected operating expenses, including real estate taxes, incurred and expected to be incurred at the properties; the growth, tax and regulatory environments of the market in which the property is located; the quality, experience, and credit worthiness of the property's operator and tenants; an appraisal of the property, if available; occupancy and demand for similar properties in the same or nearby markets; the construction quality, physical condition and design of the property; the geographic area and type of property; and the pricing of comparable properties as evidenced by recent arms length market sales. Prior to investing in properties, the Company obtains title commitments or policies of title insurance insuring that the Company holds title to or has mortgage interests in such properties, free of material liens and encumbrances. The Company's investments are structured using leases with minimum and/or additional rent and escalation provisions, loans with fixed or floating rates, joint ventures and partnerships with affiliated or unaffiliated parties, commitments or options to purchase interests in real estate, mergers or any combination of the foregoing that will best suit the particular investment. In connection with its current bank credit facility (the "Credit Facility"), the Company has agreed to obtain lender approval before exceeding investment concentrations based on certain criteria (see - "Borrowing Policy"). Among these are that no more than 40% of its investments be operated by any single tenant or mortgagor, that investments in a) rehabilitation treatment, b) acute care, c) medical office and clinic buildings, and d) investments in government office properties not exceed 40%, 15%, 55% and 40%, respectively, of total investments and that no new psychiatric care or hotel investments be made. The Company is currently in discussions with its lenders to modify these restrictions. In addition to these restrictions, the Trustees may establish limitations as they deem appropriate from time to time. No limits, other than those in connection with the Credit Facility, have been set on the number of properties in which the Company will seek to invest, or on the concentration of investments involving any one facility or geographical area; however, the Trustees consider concentration of investments in determining whether to make new or increase existing investments. The Company's Declaration of Trust (the "Declaration") and operating policies provide that any investment in facilities owned or operated by RMR, persons expressly permitted under the Declaration to own more than 8.5% of the Company's shares, or any company affiliated with any of the foregoing must be approved by a majority of the Trustees not affiliated with any of the foregoing (the "Independent Trustees"). The Company has in the past and may in the future consider, from time to time, the acquisition of or merger with other companies engaged in the same business as the Company; however, the Company has no present agreements or understandings concerning any such acquisition or merger. The Company has no present intention of investing in the securities of others for the purpose of exercising control. Borrowing Policy. In addition to the use of equity, the Company utilizes short-term and long-term borrowings to finance investments. The Company has a Credit Facility for an aggregate amount of $450 million. The Company is currently in discussion with the lenders under the Credit Facility to amend the Credit Facility, to modify certain covenants of the Company and to increase the maximum principal amount that may be outstanding. No assurances can be given at this time that the Company and such lenders will reach a final agreement as to such changes. The Credit Facility (which is guaranteed by certain of the Company's subsidiaries) is used for acquisition 2 funding on an interim basis until equity or long term debt is raised, working capital and general business purposes. Outstanding borrowings under the Credit Facility at December 31, 1997 were $200 million. The Company's borrowing guidelines established by its Trustees and covenants in various debt agreements prohibit the Company from maintaining a debt to equity ratio of greater than 1 to 1. At December 31, 1997, the Company's debt to equity ratio was .62 to 1. The Declaration prohibits the Company from incurring secured and unsecured indebtedness which in the aggregate exceeds 300% of the net assets of the Company, unless approved by a majority of the Independent Trustees. There can be no assurance that debt capital will in the future be available at reasonable rates to fund the Company's operations or growth. Business Developments Since January 1, 1997 Investments In February 1997, the Company entered into an agreement to acquire 30 office buildings containing 3.4 million square feet (the "Government Office Properties"), substantially all of which are leased to various agencies of the United States Government. As of December 31, 1997, the Company acquired 29 properties, one of which is under construction, and elected not to acquire one property. Subsequent to December 31, 1997, one of the 29 properties was sold. The Company's aggregate purchase price for the 29 properties (3.3 million square feet) was approximately $439 million. The total purchase price for the Government Office Properties was paid by the issuance of $77 million in shares, the assumption of approximately $27 million of debt by subsidiaries of the Company secured by mortgages on three acquired properties, and a net cash payment of approximately $335 million, which was used in part to retire other debt of the seller assumed by the Company as part of the acquisition transaction and to pay closing costs. During 1997, the Company purchased 42 medical and other office and clinic buildings for an aggregate purchase price of approximately $525 million. Acquisitions of facilities or buildings with a purchase price of at least $25 million included the following: (a) a first class office building in midtown Manhattan containing approximately 420,368 square feet purchased in October 1997 for approximately $110 million (this building is 100% occupied under long term leases to three tenants, with the majority of the building being leased to Health Insurance Plan of Greater New York, a large not-for-profit health maintenance organization); (b) two first class buildings containing approximately 330,715 square feet plus two parking structures for approximately 1,700 cars located in West Los Angeles purchased in May 1997 for approximately $109 million (these buildings are known as the Cedars Sinai Medical Towers and Garages and are located adjacent to the Cedars Sinai Medical Center, an investment grade rated not-for-profit hospital which is also the largest tenant in these buildings); (c) an office complex in Austin, Texas containing five commercial office properties, with approximately 441,145 square feet purchased in December 1997 for $79 million; (d) a first class 25 story office tower located in Philadelphia containing approximately 608,161 square feet purchased in November 1997 for approximately $79 million (approximately 98% of this building is leased on a long-term basis to SmithKline Beecham Corporation, an investment grade rated international pharmaceutical manufacturer and distributor); and (e) 20 medical office and clinic buildings containing approximately 373,500 square feet located in central Massachusetts purchased in May 1997 for approximately $47 million (these buildings are triple net leased on a long term basis to a regional health maintenance organization that is partially owned by Tenet Healthcare Corporation). Certain of these properties are gross leased and the net operating income which the Company realizes from these investments will depend upon the efficiency with which the Company is able to operate these buildings. In May 1997, the Company purchased for $14 million a 200-unit retirement housing property located in Spokane, Washington. This property and three other retirement housing properties (629 units) purchased for $87.5 million in December 1996 are all net leased to Brookdale Living Communities, Inc. ("BLCI") for an initial term of 23 years plus renewal options totaling an additional 50 years. During 1997, BLCI was recapitalized by two public offerings of equity and as of December 31, 1997 had an equity market capitalization of over $124 million. During the period January 1, 1998 through March 5, 1998, the Company acquired 11 medical and other office buildings for $91.7 million. This acquisition was funded in part with borrowings under the Company's bank credit facility. During the period January 1, 1997 through March 5, 1998, the Company received $69.6 million of regularly scheduled principal payments and prepayments of mortgage loans. 3 Financing In October 1996, the Company sold three tranches of convertible subordinated debentures totaling $240 million. All of these debentures are convertible into common shares at a rate of $18 per share and are callable at par by the Company at any time on or after October 1, 1999. During 1997, the trading price of the Company's shares has averaged above $18 per share. Through March 5, 1998, approximately $29.2 million of these debentures have been converted into approximately 1.6 million common shares. In March 1997, the Company issued 27,025,000 common shares in a public offering. The gross proceeds of the offering were $510.1 million ($18.875 per share), and the net proceeds to the Company were $483.2 million. Such net proceeds were used to acquire the Government Office Properties. During February 1998, the Company issued an aggregate of 5,495,776 common shares in public offerings and received net proceeds of $104.4 million, which were used to repay amounts outstanding under the Company's Credit Facility, for acquisitions and general business purposes. In July 1997, the Company issued $200 million of Remarketed Reset Notes due July 9, 2007 ("Reset Notes"). The net proceeds of that issuance (approximately $199 million) were used to prepay other indebtedness of the Company then due in 1999 ($125 million) and to reduce amounts outstanding under the Company's Credit Facility. In February 1998, the Company issued an additional $50 million aggregate principal amount of Reset Notes (the "Additional Reset Notes"). Net proceeds from the offering of the Additional Reset Notes were used to reduce amounts outstanding under the Company's bank credit facility and for general business purposes. The Reset Notes currently bear interest at a floating rate equal to three month LIBOR plus a spread of .45% per annum. In July 1998, the Company will have the option to prepay the Reset Notes or to have the Reset Notes remarketed and the interest rate reset on either a floating or fixed rate basis. In July 1997, the Company's $250 million unsecured revolving credit facility with a syndicate of banks was increased to $450 million, and in March 1997, the term of the Credit Facility was extended to 2001. (See "--Borrowing Policy" above.) In December 1997, the Company issued $150 million of 6 3/4% Senior Notes due 2002 (the "6 3/4% Notes") in a private placement to institutional investors. The net proceeds from the offering (approximately $149 million) were used to reduce amounts then outstanding under the Company's Credit Facility. The Company has agreed with the initial purchasers of the 6 3/4% Notes to use its best efforts to consummate an offer to exchange the 6 3/4% Notes for new notes with terms substantially identical in all material respects to the 6 3/4% Notes, which would be registered pursuant to the Securities Act. Other Developments Horizon/CMS Healthcare Corporation; HEALTHSOUTH Corporation; and Integrated Health Services, Inc. As of December 31, 1997, the Company had invested approximately $168 million, at cost, in properties that had been leased by, mortgaged to or managed by Horizon/CMS Healthcare Corporation ("HHC"). In October 1997, HHC merged into HEALTHSOUTH Corporation ("HEALTHSOUTH"). In return for the Company's consent to this merger, HEALTHSOUTH agreed to guarantee unconditionally all of the lease, mortgage and management obligations of HHC due to the Company and to extend the terms of the management contracts of three properties that were scheduled to expire during 1998 until 2001. In December 1997, HRP consented to the release of HEALTHSOUTH from the guarantee and to the assignment of certain leases and mortgages from HEALTHSOUTH and its predecessor, HHC, to Integrated Health Services, Inc. ("IHS") as part of a $1.2 billion transaction between HEALTHSOUTH and IHS for nursing homes, specialty hospitals and pharmacy services. In connection with this consent, IHS guaranteed leases, mortgages and management obligations to HRP affecting the former HHC properties, and the maturities of these leases, mortgages and management obligations, which were previously scheduled for 2000, 2001 and 2005, were extended to 2006. GranCare, Inc.; Living Centers of America, Inc.; and Paragon Health Network, Inc. As of December 31, 1997, the Company had invested approximately $98 million, at cost, in properties that had been leased to, or mortgaged by, GranCare, Inc. ("GC"). In February 1997, GC distributed to its shareholders all of its nursing home operations and merged its pharmacy business into Vitalink, Inc. ("Vitalink"), another public company. Under the terms of the GC Vitalink agreement, the GC nursing home operations became a new public company ("New GC"), and certain subsidiaries of New GC remained tenants of and mortgagors to the Company (the "Tenant 4 Subsidiaries"). The Company consented to this GC Vitalink transaction on certain terms and conditions, including: (i) all of the leases and mortgages between the Company and the Tenant Subsidiaries being cross defaulted, cross collateralized, cross secured and unconditionally guaranteed by New GC; (ii) Vitalink providing a $15 million unconditional guarantee of the obligations due to the Company; and (iii) GC paying an amendment fee to the Company. In October 1997, New GC merged into Living Centers of America, Inc. ("LCA"), another public company. As part of the New GC LCA transaction a large number of LCA and New GC shares were repurchased, LCA was recapitalized by new investors, the combined New GC LCA enterprise changed its name to Paragon Health Network, Inc. ("Paragon"), and Paragon solicited the Company to release Vitalink from its guaranty obligations to the Company. The Company consented to the New GC LCA Paragon transaction and released Vitalink from its guaranty on certain terms and conditions, including: (a) certain mortgage obligations totaling approximately $11.5 million due to the Company being prepaid in full; (b) certain properties owned by the Company and leased to the Tenant Subsidiaries being exchanged for other properties formerly owned by LCA or the Tenant Subsidiaries, which properties were to be leased to the Tenant Subsidiaries; (c) the term of certain leases being extended and all renewal options for properties leased to the Tenant Subsidiaries being renewable only on an all or none basis; (d) the rent payable to the Company being increased; (e) all obligations with respect to all properties leased or financed with the Tenant Subsidiaries being guaranteed by Paragon and the guaranty being secured by a cash deposit of $15 million; (f) all obligations of the Tenant Subsidiaries being subject to cross default and cross collateralization, and guaranteed by New GC (now a subsidiary of Paragon); and (g) payment to the Company of an amendment fee. Community Care of America, Inc. and Integrated Health Services, Inc. As of December 31, 1997, the Company had invested approximately $112 million, at cost, in properties that had been operated by Community Care of America, Inc. ("CCA"). In September 1997, CCA was acquired by IHS. The Company consented to IHS's acquisition of CCA on certain terms and conditions including: (i) mortgages due to the Company totaling approximately $12.2 million being prepaid in full; (ii) certain properties formerly leased to CCA being purchased from the Company at their historical cost of approximately $33.5 million; (iii) the extension of terms of certain remaining leases and mortgages; (iv) the remaining leases and mortgages being subject to cross default and cross collateralization, and unconditionally guaranteed by IHS; and (v) payment to the Company of an amendment fee. Marriott Spin Off and Merger. As of December 31, 1997, the Company had invested approximately $326 million, at cost, in properties leased to a subsidiary of Marriott International, Inc. ("Marriott"). In October 1997, Marriott announced a plan to dividend to its shareholders a new company which will own and operate Marriott's lodging and senior living businesses and to merge the remaining company with Sodexho S.A. As a result of this spin off and merger the Company's current guarantor was expected to have a negative net worth and its obligations were not expected to be rated investment grade. Upon learning of this planned transaction, the Company commenced negotiations with Marriott and, as a result of those negotiations, an agreement has been entered into that will be effective upon consummation of the Marriott spin off and merger transaction. This agreement requires that the spin off entity created by Marriott assume the guarantee obligations to the Company. The new spin off entity is expected to be investment grade rated. In May 1997, the Company filed a $1.0 billion Shelf Registration Statement on Form S-3 (the "Shelf") that has been declared effective by the Securities and Exchange Commission. At March 1, 1998, $539.7 million was available to be drawn on the Shelf. The Investment Manager RMR is a Delaware corporation owned by Gerard M. Martin and Barry M. Portnoy. RMR's principal executive offices are located at 400 Centre Street, Newton, Massachusetts 02158, and its telephone number is (617) 332-3990. As of January 1, 1998, the Company entered into separate investment advisor and property management agreements with RMR. RMR provides investment, management, property management services for some of the recently acquired Government Properties and medical and other office buildings and administrative services to the Company. In addition, an affiliate of RMR also provides garage management services to the Company. During the three years ended December 31, 1997, such services were provided by Advisor, and M&P Partners Limited Partnership ("M&P") on similar terms. RMR also acts as the investment manager to HPT and has other business interests. The Directors of RMR are Gerard M. Martin, Barry M. Portnoy and David J. Hegarty. The officers of RMR are David J. Hegarty, President and Secretary, John G. Murray, Executive Vice President, John Popeo, Treasurer, and Ajay Saini, John A. Mannix, David Lepore and Thomas M. O'Brien, Vice Presidents. Gerard M. Martin and Barry M. Portnoy are Managing Trustees of the Company and David J. Hegarty and Ajay Saini are 5 officers of the Company. The beneficial ownership of Advisor (which is the General Partner of M&P) and M&P is the same as that of RMR and immediately prior to January 1, 1998, the directors and officers of Advisor were the same as those who currently hold positions with RMR. Employees As of March 5, 1998, the Company had no employees. RMR, which administers the day-to-day operations of the Company, has 111 full-time employees and three active directors. Regulation and Reimbursement Compliance with federal, state and local statutes and regulations governing health care facilities is a prerequisite to continuation of the Company's business. The health care industry depends significantly upon federal and federal/state programs for revenues and, as a result, is vulnerable to the budgetary policies of both the federal and state governments. Certificates of Need. Certain of the Company's investments are in healthcare properties which require certificates of need ("CONs") prior to expansion of beds or services, certain capital expenditures, and in some states, a change in ownership. CON requirements are not uniform throughout the United States. Changes in CON requirements may affect competition, profitability of the Properties and the Company's opportunities for investment in health care facilities. Federal Regulation. The Company's healthcare properties are affected by a number of federal and state statutes and regulations including those related to reimbursement under Medicare and Medicaid programs. Such laws, among other things, limit reimbursement for capital costs and in some circumstances for rental or lease expenses. Such laws also include federal and state anti-fraud and anti-kickback statutes and regulations. The Balanced Budget Act of 1997 (Public Law 105-33) (the "BBA") directs the federal Department of Health and Human Services ("HHS") to adopt a Medicare prospective payment system for skilled nursing facilities which will include capital-related costs and which will be phased in over four years beginning July 1, 1998. The BBA also increases states' flexibility in establishing Medicaid rates for nursing facility services, and strengthens the ability of HHS and the states to exclude providers for health care-related offenses. An adverse determination concerning any operator's licensure or eligibility for government reimbursement or its compliance with applicable federal or state statutes on regulations could materially and adversely affect such operator and its affiliates. A number of legislative proposals that would affect major reforms of the health care system have been introduced in Congress. Such proposals include universal health coverage, employer mandated insurance, and a single government health insurance plan. Following the failure of the Clinton administration's proposed Health Security Act or other major health care reform legislation to become law in 1994, legislative proposals for more incremental reforms have also been introduced, such as group health insurance plans for small businesses, health insurance industry reforms, and additional Medicare and Medicaid reforms and cost containment measures, including proposals that Medicaid be administered through block grants to the states and per capita limits on state Medicaid spending. The Company cannot predict whether any such legislative proposals will be adopted or, if adopted, what effect, if any, such proposals would have on the business of the Company or its lessees or mortgagors. Competition. The Company competes with other real estate investment trusts in that each is continually seeking attractive investment opportunities in health care facilities and other types of real estate. The Company also competes with banks, non-bank finance companies, leasing companies and insurance companies. 6 FEDERAL INCOME TAX CONSIDERATIONS The Company has elected to be taxed as a Real Estate Investment Trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended and in effect from time to time (the "Code"), commencing with its taxable year ending December 31, 1987. The Company believes it has been organized and has operated in a manner that qualifies it to be taxed under the Code as a REIT commencing with that taxable year, and the Company intends to continue to operate in a manner to so qualify. No assurance can be given, however, that the manner in which the Company has operated or will operate qualified or will qualify the Company to be taxed as a REIT. The Company has obtained legal opinions from its counsel Sullivan & Worcester LLP that the Company has been organized in conformity with the requirements for qualification as a REIT, has qualified as a REIT for its 1987, 1988, 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996 and 1997 taxable years, and that its current and anticipated investments and its plan of operation will enable it to continue to meet the requirements for qualification and taxation as a REIT under the Code. These opinions are conditioned upon the assumption that the leases, the Declaration and the Company's Bylaws, and all other legal documents to which the Company is or has been a party have been and will be complied with by all parties thereto, upon the accuracy and completeness of the factual matters described in this Annual Report, and upon representations made by the Company as to certain factual matters relating to the Company's organization and operations and its expected manner of operation. In addition, such opinions are based on the law then existing and in effect on the date thereof. Opinions of counsel are not binding on the Internal Revenue Service ("IRS") or a court and there can be no assurance that the IRS or a court will not take a position different from that expressed by counsel. The Company's actual qualification and taxation as a REIT will depend upon the Company's ability to meet on a continuing basis, through actual operating results, asset composition, distribution levels, and diversity of stock ownership, the various REIT qualification tests imposed under the Code, discussed below. While the Company has represented that it has operated and will operate in a manner so as to satisfy on a continuing basis the various REIT qualification tests, Sullivan & Worcester LLP has not reviewed and will not review compliance with these tests on a continuing basis, and no assurance can be given that the Company has satisfied or will satisfy such tests on a continuing basis. If the Company fails to qualify as a REIT in any year, it will be subject to federal income taxation as if it were a domestic corporation, and its shareholders will be taxed in the same manner as shareholders of ordinary corporations. In such an event, the Company could be subject to potentially significant tax liabilities, and therefore the amount of cash available for distribution to its shareholders would be reduced or eliminated. The following summary is based on existing law, is limited to investors who will hold the Shares as "capital assets" within the meaning of Section 1221 of the Code (generally, property held for investment), is not exhaustive of all possible tax considerations, and does not discuss any state, local, or foreign tax considerations. Additionally, the following summary does not discuss the particular tax consequences that might be relevant to holders of Shares who may be subject to special rules under the federal income tax law, such as life insurance companies, regulated investment companies, financial institutions, brokers or dealers in securities or foreign currency, persons that have a functional currency other than the U.S. dollar, persons who acquired Shares or options to acquire Shares in connection with their employment or other performance of services, persons subject to alternative minimum tax, persons who hold Shares as part of a straddle, hedging transaction, or conversion transaction or, except as specifically described herein, tax-exempt entities and foreign persons. The sections of the Code that govern the federal income tax qualification and treatment of a REIT and its shareholders are highly technical and complex. The following summary is thus qualified in its entirety by the applicable Code provisions, the rules and regulations promulgated thereunder, and the administrative and judicial interpretations thereof, all of which are subject to change, possibly with retroactive effect. Thus, no assurance can be given that future legislative, judicial, or administrative actions or decisions will not affect the accuracy of any statements in this summary. In addition, no ruling has been or is expected to be sought from the IRS with respect to any matter discussed herein, and there can be no assurance that the IRS or a court will agree with the statements made herein. Accordingly, each shareholder is urged to consult his own tax advisor with respect to the federal income tax and other tax consequences of the purchase, holding and sale of Shares. Taxation of the Company. If the Company qualifies for taxation as a REIT and distributes to its shareholders at least 95% of its "real estate investment trust taxable income" (determined by excluding any net capital gain and before taking into account any dividends paid deduction), it generally will not be subject to federal corporate income taxes on the amount distributed. This deduction for dividends paid to shareholders substantially 7 eliminates the federal "double taxation" on earnings (once at the corporate level and again at the shareholder level) that generally results from an investment in a corporation. However, even if the Company qualifies for federal income taxation as a REIT, it may be subject to federal tax in certain circumstances. First, the Company will be taxed at regular corporate rates on any undistributed "real estate investment trust taxable income," including undistributed net capital gains. Second, under certain circumstances, the Company may be subject to the corporate "alternative minimum tax" on its items of tax preference, if any. Third, if the Company has (i) net income from the sale or other disposition of "foreclosure property" (generally, property acquired by the Company through foreclosure or otherwise after a default on a loan secured by the property or on a lease of the property) that is held primarily for sale to customers in the ordinary course of business or (ii) other nonqualifying income from foreclosure property, then the Company will be subject to tax on such income at the highest regular corporate rate (currently 35%). Fourth, if the Company has net income from prohibited transactions (generally, certain sales or other dispositions of inventory or property held primarily for sale to customers in the ordinary course of business, other than foreclosure property), such income will be subject to tax at a 100% rate. Fifth, if the Company should fail to satisfy the 75% gross income test or the 95% gross income test (discussed below), but nonetheless maintains its qualification as a REIT because certain other requirements are met, the Company will be subject to tax at a 100% rate on the greater of the amount by which the Company fails the 75% or the 95% test, multiplied by a fraction intended to reflect the Company's profitability. Sixth, if the Company should fail to distribute for any calendar year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income for such year, and (iii) any undistributed taxable income from prior periods, the Company will be subject to a 4% excise tax on the excess of such required distribution over the amounts actually distributed. Seventh, if the Company acquires any asset from a C corporation (generally, a corporation subject to full corporate level tax) in a transaction in which the basis of the asset in the Company's hands is determined by reference to the basis of the asset in the hands of the C corporation, and if the Company subsequently recognizes gain on the disposition of such asset during the ten-year period beginning on the date on which the asset was acquired by the Company, then the Company will pay tax at the highest regular corporate tax rate (currently 35%) on the lesser of (i) the excess of the fair market value of the asset over the Company's basis in the asset on the date acquired by the Company and (ii) the gain recognized by the Company. If the Company should invest in properties in foreign countries, the Company's profits from such investments will generally be subject to tax in the countries where such properties are located. The nature and amount of any such taxation will depend on the laws of the countries where the properties are located. If the Company satisfies the annual distribution requirements for federal income tax qualification as a REIT and is therefore not subject to federal corporate income tax on that portion of its ordinary income and capital gain that is currently distributed to its shareholders, the Company will generally not be able to recover the cost of any foreign tax imposed on profits from its foreign investments by claiming foreign tax credits against its federal income tax liability on such profits. Moreover, a REIT is not able to pass through to its shareholders any foreign tax credits. The Company's Wholly-Owned Subsidiaries. Section 856(i) of the Code provides that a corporation that is a qualified REIT subsidiary (defined as any corporation 100% of whose stock is held by the REIT at all times during the period the corporation is in existence) shall not be treated as a separate corporation, and all assets, liabilities, and items of income, deduction, and credit of a qualified REIT subsidiary shall be treated as assets, liabilities and items of income, deduction, and credit of the REIT. (For the Company's taxable years commencing on or after January 1, 1998, a wholly-owned corporation qualifies as a qualified REIT subsidiary even though there was a period of time during which the Company did not own 100% of its stock; such corporation will be treated for federal income tax purposes as though liquidated into the Company at the time the Company acquired 100% ownership, and then reincorporated by the Company as a qualified REIT subsidiary.) The Company believes that each of its direct and indirect wholly-owned subsidiaries qualifies either as a qualified REIT subsidiary within the meaning of Section 856(i) of the Code, or as a noncorporate entity that for federal income tax purposes is not treated as separate from its owner pursuant to Treasury Regulations under Section 7701 of the Code. Thus, in applying all the federal income tax REIT qualification requirements discussed herein, the Company's direct and indirect wholly-owned subsidiaries are ignored, and all assets, liabilities, and items of income, deduction and credit of those subsidiaries are treated as assets, liabilities and items of income, deduction and credit of the Company. The Company's Investments through Partnerships. The Company has invested, and in the future may invest, in real estate through one or more limited or general partnerships or limited liability companies that is treated as a partnership for federal income tax purposes. In the case of a REIT that is a partner in a partnership, Treasury Regulations provide that for purposes of the REIT qualification requirements regarding income and assets discussed 8 below, the REIT is deemed to own its proportionate share of the assets of the partnership corresponding to the REIT's proportionate capital interest in such partnership and is deemed to be entitled to the income of the partnership attributable to such proportionate share. In addition, for these purposes, the character of the assets and gross income of the partnership generally retain the same character in the hands of the REIT. Accordingly, the Company's proportionate share of the assets, liabilities, and items of income of each partnership in which it is a partner are treated as assets, liabilities, and items of income of the Company for purposes of the income tests and asset tests discussed below. However, for purposes of the REIT's distribution requirement discussed below, a REIT must take into account as a partner its distributive share of the partnership's income as determined under the general federal income tax rules governing partners and partnerships under Sections 701 et seq. of the Code. REIT Qualification Requirements--Generally. Section 856(a) of the Code defines a REIT as a corporation, trust or association: (1) which is managed by one or more trustees or directors; (2) the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest; (3) which would be taxable, but for Sections 856 through 859 of the Code, as a domestic corporation; (4) which is neither a financial institution nor an insurance company subject to certain provisions of the Code; (5) the beneficial ownership of which is held by 100 or more persons; (6) which is not "closely held" as determined under the personal holding company stock ownership test (as applied with modifications); and (7) which meets certain other tests regarding income, assets, and distributions, as described below. Section 856(b) of the Code provides that conditions (1) to (4), inclusive, must be met during the entire taxable year and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. It is the Company's belief and expectation that it has had and will have at least 100 shareholders during the requisite period for each of its taxable years since its election to be taxed as a REIT. There can, however, be no assurance in this connection and, if the Company has fewer than 100 shareholders during the requisite period, condition (5) described above will not be satisfied, and the Company would not qualify as a REIT during such taxable year. By reason of the "closely held" condition (6) above, the Company will fail to qualify as a REIT for a taxable year if at any time during the last half of such year more than 50% in value of its outstanding Shares is owned directly or indirectly by five or fewer individuals. To help maintain conformity with condition (6), the Declaration contains certain provisions restricting transfers of Shares and giving the Trustees the power to redeem Shares involuntarily. For its taxable years commencing on or after January 1, 1998, if the Company complies with Treasury Regulations for ascertaining the ownership of its outstanding Shares and does not know or, exercising reasonable diligence would not have known, whether it failed condition (6), then the Company will be treated as satisfying condition (6). Also, for its taxable years commencing on or after January 1, 1998, the Company's failure to comply with the Treasury Regulations for ascertaining ownership of its outstanding Shares may result in a penalty of $25,000 ($50,000 for intentional violations). Accordingly, the Company will, pursuant to the Treasury Regulations, request annually from record holders of certain significant percentages of its Shares certain information regarding the ownership of such Shares. Under the Declaration, shareholders are required to respond to such requests for information. The rule that an entity will fail to qualify as a REIT for a taxable year if at any time during the last half of such year more than 50% in value of its outstanding shares is owned directly or indirectly by five or fewer individuals is relaxed in the case of certain pension trusts owning shares in a REIT. Shares in a REIT held by such a pension trust are treated as held directly by its beneficiaries in proportion to their actuarial interests in the pension trust. Consequently, five or fewer pension trusts could own more than 50% of the interests in an entity without jeopardizing its federal income tax qualification as a REIT. However, as discussed below, if the REIT is a "pension- held REIT," each pension trust holding more than 10% of its shares (by value) generally will be taxable on a portion of the dividends it receives from the REIT, based on the ratio of the REIT's gross income for the year which would be unrelated trade or business income if the REIT were a qualified pension trust to the REIT's total gross income for the year. To qualify as a REIT under the Code, the Company must elect to be so treated and must meet other requirements, certain of which are summarized below, including percentage tests relating to the sources of its gross income, the nature of its assets, and the distribution of its income to shareholders. The Company made such an election for 1987 (its first full year of operations), and such election, assuming continuing compliance with the federal income tax qualification tests discussed herein, continues in effect for subsequent years. Income Tests. There are three gross income requirements, only two of which apply to the Company for its taxable years commencing on or after January 1, 1998. First, at least 75% of the Company's gross income 9 (excluding gross income from certain sales of property held primarily for sale) must be derived directly or indirectly from investments relating to real property (including "rents from real property"), mortgages on real property, or shares in other REITs. When the Company receives new capital in exchange for its Shares (other than dividend reinvestment amounts) or in a public offering of five-year or longer debt instruments, income attributable to the temporary investment of such new capital in stock or a debt instrument, if received or accrued within one year of the Company's receipt of the new capital, is qualifying income under the 75% test. Second, at least 95% of the Company's gross income (excluding gross income from certain sales of property held primarily for sale) must be derived from such real property investments, dividends, interest, certain payments under interest rate swap or cap agreements (and for the Company's taxable years commencing on or after January 1, 1998, certain payments under options, futures contracts, forward rate agreements, or similar financial instruments), and gain from the sale or disposition of stock, securities, or real property, or from any combination of the foregoing. Third, for the Company's taxable years ending on or before December 31, 1997, short-term gain from the sale or other disposition of stock or securities (including, without limitation, stock in other REITs), dispositions of interest rate swap or cap agreements, and gain from certain prohibited transactions or other dispositions of real property held for less than four years (apart from involuntary conversions and sales of foreclosure property) must have represented less than 30% of the Company's gross income. For purposes of these three gross income rules, income derived from a "shared appreciation provision" in a mortgage loan is generally treated as gain recognized on the sale of the property to which it relates. Even though the Company does not own mortgage loans that contain shared appreciation provisions, the Company may in the future make such mortgage loans. The Company temporarily invests working capital in short-term investments, including shares in other REITs. Although the Company will use its best efforts to ensure that the income generated by its investments will be of a type which satisfies the 75% and 95% gross income tests, there can be no assurance in this regard. In order to qualify as "rents from real property," several requirements must be met. First, the amount of rent received generally must not be determined from the income or profits of any person, but may be based on receipts or sales. Second, the Code provides that rents will not qualify as "rents from real property" in satisfying the gross income tests if the REIT owns 10% or more of the tenant, whether directly or under certain attribution rules. The Company intends not to lease property to any party if rents from such property would not so qualify. Application of the 10% ownership rule is, however, dependent upon complex attribution rules and upon circumstances beyond the control of the Company. Ownership, directly or by attribution, by an unaffiliated third party of more than 10% of the Shares and more than 10% of the stock of a lessee would result in lessee rents not qualifying as "rents from real property." The Declaration provides that transfers or purported acquisitions, directly or by attribution, of Shares that could result in disqualification of the Company as a REIT are null and void and permits the Trustees to repurchase Shares to the extent necessary to maintain the Company's status as a REIT. Nevertheless, there can be no assurance such provisions in the Declaration will be effective to prevent the Company's REIT status from being jeopardized under the 10% lessee affiliate rule. Furthermore, there can be no assurance that the Company will be able to monitor and enforce such restrictions, nor will shareholders necessarily be aware of shareholdings attributed to them under the attribution rules. Third, in order for its rents to qualify as "rents from real property," the Company must not manage the property or furnish or render services to the tenants of such property, except through an independent contractor from whom the Company derives no income. There is an exception to this rule permitting a REIT to perform certain customary tenant services of the sort which a tax-exempt organization could perform without being considered in receipt of "unrelated business taxable income." For the Company's taxable years commencing on or after January 1, 1998, a de minimis amount of noncustomary services will not disqualify income as rents from real property so long as the value of the impermissible services does not exceed 1% of the gross income of the property. Fourth, if rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as "rents from real property." The portion of rental income treated as attributable to personal property is determined according to the ratio of the tax basis of the personal property to the total tax basis of the property which is rented. Substantially all of the gross income of the Company has been and is expected to be attributable to rental income. The Company believes that all or substantially all such rents have qualified and will continue to qualify as "rents from real property" for purposes of Section 856 of the Code, but if for some reason a significant amount of such rents do not so qualify, it may be difficult or impossible for the Company to meet the 95% or 75% gross income tests and to qualify as a REIT for federal income tax purposes. In order to qualify as mortgage interest on real property for purposes of the 75% test, interest must derive from a mortgage loan secured by real property with a fair market value at least equal to the amount of the loan. If the amount of the loan exceeds the fair market value of the real property, the interest will be treated as interest on a 10 mortgage loan in a ratio equal to the ratio of the fair market value of the real property to the total amount of the mortgage loan. Any gain realized by the Company on the sale of any property held as inventory or other property held primarily for sale to customers in the ordinary course of business will be treated as income from a prohibited transaction that is subject to a penalty tax at a 100% rate. This prohibited transaction income also may have an adverse effect upon the Company's ability to satisfy the 75% and 95% gross income tests for federal income tax qualification as a REIT. Under existing law, whether property is held as inventory or primarily for sale to customers in the ordinary course of a trade or business is a question of fact that depends on all the facts and circumstances with respect to the particular transaction. The Company intends to hold its real estate assets for investment with a view to long-term appreciation, to engage in the business of developing, owning and operating its existing real estate assets and acquiring, developing, owning and operating other real estate assets, and to make occasional dispositions of real estate assets as is consistent with the Company's investment objectives. There can be no assurance, however, that the IRS might not contend that one or more dispositions is subject to the 100% penalty tax. If the Company fails to satisfy one or both of the 75% or 95% gross income tests for any taxable year, it may nevertheless qualify as a REIT for such year if (i) the Company's failure to meet such test was due to reasonable cause and not due to willful neglect, (ii) the Company reported the nature and amount of each item of its income included in the 75% or 95% gross income tests (as the case may be) for such taxable year on a schedule attached to its return, and (iii) any incorrect information on the schedule was not due to fraud with intent to evade tax. No similar provision provides relief if the Company failed the 30% gross income test for the taxable years such test was applicable, and it is not possible to state whether in all circumstances the Company would be entitled to the benefit of the relief provisions for the 75% and 95% gross income tests. As discussed above, even if these relief provisions do apply, a special tax equal to 100% is imposed upon the greater of the amount by which the Company failed the 75% test or the 95% test, multiplied by a fraction intended to reflect the Company's profitability. Asset Tests. At the close of each quarter of the Company's taxable year, it must also satisfy three tests relating to the nature of its assets. First, at least 75% of the value of the Company's total assets must consist of real estate assets (which for this purpose includes stock or debt instruments held for not more than one year purchased with proceeds of a stock offering or a long-term (at least five years) debt offering of the Company), cash, cash items, shares in other REITs, and government securities. Second, not more than 25% of the Company's total assets may be represented by securities (other than those includable in the foregoing 75% asset class). Third, of the investments included in the foregoing 25% asset class, the value of any one issuer's securities owned by the Company may not exceed 5% of the value of the Company's total assets, and the Company may not own more than 10% of any one issuer's outstanding voting securities. President Clinton has proposed legislation that would expand this last prohibition so that the Company would not be permitted to own more than 10%, either by vote or by value, of any one issuer's outstanding securities. Where a failure to satisfy the foregoing asset tests results from an acquisition of securities or other property during a quarter, the failure can be cured by disposition of sufficient nonqualifying assets within 30 days after the close of such quarter. The Company intends to maintain adequate records of the value of its assets to maintain compliance with the foregoing asset tests, and to take such action as may be required to cure any failure to satisfy the tests within 30 days after the close of any quarter. Annual Distribution Requirements. In order to qualify as a REIT, the Company is required to distribute dividends (other than capital gain dividends) to its shareholders each year in an amount at least equal to the excess of (A) the sum of (i) 95% of the Company's "real estate investment trust taxable income" (computed without regard to the dividends paid deduction and net capital gain) and (ii) 95% of the net income (after tax), if any, from foreclosure property, over (B) the sum of certain noncash income (e.g., certain imputed rental income or certain income from transactions inadvertently failing to qualify as like-kind exchanges). Such distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before the Company timely files its tax return for such earlier taxable year and if paid on or before the first regular dividend payment after such declaration. Also, dividends declared in October, November, or December and paid during the following January will be treated as having been paid and received on December 31. A distribution which is not pro rata within a class of beneficial interest in the Company entitled to a dividend, or which is not consistent with the rights to distributions between classes of beneficial interests in the Company, is a preferential dividend that is not taken into consideration for purposes of the distribution requirement, and accordingly the payment of a preferential dividend could affect the Company's ability to meet the distribution requirement. Taking into account the Company's distribution policies 11 (including its dividend reinvestment plan), the Company believes that it has not made and expects that it will not make any such preferential dividend. The distribution requirements may be waived by the IRS if the REIT establishes that it failed to meet them by reason of distributions previously made to meet the requirements of the 4% excise tax discussed below. To the extent that the Company does not distribute all of its net capital gain and all of its "real estate investment trust taxable income," as adjusted, it will be subject to tax thereon. In addition, the Company will be subject to a 4% excise tax to the extent it fails within a calendar year to make "required distributions" to its shareholders of 85% of its ordinary income and 95% of its capital gain net income plus the excess, if any, of the "grossed up required distribution" for the preceding calendar year over the amount treated as distributed for such preceding calendar year. For this purpose, the term "grossed up required distribution" for any calendar year is the sum of the taxable income of the Company for the calendar year (without regard to the deduction for dividends paid) and all amounts from earlier years that are not treated as having been distributed under the provision. It is possible that the Company, from time to time, may not have sufficient cash or other liquid assets to meet the 95% distribution requirements due to timing differences between (i) the actual receipt of income and actual payment of deductible expenses or distributions and (ii) the inclusion of such income and deduction of such expenses or distributions in arriving at "real estate investment trust taxable income" of the Company. The problem of inadequate cash to make required distributions could also occur as a result of the repayment in cash of principal amounts due on the Company's outstanding debt, particularly in the case of "balloon" repayments or as a result of capital losses on short-term investments of working capital. Therefore, the Company might find it necessary to arrange for short-term or possibly long-term borrowing, or for new equity financing, to provide funds for required distributions, or else its REIT status for federal income tax purposes could be jeopardized. There can be no assurance that such borrowing or financing would be available on favorable terms. Under certain circumstances, the Company may be able to rectify a failure to meet the distribution requirement for a year by paying "deficiency dividends" to shareholders in a later year, which may be included in the Company's deduction for dividends paid for the earlier year, although an interest charge would be imposed upon the Company for the delay in distribution. Although the Company may thus be able to avoid being taxed on amounts distributed as deficiency dividends, the Company may in certain circumstances remain liable for the 4% excise tax discussed above. For its taxable years ending on or before December 31, 1997, the Company was required to request annually from record holders of certain significant percentages of its Shares certain information regarding the ownership of such Shares, in order to qualify for the deduction for dividends paid to its shareholders. As discussed above, for taxable years commencing on or after January 1, 1998, the Company will continue to request such information in order to comply with the REIT qualification requirement regarding ownership concentration of its Shares. Federal Income Tax Treatment of Leases. The availability to the Company of, among other things, depreciation deductions with respect to the facilities owned and leased by the Company will depend upon the treatment of the Company as the owner of the facilities and the classification of the leases of the facilities as true leases, rather than as sales or financing arrangements, for federal income tax purposes. As to the approximately 2% of the Company's leased facilities which constitutes personal property, it is not entirely clear that the Company will be treated as the owner of such personal property and that the leases will be treated as true leases with respect to such property. The Company plans to insure its compliance with the 95% distribution requirement (and the excise tax "required distribution" requirement) by making distributions on the assumption that it is not entitled to depreciation deductions for the 2% of the leased facilities which constitute personal property, but to perform all its tax reporting by taking into account such depreciation. In the case of certain sale-leaseback arrangements, the IRS could assert that the Company realized prepaid rental income in the year of purchase to the extent that the value of a leased property exceeds the purchase price paid by the Company for that property. In litigated cases involving sale-leasebacks which have considered this issue, courts have concluded that buyers have realized prepaid rent where both parties acknowledged that the purported purchase price for the property was substantially less than fair market value and the purported rents were substantially less than the fair market rentals. Because of the lack of clear precedent, complete assurance cannot be given that the IRS could not successfully assert the existence of prepaid rental income. 12 Additionally, it should be noted that Section 467 of the Code (concerning leases with increasing rents) would apply to the leases because many of the leases provide for rents that increase from one period to the next. Section 467 of the Code provides that in the case of a so-called "disqualified leaseback agreement," rental income must be accrued at a constant rate. If such constant rent accrual were required, the Company could recognize rental income in excess of cash rents and, as a result, may fail to meet the 95% dividend distribution requirement. "Disqualified leaseback agreements" include leaseback transactions where a principal purpose for providing increasing rent under the agreement is the avoidance of federal income tax. Because Section 467 of the Code directs the Treasury to issue regulations providing that rents will not be treated as increasing for tax avoidance purposes where the increases are based upon a fixed percentage of lessee receipts, and because regulations proposed to be effective for "disqualified leaseback agreements" entered into after June 3, 1996 adopt this rule, the additional rent provisions of the leases generally should not cause the leases to be "disqualified leaseback agreements." In addition, the legislative history of Section 467 of the Code indicates that the Treasury should issue regulations under which leases providing for fluctuations in rents by no more than a reasonable percentage from the average rent payable over the term of the lease will be deemed not motivated by tax avoidance, and the proposed regulations permit a 10% fluctuation. Depreciation of Properties. For federal income tax purposes, the Company generally depreciates its real property on a straight-line basis over 40 years and its personal property over 12 years. Failure to Qualify. If the Company fails to qualify for federal income taxation as a REIT in any taxable year, and any potentially applicable relief provisions do not apply, the Company will be subject to tax on its taxable income at regular corporate rates (plus any applicable minimum tax). Distributions to shareholders in any year in which the Company fails to qualify will not be deductible by the Company nor will they be required to be made. In such event, to the extent of the Company's current and accumulated earnings and profits, all distributions to shareholders will be taxable as ordinary income, and subject to certain limitations in the Code will be eligible for the dividends received deduction for corporations. Unless entitled to relief under specific statutory provisions, the Company will also be disqualified from federal income taxation as a REIT for the following four taxable years. It is not possible to state whether in all circumstances the Company would be entitled to statutory relief from such disqualification. Failure to qualify for even one year could result in the Company's incurring substantial indebtedness (to the extent borrowings are feasible) or liquidating substantial investments in order to pay the resulting taxes. Taxation of U.S. Shareholders--Generally. As used herein, the term "U.S. Shareholder" means a beneficial holder of Shares that is for federal income tax purposes (i) a citizen or resident of the United States, (ii) a corporation or partnership (or other entity treated as a corporation or partnership for federal income tax purposes) created or organized in or under the laws of the United States or of any political subdivision thereof (unless otherwise provided by Treasury Regulations), (iii) an estate the income of which is subject to federal income taxation regardless of its source, or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust (or certain electing trusts in existence on August 20, 1996 to the extent provided in Treasury Regulations). As used herein, the term "Non-U.S. Shareholder" means a beneficial holder of Shares that is not a U.S. Shareholder. As long as the Company qualifies as a REIT for federal income tax purposes, distributions (including reinvestments pursuant to the Company's dividend reinvestment plan) made to the Company's U.S. Shareholders out of current or accumulated earnings and profits will be taken into account by them as ordinary income (but will not be eligible for the dividends received deduction for corporations). Distributions that are properly designated by the Company as capital gain dividends will be taxed as long-term capital gains (as discussed below) to the extent they do not exceed the Company's actual net capital gain for the taxable year, although corporate U.S. Shareholders may be required to treat up to 20% of any such capital gain dividend as ordinary income pursuant to Section 291 of the Code. For the Company's taxable years commencing on or after January 1, 1998, the Company may elect to retain amounts representing its net capital gain income. In that case, the Company will be taxed at regular corporate capital gains tax rates on such amounts, each U.S. Shareholder will be taxed on its proportionate share of the net capital gains retained by the Company as though such amount were distributed and designated a capital gain dividend, and each such U.S. Shareholder will receive a credit for a proportionate share of the tax paid by the Company. Additionally, each U.S. Shareholder will increase the adjusted basis in its Shares by the excess of the amount of its proportionate share of these net capital gains over its proportionate share of the tax paid by the Company, and both the Company and its corporate U.S. Shareholders will make commensurate adjustments in their 13 respective earnings and profits for federal income tax purposes. If the Company should elect to retain its net capital gain in this fashion, it will notify each U.S. Shareholder of the relevant tax information within 60 days after the close of the Company's taxable year. For certain noncorporate U.S. Shareholders, long-term capital gains taken into account after May 7, 1997 are taxed at varying maximum rates of 20%, 25%, or 28%, depending upon the type of property disposed of and the holding period in such property at the time of disposition. If the Company designates a dividend as a capital gain dividend for any taxable year of the Company ending after May 7, 1997 (or elects to retain a portion of its net capital gain and have such amount treated as a distributed and designated capital gain dividend in the manner described above), the Company may also designate the portion of such capital gain dividend which is taxed to certain noncorporate U.S. Shareholders at the varying maximum rates of 20%, 25%, or 28%, based upon the type and holding period of the property disposed of by the Company. If the Company does not make such a designation, the entire capital gain dividend will be treated as long-term capital gain subject to the maximum 28% rate to the noncorporate U.S. Shareholders (without regard to the period for which the U.S. Shareholder held its Shares). For purposes of computing the Company's earnings and profits, depreciation on real estate is generally computed on a straight-line basis over 40 years. Distributions in excess of current or accumulated earnings and profits will not be taxable to a U.S. Shareholder to the extent that they do not exceed the adjusted basis of the U.S. Shareholder's Shares, but will reduce the U.S. Shareholder's basis in such Shares. To the extent that such distributions exceed the adjusted basis of a U.S. Shareholder's Shares, they will be included in income as long-term capital gain (or short-term capital gain if the shares have been held for not more than one year), with such long-term gain taxed to certain noncorporate U.S. Shareholders at varying maximum rates of 20% or 28% depending upon the U.S. Shareholder's holding period in the Shares. U.S. Shareholders may not include in their respective income tax returns any net operating losses or capital losses of the Company. Dividends declared by the Company in October, November or December of a taxable year to shareholders of record on a date in such month, will be deemed to have been received by such shareholders on December 31, provided the Company actually pays such dividends during the following January. For tax purposes, the Company's dividends paid in 1987, 1988, 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996 and 1997 aggregated $1.085, $.840, $1.13, $1.16, $1.22, $1.25, $1.29, $1.32, $1.37, $1.41 and $1.45 respectively, of which $.289, $.065, $.332, $.267, $.104, $.218, $.335, $.081, $.161, $.350 and $.252, respectively, represented a return of capital. The sale or exchange of Shares will result in recognition of gain or loss to the U.S. Shareholder in an amount equal to the difference between the amount realized and its adjusted basis in the Shares sold or exchanged. Such a gain or loss will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Shareholder's holding period in the Shares exceeded one year. Long-term capital gains may be taxed to certain noncorporate U.S. Shareholders at varying maximum rates of 20% or 28% depending upon the U.S. Shareholder's holding period in the Shares. In addition, any loss upon a sale or exchange of Shares by a U.S. Shareholder who has held such Shares for not more than six months (after applying certain rules), will generally be treated as a long-term capital loss to the extent of distributions from the Company required to be treated by such U.S. Shareholders as long-term capital gain (including, for this purpose, amounts constructively distributed as long-term capital gain by the Company electing to retain its net capital gain in the manner described above). U.S. Shareholders (other than certain corporations) who borrow funds to finance their acquisition of Shares in the Company could be limited in the amount of deductions allowed for the interest paid on the indebtedness incurred in such an arrangement. Under Section 163(d) of the Code, interest paid or accrued on indebtedness incurred or continued to purchase or carry property held for investment is generally deductible only to the extent of the investor's net investment income. A U.S. Shareholder's net investment income will include dividend distributions and, if an appropriate election is made, capital gain dividend distributions it receives from the Company; however, distributions treated as a nontaxable return of the U.S. Shareholder's basis will not enter into the computation of net investment income. Under Section 469 of the Code, U.S. Shareholders (other than certain corporations) generally will not be entitled to deduct losses from so-called passive activities except to the extent of their income from passive activities. For purposes of these rules, distributions received by a U.S. Shareholder from the Company will not be treated as income from a passive activity and thus will not be available to offset a U.S. Shareholder's passive activity losses. Tax preference and other items which are treated differently for regular and alternative minimum tax purposes are to be allocated between a REIT and its shareholders under regulations which are to be prescribed. It is 14 possible that these regulations would require tax preference items to be allocated to the Company's shareholders with respect to any accelerated depreciation claimed by the Company; however, the Company has not claimed accelerated depreciation with respect to its existing properties. Taxation of Certain Tax-Exempt U.S. Shareholders. In Revenue Ruling 66-106, the IRS ruled that amounts distributed by a REIT to a tax-exempt employees' pension trust did not constitute "unrelated business taxable income," even though the REIT may have financed certain of its activities with acquisition indebtedness. Although Revenue Rulings are interpretive in nature and subject to revocation or modification by the IRS, based upon Revenue Ruling 66-106 and the analysis therein, distributions made by the Company to U.S. Shareholders that are qualified pension plans (including individual retirement accounts) or certain other tax-exempt entities should not constitute unrelated business taxable income, unless such U.S. Shareholder has financed the acquisition of its Shares with "acquisition indebtedness" within the meaning of the Code, or the Shares are otherwise used in an unrelated trade or business conducted by the U.S. Shareholder. Special rules apply to certain tax-exempt pension trusts (including so-called 401(k) plans but excluding individual retirement accounts or government pension plans) that own more than 10% by value of a "pension-held REIT" at any time during a taxable year commencing after December 31, 1993. Such a pension trust may be required to treat a certain percentage of all dividends received from the pension-held REIT during the year as unrelated business taxable income. Such percentage is equal to the ratio of the pension-held REIT's gross income (less direct expenses related thereto) derived from the conduct of unrelated trades or businesses (determined as if the pension-held REIT were a tax-exempt pension fund), to the pension-held REIT's gross income (less direct expenses related thereto) from all sources, except that such percentage shall be deemed to be zero unless it would otherwise equal or exceed 5%. A REIT will be treated as a pension-held REIT only if (i) the REIT is "predominantly held" by tax-exempt pension trusts, and (ii) the REIT would otherwise fail to satisfy the "closely held" ownership conditiondiscussed above if the stock or beneficial interests in the REIT held by such tax-exempt pension trusts were viewed as held by such tax-exempt pension trusts rather than their respective beneficiaries. A REIT is predominantly held by tax-exempt pension trusts if at least one tax-exempt pension trust holds more than 25% by value of the REIT's stock or beneficial interests, or if one or more tax-exempt pension trusts (each owning more than 10% by value of the REIT's stock or beneficial interests) own in the aggregate more than 50% by value of the REIT's stock or beneficial interests. Given the restrictions in its Declaration regarding ownership of its Shares, the Company believes that it has not been, and expects that it will not be, a pension-held REIT. However, because the Shares of the Company will be publicly traded, no assurance can be given that the Company will not become a pension-held REIT. Taxation of Non-U.S. Shareholders. The rules governing the federal income taxation of Non-U.S. Shareholders (generally, nonresident alien individuals, foreign corporations, foreign partnerships, and foreign trusts and estates) are highly complex, and the following discussion is intended only as a summary of such rules. Non- U.S. Shareholders should consult with their own tax advisors to determine the impact of federal, state, local, and foreign tax laws, including any reporting requirements, with respect to their investment in the Company. In general, a Non-U.S. Shareholder will be subject to regular federal income tax in the same manner as a U.S. Shareholder with respect to its investment in Shares if such investment is "effectively connected" with the Non-U.S. Shareholder's conduct of a trade or business in the United States. In addition, a corporate Non-U.S. Shareholder that receives income that is (or is deemed) effectively connected with a trade or business in the United States may also be subject to the 30% branch profits tax under Section 884 of the Code, which is payable in addition to regular federal corporate income tax. The following discussion addresses only Non-U.S. Shareholders whose investment in Shares is not effectively connected with the conduct of a trade or business in the United States. A distribution by the Company to a Non-U.S. Shareholder that is not attributable to gain from the sale or exchange by the Company of a United States real property interest and that is not designated by the Company as a capital gain dividend will be treated as an ordinary income dividend to the extent that it is made out of current or accumulated earnings and profits. Generally, such a dividend will be subject to federal income withholding tax on the gross amount thereof at the rate of 30%, or such lower rate that may be specified by treaty if the Non-U.S. Shareholder has in the manner prescribed by the IRS demonstrated to the Company its entitlement to treaty benefits. A distribution of cash in excess of the Company's earnings and profits will be treated first as a nontaxable return of capital that will reduce a Non-U.S. Shareholder's basis in its Shares (but not below zero) and then as gain from the disposition of such Shares, the tax treatment of which is discussed below. A distribution in excess of the Company's earnings and profits may be subject to 30% (or lower treaty rate) withholding if at the time of the distribution it cannot be determined whether the distribution will be in an amount in excess of the Company's current and 15 accumulated earnings and profits. If it is subsequently determined that such distribution is, in fact, in excess of current and accumulated earnings and profits, the Non-U.S. Shareholder may seek a refund from the IRS. The Company expects to withhold federal income withholding tax at the rate of 30% on the gross amount of any distributions on Shares made to a Non-U.S. Shareholder unless a lower tax treaty applies and the required IRS form evidencing eligibility for that reduced rate is filed with the Company. For any year in which the Company qualifies as a REIT, distributions by the Company that are attributable to gain from the sale or exchange of a United States real property interest are taxed to a Non-U.S. Shareholder as if such distributions were gains "effectively connected" with a trade or business in the United States conducted by the Non-U.S. Shareholder. Accordingly, a Non-U.S. Shareholder will be taxed on such amounts at the normal capital gain rates applicable to a U.S. Shareholder (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). Such distributions may also be subject to a 30% branch profits tax under Section 884 of the Code in the hands of a corporate Non-U.S. Shareholder that is not entitled to treaty relief or exemption. The Company will be required to withhold from distributions to Non-U.S. Shareholders, and remit to the IRS, 35% of the maximum amount of any distribution that could be designated as a capital gain dividend. In addition, for purposes of this withholding rule, if the Company designates prior distributions as capital gain distributions, then subsequent distributions, up to the amount of such prior distributions, will be treated as capital gain dividends. The amount of any tax withheld is creditable against the Non-U.S. Shareholder's federal income tax liability, and any amount of tax withheld in excess of that tax liability may be refunded provided that an appropriate claim for refund is filed with the IRS. Tax treaties may reduce the Company's withholding obligations. Under certain treaties, however, rates below 30% generally applicable to dividends from United States corporations may not apply to dividends from a REIT. If the amount of tax withheld by the Company with respect to a distribution to a Non-U.S. Shareholder exceeds such shareholder's federal income tax liability with respect to such distribution, the Non-U.S. Shareholder may file for a refund of such excess from the IRS. In this regard, it should be noted that the 35% withholding tax rate on capital gain dividends corresponds to the maximum income tax rate applicable to corporate Non-U.S. Shareholders but is higher than the 20%, 25%, and 28% maximum rates on capital gains generally applicable to noncorporate Non-U.S. Shareholders. Treasury Regulations issued on October 6, 1997 (the "New Regulations") alter the withholding rules on dividends paid to a Non-U.S. Shareholder, generally effective with respect to dividends paid after December 31, 1998. Under the New Regulations, to obtain a reduced rate of withholding under an income tax treaty, a Non-U.S. Shareholder generally will be required to provide an Internal Revenue Service Form W-8 certifying such Non-U.S. Shareholder's entitlement to benefits under the treaty. The New Regulations also provide special rules to determine whether, for purposes of determining the applicability of a tax treaty, dividends paid to a Non-U.S. Shareholder that is an entity should be treated as paid to the entity or to those holding an interest in that entity, and whether such entity or such holders in the entity are entitled to benefits under the tax treaty. The New Regulations also alter the information reporting and backup withholding rules applicable to Non- U.S. Shareholders and, among other things, provide certain presumptions under which a Non-U.S. Shareholder is subject to backup withholding and information reporting until the Company receives certification from such shareholder of its Non-U.S. Shareholder status. If the Shares fail to constitute a "United States real property interest" within the meaning of Section 897 of the Code, gain on sale of the Shares by a Non-U.S. Shareholder generally will not be subject to federal income taxation unless (i) investment in the Shares is effectively connected with the Non-U.S. Shareholder's United States trade or business, in which case, as discussed above, the Non-U.S. Shareholder would be subject to the same treatment as U.S. Shareholders on such gain, or (ii) the Non-U.S. Shareholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year, in which case the nonresident alien individual will be subject to a 30% tax on such gain. The Shares will not constitute a United States real property interest if the Company is a "domestically controlled REIT." A domestically controlled REIT is a REIT in which at all times during the preceding five-year period less than 50% in value of its shares is held directly or indirectly by foreign persons. It is believed that the Company has been and will continue to be a domestically controlled REIT, and therefore that the sale of Shares by a Non-U.S. Shareholder will not be subject to federal income taxation. However, because the Shares are publicly traded, no assurance can be given that the Company has been and will continue to be a domestically controlled REIT. If the Company is not a domestically controlled REIT, whether a Non-U.S. Shareholder's gain on sale of Shares would be subject to federal income tax as a sale of a United States real property interest would depend upon whether the Shares were "regularly traded" (as defined by applicable Treasury Regulations) on an established 16 securities market (e.g., the New York Stock Exchange, on which the Shares are listed) and upon the size of the selling Non-U.S. Shareholder's interest in the Company. If the gain on the sale of the Shares were subject to federal income taxation, the Non-U.S. Shareholder would be subject to the same treatment as a U.S. Shareholder with respect to such gain (subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). In any event, a purchaser of Shares from a Non-U.S. Shareholder will not be required to withhold on the purchase price if the purchased Shares are "regularly traded" on an established securities market or if the Company is a domestically controlled REIT. Otherwise, the purchaser of Shares may be required to withhold 10% of the purchase price paid to the Non-U.S. Shareholder and to remit such amount to the IRS. Shares owned or treated as owned by an individual who is not a citizen or resident (as defined for United States federal estate tax purposes) of the United States at the time of death will be includable in the individual's gross estate for United States federal estate tax purposes unless an applicable estate tax treaty provides otherwise. Backup Withholding and Information Reporting Requirements. The Company will report to its U.S. Shareholders and to the IRS the amount of dividends paid during each calendar year and the amount of tax withheld, if any. Under the backup withholding rules, a U.S. Shareholder may be subject to backup withholding at the rate of 31% with respect to dividends paid unless the U.S. Shareholder (a) is a corporation or comes within certain other exempt categories and, when required, demonstrates that fact or (b) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding rules and otherwise complies with applicable requirements of the backup withholding rules. A U.S. Shareholder that does not provide the Company with its correct taxpayer identification number may be subject to penalties imposed by the IRS. In addition, the Company may be required to withhold a portion of capital gain distributions to any U.S. Shareholder that fails to certify its non-foreign status to the Company. Any amounts withheld under the foregoing rules will be creditable against the U.S. Shareholder's federal income tax liability provided that the required information is furnished to the IRS. The Company will report to its Non-U.S. Shareholders and to the IRS the amount of dividends paid during each calendar year and the amount of tax withheld, if any. These information reporting requirements apply regardless of whether withholding was reduced or eliminated by an applicable tax treaty. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities in the country in which the Non-U.S. Shareholder resides. As discussed above, withholding tax rates of 30% and 35% may apply to distributions on Shares to Non-U.S. Shareholders, and the New Regulations will when effective alter the information reporting and withholding rules applicable to Non-U.S. Shareholders. Among other things, the New Regulations provide certain presumptions under which a Non-U.S. Shareholder would be subject to backup withholding and information reporting until the Company receives certification from such shareholder of its Non-U.S. Shareholder status. As noted, the New Regulations are generally effective with respect to dividends paid after December 31, 1998. The payment of the proceeds from the disposition of Shares to or through the United States office of a broker will generally be subject to information reporting and backup withholding at a rate of 31% unless the owner, under penalties of perjury, certifies, among other things, its status as a Non-U.S. Shareholder, or otherwise establishes an exemption. The payment of the proceeds from the disposition of Shares to or through a non-United States office of a broker generally will not be subject to backup withholding and information reporting. In the case of proceeds from a disposition of Shares paid to or through a non-United States office of a United States broker or paid to or through a non-United States office of a non-United States broker that is (i) a "controlled foreign corporation" for federal income tax purposes or (ii) a person 50% or more of whose gross income from all sources for a certain three-year period was effectively connected with a United States trade or business, (a) backup withholding will not apply unless the broker has actual knowledge that the owner is not a Non-U.S. Shareholder, and (b) information reporting will not apply if the broker has documentary evidence in its files that the beneficial owner is a Non-U.S. Shareholder unless the broker has actual knowledge to the contrary. Under the New Regulations (generally effective for payments made after December 31, 1998), in the case of proceeds from a disposition of Shares paid to or though a non-United States office of a United States broker or paid to or through a non-United States office of a non-United States broker that is (i) a "controlled foreign corporation" for federal income tax purposes, (ii) a person 50% or more of whose gross income from all sources for a certain three-year period was effectively connected with a United States trade or business, (iii) a foreign partnership with one or more partners who are United States persons and who in the aggregate hold more than 50% of the income or capital interest in the partnership, or (iv) a foreign partnership engaged in the conduct of a trade or business in the United States, (a) backup withholding will not apply unless the broker has actual knowledge that the owner is not a Non-U.S. Shareholder, and (b) information reporting will not apply if the Non-U.S. Shareholder certifies its status as a Non- 17 U.S. Shareholder and further certifies that it has not been, and at the time the certificate is furnished reasonably expects not to be, present in the United States for a period aggregating 183 days or more during each calendar year to which the certification pertains. Any amounts withheld from a payment to a Non-U.S. Shareholder will generally be refunded (or credited against the Non-U.S. Shareholder's United States federal income tax liability, if any), provided that the required information is furnished to the IRS. Other Tax Considerations. Holders of Shares should recognize that the present federal income tax treatment of the Company may be modified by future legislative, judicial, or administrative actions at any time, which may be retroactive in effect, and, as a result, any such action or decision may affect investments and commitments previously made. The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the Treasury Department, resulting in statutory changes as well as promulgation of new regulations, revisions to existing regulations, and revised interpretations of established concepts. No prediction can be made as to the likelihood of passage of any new tax legislation or other provisions either directly or indirectly affecting the Company or its shareholders. Revisions in federal income tax laws and interpretations thereof could adversely affect the tax consequences of investment in the Shares. The Company and its shareholders may also be subject to state or local taxation in various state or local jurisdictions, including those in which it or they transact business or reside. The state and local tax treatment of the Company and its shareholders may not conform to the federal income tax consequences discussed above. Consequently, holders should consult their own tax advisors regarding the effect of state and local tax laws on an investment in the Shares. THE FOREGOING IS A SUMMARY DESCRIPTION OF CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE TAXATION OF THE COMPANY AND ITS SHAREHOLDERS, WITHOUT CONSIDERATION OF THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY PARTICULAR SHAREHOLDER. IN PARTICULAR, IT DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE TAXATION OF THE COMPANY AND ITS SHAREHOLDERS. THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THE DISCUSSION. THE COMPANY AND ITS SHAREHOLDERS MAY ALSO BE SUBJECT TO STATE OR LOCAL TAXATION IN VARIOUS STATE OR LOCAL JURISDICTIONS, INCLUDING THOSE IN WHICH IT OR THEY TRANSACT BUSINESS OR RESIDE. EACH HOLDER OF SHARES OF THE COMPANY SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE TAXATION OF THE COMPANY AND ITS SHAREHOLDERS, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS. ERISA PLANS, KEOGH PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS General Fiduciary Obligations. Fiduciaries of a pension, profit-sharing or other employee benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974 ("ERISA") ("ERISA Plan") must consider whether their investment in the Company's Shares satisfies the diversification requirements of ERISA, whether the investment is prudent in light of possible limitations on the marketability of the Shares, whether such fiduciaries have authority to acquire such Shares under the appropriate governing instrument and Title I of ERISA, and whether such investment is otherwise consistent with their fiduciary responsibilities. Any ERISA Plan fiduciary should also consider ERISA's prohibition on improper delegation of control over or responsibility for "plan assets." Trustees and other fiduciaries of an ERISA plan may incur personal liability for any loss suffered by the plan on account of a violation of their fiduciary responsibilities. In addition, such fiduciaries may be subject to a civil penalty of up to 20% of any amount recovered by the plan on account of such a violation (the "Fiduciary Penalty"). Fiduciaries of any Individual Retirement Account ("IRA") Keogh Plan or other qualified retirement plan not subject to Title I of ERISA because it does not cover common law employees ("Non-ERISA Plan") should consider that such an IRA or non-ERISA Plan may only make investments that are authorized by the appropriate governing instrument. Fiduciary shareholders should consult their own legal advisers if they have any concern as to whether the investment is inconsistent with any of the foregoing criteria. 18 Prohibited Transactions. Fiduciaries of ERISA Plans and persons making the investment decision for an IRA or other Non-ERISA Plan should also consider the application of the prohibited transaction provisions of ERISA and the Code in making their investment decision. Sales and certain other transactions between an ERISA Plan, IRA, or other Non-ERISA Plan and certain persons related to it are prohibited transactions. The particular facts concerning the sponsorship, operations and other investments of an ERISA Plan, IRA, or other Non-ERISA Plan may cause a wide range of other persons to be treated as disqualified persons or parties in interest with respect to it. A prohibited transaction, in addition to imposing potential personal liability upon fiduciaries of ERISA Plans, may also result in the imposition of an excise tax under the Code or a penalty under ERISA upon the disqualified person or party in interest with respect to the ERISA or Non-ERISA Plan or IRA. If the disqualified person who engages in the transaction is the individual on behalf of whom an IRA is maintained (or his beneficiary), the IRA may lose its tax-exempt status and its assets may be deemed to have been distributed to such individual in a taxable distribution (and no excise tax will be imposed) on account of the prohibited transaction. Fiduciary shareholders should consult their own legal advisers if they have any concern as to whether the investment is a prohibited transaction. Special Fiduciary and Prohibited Transactions Considerations. The Department of Labor ("DOL"), which has certain administrative responsibility over ERISA Plans as well as over IRAs and other Non-ERISA Plans, has issued a regulation defining "plan assets." The regulation generally provides that when an ERISA or Non-ERISA Plan or IRA acquires a security that is an equity interest in an entity and that security is neither a "publicly offered security" nor a security issued by an investment company registered under the Investment Company Act of 1940, the ERISA or Non-ERISA Plan's or IRA's assets include both the equity interest and an undivided interest in each of the underlying assets of the entity, unless it is established either that the entity is an operating company or that equity participation in the entity by benefit plan investors is not significant. The regulation defines a publicly offered security as a security that is "widely held," "freely transferable" and either part of a class of securities registered under the Securities Exchange Act of 1934, or sold pursuant to an effective registration statement under the Securities Act of 1933 (provided the securities are registered under the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year of the issuer during which the offering occurred). The Shares have been registered under the Securities Exchange Act of 1934. The regulation provides that a security is "widely held" only if it is part of a class of securities that is owned by 100 or more investors independent of the issuer and of one another. However, a security will not fail to be "widely held" because the number of independent investors falls below 100 subsequent to the initial public offering as a result of events beyond the issuer's control. The regulation provides that whether a security is "freely transferable" is a factual question to be determined on the basis of all relevant facts and circumstances. The regulation further provides that, where a security is part of an offering in which the minimum investment is $10,000 or less, certain restrictions ordinarily will not, alone or in combination, affect a finding that such securities are freely transferable. The restrictions on transfer enumerated in the regulation as not affecting that finding include: any restriction on or prohibition against any transfer or assignment which would result in a termination or reclassification of the Company for Federal or state tax purposes, or would otherwise violate any state or Federal law or court order; any requirement that advance notice of a transfer or assignment be given to the Company and any requirement that either the transferor or transferee, or both, execute documentation setting forth representations as to compliance with any restrictions on transfer which are among those enumerated in the regulation as not affecting free transferability, including those described in the preceding clause of this sentence; any administrative procedure which establishes an effective date, or an event prior to which a transfer or assignment will not be effective; and any limitation or restriction on transfer or assignment which is not imposed by the issuer or a person acting on behalf of the issuer. The Company believes that the restrictions imposed under the Declaration on the transfer of Shares do not result in the failure of the Shares to be "freely transferable." Furthermore, the Company believes that at present there exist no other facts or circumstances limiting the transferability of the Shares which are not included among those enumerated as not affecting their free transferability under the regulation, and the Company does not expect or intend to impose in the future (or to permit any person to impose on its behalf) any limitations or restrictions on transferwhich would not be among the enumerated permissible limitations or restrictions. However, the final regulation only establishes a presumption in favor of a finding of free transferability, and no guarantee can be given that the DOL or the Treasury Department will not reach a contrary conclusion. 19 Assuming that the Shares will be "widely held" and that no other facts and circumstances exist which restrict transferability of the Shares, the Company has received an opinion of counsel that the Shares should not fail to be "freely transferable" for purposes of the regulation due to the restrictions on transfer of the Shares under the Declaration and that under the regulation the Shares are publicly offered securities and the assets of the Company will not be deemed to be "plan assets" of any ERISA Plan, IRA or other Non-ERISA Plan that invests in the Shares. If the assets of the Company are deemed to be plan assets under ERISA, (i) the prudence standards and other provisions of Part 4 of Title I of ERISA would be applicable to investments made by the Company; (ii) the person or persons having investment discretion over the assets of ERISA Plans which invest in the Company would be liable under the aforementioned Part 4 of Title I of ERISA for investments made by the Company which do not conform to such ERISA standards unless the Advisor registers as an investment adviser under the Investment Advisers Act of 1940 and certain other conditions are satisfied; and (iii) certain transactions that the Company might enter into in the ordinary course of its business and operation might constitute "prohibited transactions" under ERISA and the Code. Item 2. Properties General. At December 31, 1997, approximately 14% of the Company's total investments were in long-term care facilities, 32% were in medical and other office buildings and clinics, 20% were in government office buildings, 21% were in retirement and assisted living communities, 8% were in nursing homes with subacute services and 5% were in hotels through the Company's equity investment in HPT. The Company believes that the physical plant of each of the facilities in which it has invested is suitable and adequate for its present and any currently proposed uses. At December 31, 1997, the Company had real estate investments totaling $2.1 billion (at cost) in 217 properties that were leased to or operated by over approximately 350 tenants or mortgagors, plus a 10.3% investment of approximately $111.1 million (carrying value) through HPT in 119 additional properties. 20 The following table summarizes certain information about the Properties as of December 31, 1997. All dollar figures are in thousands.
REAL ESTATE OWNED: Number of Number of Investment Minimum Location Facilities Beds/Units Amount Rent/Interest (1) - ---------------------------------------------------------------------------------------------------------------------------------- Retirement and Assisted Living Facilities: Arizona 3 481 $ 36,642 $ 3,061 California 1 402 31,791 3,319 Florida 5 1,527 131,989 9,986 Illinois 2 704 98,743 7,490 Maryland 1 351 33,080 4,054 New York 1 103 10,700 1,017 South Dakota 1 59 1,014 127 Texas 1 145 12,411 1,213 Virginia 3 848 57,662 5,817 Washington 1 200 14,350 1,363 Long-Term Care Facilities: Arizona 3 320 6,220 821 California 9 1,140 27,105 4,716 Colorado 9 1,011 34,351 4,561 Connecticut 5 867 42,821 5,184 Georgia 4 401 12,307 1,352 Illinois 1 230 2,711 452 Iowa 7 375 8,205 941 Kansas 1 59 1,320 157 Missouri 2 215 3,788 572 Nebraska 1 80 1,934 229 New Hampshire 1 108 3,689 430 New Jersey 1 150 13,007 1,418 Ohio 2 400 9,872 1,283 South Dakota 2 302 6,575 855 Vermont 8 808 29,766 3,316 Washington 1 143 5,193 642 Wisconsin 7 920 31,680 5,118 Wyoming 3 243 7,247 825 Long-Term Care Facilities with Subacute Services: Connecticut 4 660 51,290 6,470 Massachusetts 5 762 82,059 10,044 Pennsylvania 1 120 15,598 1,951 Medical and Other Office Buildings and Clinics: California 13 -- 179,949 20,324 Colorado 1 -- 14,403 1,435 District of Columbia 2 -- 44,530 6,949 Maryland 1 -- 12,517 2,875 Massachusetts 25 -- 120,957 14,446 New York 3 -- 130,831 14,306 Pennsylvania 6 -- 108,799 13,740 Rhode Island 1 -- 8,100 750 Texas 5 -- 78,562 9,242 Virginia 1 -- 5,757 997 Government Office Buildings: Alaska 1 -- 1,000 490 Arizona 3 -- 21,628 2,692 California 4 -- 65,141 8,480 Colorado 1 -- 3,680 1,361 District of Columbia 2 -- 100,594 13,959 21 Number of Number of Investment Minimum Location Facilities Beds/Units Amount Rent/Interest (1) - ---------------------------------------------------------------------------------------------------------------------------------- Georgia 1 -- 2,874 447 Kansas 1 -- 5,701 1,432 Maryland 4 -- 102,064 13,052 Missouri 1 -- 7,636 934 New Mexico 2 -- 10,813 1,255 New York 1 -- 23,317 2,684 Oklahoma 1 -- 24,426 3,062 Texas 2 -- 16,411 3,500 Virginia 1 -- 18,284 2,118 Washington 2 -- 21,005 2,421 West Virginia 1 -- 4,792 624 Wyoming 1 -- 10,132 1,250 --------------------------------------------------------------------------- Total Real Estate 183 14,134 $1,969,023 $233,609 --------------------------------------------------------------------------- MORTGAGE AND NOTE INVESTMENTS: Retirement and Assisted Living Facilities: California 3 389 $ 8,408 $ 978 Florida 1 248 5,000 525 North Carolina 3 345 11,472 1,381 Long-Term Care Facilities: California 1 299 6,242 821 Kansas 2 177 523 166 Michigan 1 153 4,239 524 Nebraska 9 610 8,799 871 North Carolina 3 294 4,472 489 Ohio* 2 338 7,840 1,095 Pennsylvania 1 120 2,890 358 Texas 4 390 5,251 480 Wisconsin 2 339 12,349 1,480 Long-Term Care Facilities with Subacute Services: Connecticut -- -- 2,365 224 Louisiana 1 118 19,185 2,293 Michigan 1 189 5,028 622 Medical Office Buildings: California* -- -- 225 19 --------------------------------------------------------------------------- Total Mortgages and Notes 34 4,009 $104,288 $ 12,326 --------------------------------------------------------------------------- * Amounts represent or include notes receivable related to improvements to real estate owned. (1) Amounts represent obligations due to the Company for properties owned during the 12 months ended December 31, 1997 and annualized obligations due to the Company for properties acquired during 1997, at December 31, 1997.
Item 3. Legal Proceedings As previously disclosed, in early 1995 the Company commenced an action in Florida state court to collect on a secured indemnity agreement from a former tenant and mortgagor, together with certain related parties (collectively, the "Former Tenant"). In May 1995 the Former Tenant filed a counterclaim and third-party complaint against the Company and others including Messrs. Martin and Portnoy, Advisor and Sullivan & Worcester LLP, seeking, among other things, to set aside the indemnity agreement and to recover substantial damages. After a Massachusetts state court ordered the dispute to arbitration and a Florida court stayed further proceedings pending arbitration, the Former Tenant brought a separate action against the Company in the Federal District Court in Massachusetts and realleged many of the same allegations made in the counterclaims and third-party complaints 22 previously brought by them in response to the Company's original action, and adding allegations of violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and violations of 18 U.S.C ss. 1962 (RICO). In September 1996, the Federal Court in Massachusetts ordered the case brought by the Former Tenant dismissed and all disputes between the Former Tenant and the Company referred to arbitration. The arbitration is proceeding. The amounts of damages claimed by the Former Tenant and creditors or assignees of the former Tenant are material. The Company is pursuing its indemnity claims against the Former Tenant and is defending the claims of the Former Tenant in the arbitration proceedings. The Company intends to defend itself in related actions brought and which may be brought, to attempt to consolidate these cases in the pending arbitration proceeding or otherwise to pursue such claims and rights which it may have. The outcome of these pending claims and proceedings cannot be predicted. The Declaration of Trust provides that Trustees, officers, employees and agents of the Company shall be indemnified by the Company against any losses, judgments, liabilities, expenses and amounts paid in settlement of any claims asserted against them by reason of their status, provided that such claims were not the result of willful misfeasance, bad faith, gross negligence or reckless disregard of duty. Were Messrs. Martin and Portnoy to be held liable in the proceedings described above, they may therefore have a claim for indemnification from the Company. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of shareholders during the fourth quarter of the year covered by this Annual Report on Form 10-K. PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters The Company's Shares are traded on the New York Stock Exchange (symbol: HRP). The following table sets forth for the periods indicated the high and low sale prices for the Shares as reported in the New York Stock Exchange Composite Transactions reports. High Low ---- --- 1996 First Quarter $ 17 3/8 16 Second Quarter 17 7/8 16 3/8 Third Quarter 18 1/8 16 3/8 Fourth Quarter 19 1/4 17 3/4 1997 First Quarter 20 5/8 18 Second Quarter 19 17 3/4 Third Quarter 19 1/8 17 5/8 Fourth Quarter 20 5/16 18 9/16 The closing price of the Shares on the New York Stock Exchange on March 5, 1998 was $19.6875. As of January 22, 1998, there were approximately 5,711 holders of record of the Shares and the Company estimates that as of such date there were in excess of 120,000 beneficial owners of the Shares. 23 Dividends declared with respect to each period for the two most recent fiscal years and the amount of such dividends and the respective annualized rates are set forth in the following table. Dividend Annualized Per Share Dividend Rate --------- ------------- 1996 First Quarter $.35 $1.40 Second Quarter .35 1.40 Third Quarter .36 1.44 Fourth Quarter .36 1.44 1997 First Quarter .36 1.44 Second Quarter .36 1.44 Third Quarter .37 1.48 Fourth Quarter .37 1.48 All dividends declared have been paid. The Company intends to continue to declare and pay future dividends on a quarterly basis. In order to qualify for the beneficial tax treatment accorded to REITs by Sections 856 through 860 of the Code, the Company is required to make distributions to shareholders which annually will be at least 95% of the Company's "real estate investment trust taxable income" (as defined in the Code). All distributions will be made by the Company at the discretion of the Trustees and will depend on the earnings of the Company, the cash flow available for distribution, the financial condition of the Company and such other factors as the Trustees deems relevant. The Company has in the past distributed, and intends to continue to distribute, substantially all of its "real estate investment trust taxable income" to its shareholders. 24 Item 6. Selected Financial Data Set forth below are selected financial data for the Company for the periods and dates indicated. This data should be read in conjunction with, and is qualified in its entirety by reference to, the financial statements and accompanying notes included in Item 7 of the Company's Current Report on Form 8-K dated February 27, 1998. Amounts are in thousands, except per Share information.
Income Statement Data: Year Ended December 31, ------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------------------------------------------------------------------------- Total revenues $208,863 $120,183 $113,322 $ 86,683 $ 56,485 Income before gain (loss) on sale of properties and extraordinary items 112,204 77,164 61,760 57,878 37,738 Income before extraordinary items 115,102 77,164 64,236 51,872 37,738 Net income 114,000 73,254 64,236 49,919 33,417 Funds from operations (1) 146,312 99,106 84,638 71,851 46,566 Dividends declared (2) 144,271 94,299 83,954 76,317 44,869 Basic earnings per common share amounts: Income before gain (loss) on sale of properties and extraordinary items 1.22 1.16 1.04 1.10 1.10 Income before extraordinary items 1.25 1.16 1.08 .98 1.10 Net income 1.24 1.11 1.08 .95 .97 Funds from operations (1) 1.59 1.50 1.43 1.36 1.35 Dividends declared (2) 1.46 1.42 1.38 1.33 1.30 Weighted average shares outstanding 92,168 66,255 59,227 52,738 34,407 Balance Sheet Data: At December 31, ----------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ----------------------------------------------------------------------------------- Real estate properties, at cost $1,969,023 $1,005,739 $ 778,211 $ 673,083 $ 384,811 Real estate mortgages and notes 104,288 150,205 141,307 133,477 157,281 Investment in HPT 111,134 103,062 99,959 -- -- Total assets 2,135,963 1,229,522 999,677 840,206 527,662 Total indebtedness 787,879 492,175 269,759 216,513 73,000 Total shareholders' equity 1,266,260 708,048 685,592 602,039 441,135 (1) The Company's Funds From Operations ("FFO") represents net income (computed in accordance with generally accepted accounting principals ("GAAP")), before gain or loss on sale of properties and extraordinary items, depreciation and other non-cash items and includes HRP's pro rata share of HPT's FFO. Management considers FFO to be a measure of the financial performance of an equity REIT that provides a relevant basis for comparison among REITs. FFO does not represent cash flow from operating activities (as determined in accordance with GAAP) and should not be considered as an alternative to net income as an indicator of the Company's financial performance or to cash flows as a measure of liquidity. (2) Amounts represent dividends declared with respect to the periods shown. Distributions in excess of net income generally constitute a return of capital.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by this item is incorporated herein by reference to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 5 of the Company's Current Report on Form 8-K dated February 27, 1998. 25 Item 8. Financial Statements and Supplementary Data The information required by this item is incorporated herein by reference to the "consolidated financial statements of Health and Retirement Properties Trust included in Item 7 of the Company's Current Report on Form 8-K dated February 27, 1998. The financial statements and financial statement schedules for Marriott are incorporated by reference to Marriott's Annual Report on Form 10-K for the year ended January 2, 1998, Commission File No. 1-12188. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable PART III The information in Part III (Items, 10, 11, 12 and 13) is incorporated by reference to the Company's definitive Proxy Statement, which will be filed not later than 120 days after the end of the Company's fiscal year. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Index to Financial Statements and Financial Statement Schedules
HEALTH AND RETIREMENT PROPERTIES TRUST Page 1) The following consolidated financial statements of Health and Retirement Properties Trust are incorporated by reference to the Company's Current Report on Form 8-K dated February 27, 1998, page references are to such Current Report: Report of Ernst & Young LLP, Independent Auditors F-1 Report of Arthur Andersen LLP, Independent Public Accountants F-2 Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3 Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995 F-4 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997, 1996, and 1995 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996, and 1995 F-6 Notes to Consolidated Financial Statements F-8 2) The following schedules are filed herewith: III - Real Estate and Accumulated Depreciation S-1 IV - Mortgage Loans on Real Estate S-8
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, or are inapplicable, and therefore have been omitted. 3) Exhibits: 3.1 Conformed copy of Amended and Restated Declaration of Trust as amended by the amendment approved by the shareholders June 28, 1996 and filed with the Maryland Department of Assessments and Taxation on July 9, 1996. (incorporated by reference to the Company's Current Report on Form 8-K, dated July 10, 1996) 3.2 Amendment, effective March 3, 1997, to the Company's Amended and Restated Declaration of Trust providing for an increase in the authorized common shares of beneficial interest, $.01 par value per share, from 100,000,000 to 125,000,000. (incorporated by reference to the Company's Current Report on Form 8-K, dated March 3, 1997) 26 3.3 Articles Supplementary to the Company's Amended and Restated Declaration of Trust, as further amended, relating to the Company's junior Participating Preferred Shares effective May 14, 1997. (incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997) 3.4 Amended and Restated Bylaws. (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995) 4.1 Rights Agreement dated October 17, 1994 between the Company and State Street Bank and Trust Company, as Rights Agent (including the form of Articles Supplementary relating to the Junior Participating Preferred Shares annexed as an exhibit thereto). (incorporated by reference to the Company's Registration Statement on Form 8-A dated October 24, 1994) 4.2 Form of Series B Note. (incorporated by reference to the Company's Registration Statement on Form 8- A dated July 11, 1994) 4.3 Indenture, dated as of June 1, 1994, between the Company and Shawmut Bank, N.A. (incorporated by reference to the Company's Registration Statement on Form 8-A dated July 11, 1994) 4.4 Supplemental Indenture, dated as of June 29, 1994, between the Company and Shawmut Bank, N.A. (incorporated by reference to the Company's Registration Statement on Form 8-A dated July 11, 1994) 4.5 Indenture, dated as of September 20, 1996, between the Company and Fleet National Bank ("Fleet"), as trustee. (incorporated by reference to the Company's Registration Statement on Form S-3, File No. 333- 02863) 4.6 First Supplemental Indenture, dated as of October 7, 1996, between the Company and Fleet, as trustee, relating to the Company's 7.5% Convertible Subordinated Debentures, due 2003, Series A, including form thereof. (incorporated by reference to the Company's Current Report on Form 8-K dated October 7, 1996) 4.7 Second Supplemental Indenture, dated as of October 7, 1996, between the Company and Fleet, as trustee, relating to the Company's 7.5% Convertible Subordinated Debentures, due 2003, Series B, including form thereof. (incorporated by reference to the Company's Current Report on Form 8-K dated October 7, 1996) 4.8 Third Supplemental Indenture, dated as of October 7, 1996, between the Company and Fleet, as trustee, relating to the Company's 7.25% Convertible Subordinated Debentures, due 2001, including form thereof. (incorporated by reference to the Company's Current Report on Form 8-K dated October 7, 1996) 4.9 Form of Global Note relating to the Remarketed Reset Notes due July 9, 2007. (incorporated by reference to the Company's Current Report on Form 8-K dated July 2, 1997) 4.10 Indenture, dated as of July 9, 1997, by and between the Company and State Street Bank and Trust Company as Trustee. (filed herewith) 4.11 Supplemental Indenture, dated July 9, 1997, by and between the Company and State Street Bank and Trust Company as Trustee, relating to the Remarketed Reset Notes due July 9, 2007. (filed herewith) 4.12 Supplemental Indenture No. 2 dated as of February 23, 1998 between the Company and State Street Bank and Trust Company pertaining to $50,000,000 in principal amount of Remarketed Reset Notes Due July 9, 2007. (filed herewith) 4.13 Indenture dated as of December 18, 1997 by and between the Company and State Street Bank and Trust Company, as Trustee. (incorporated by reference to the Company's Current Report on Form 8-K dated December 5, 1997) 27 4.14 Supplemental Indenture dated as of December 18, 1997 by and between the Company and State Street Bank and Trust Company, as Trustee relating to the Company's 6 3/4% Senior Notes due 2002. (incorporated by reference to the Company's Current Report on Form 8-K dated December 5, 1997) 4.15 Registration Rights Agreement dated as of December 18, 1997 by and between the Company and Merrill Lynch & Co. (incorporated by reference to the Company's Current Report on Form 8-K dated December 5, 1997) 4.16 Supplemental Indenture No. 3 dated as of February 23, 1998 between the Company and State Street Bank and Trust Company pertaining to the Company's 6.7% Senior Notes due 2005. (filed herewith) 8.1 Opinion of Sullivan & Worcester, LLP as to certain tax matters. (filed herewith) 9.1 Amended and Restated AMS Voting Trust Agreement. (incorporated by reference to the Company's Registration Statement on Form S-11, File No. 33-55684, dated December 23, 1992, and amendments thereto) 10.1 Advisory Agreement, as amended.(+) (incorporated by reference to the Company's Registration Statement on Form S-11, File No. 33-16799, dated August 27, 1987, and amendments thereto) 10.2 Second Amendment to the Advisory Agreement.(+) (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993) 10.3 Third Amendment to Advisory Agreement by and between the Company and the Advisor, dated June 26, 1997. (+) (incorporated by reference to the Company's Current Report on Form 8-K, dated July 2, 1997) 10.4 Advisory Agreement by and between REIT Management and Research, Inc. and the Company dated as of January 1, 1998. (+) (incorporated by reference to the Company's Current Report on Form 8-K, dated February 11, 1998) 10.5 Agreement (for Property Management and Leasing Agent) between M&P Partners Limited Partnership and various subsidiaries of the Company, effective as of March 25, 1997, relating to properties leased to Agencies of the United States Government. (incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997) 10.6 Master Management Agreement by and among M&P Partners Limited Partnership and the parties named therein dated as of December 31, 1997. (incorporated by reference to the Company's Current Report on Form 8-K, dated February 11, 1998) 10.7 Master Management Agreement by and between various subsidiaries of the Company and REIT Management and Research, Inc., dated as of January 1, 1998. (incorporated by reference to the Company's Current Report on Form 8-K, dated February 27, 1998) 10.8 Parking Operation Management Agreement by and between HUB Properties Trust, a subsidiary of the Company, and REIT Management and Research, Inc., dated as of January 1, 1998. (incorporated by reference to the Company's Current Report on Form 8-K, dated February 27, 1998) 10.9 Incentive Share Award Plan.(+) (incorporated by reference to the Company's Registration Statement on Form S-11, File No. 33-55684, dated December 23, 1992, and amendments thereto) 10.10 Master Lease Document. (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991) 10.11 AMS Properties Security Agreement. (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991) 28 10.12 AMS Subordination Agreement. (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991) 10.13 AMS Guaranty. (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991) 10.14 AMS Pledge Agreement. (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991) 10.15 AMS Holding Co. Pledge Agreement. (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991) 10.16 Amended and Restated Renovation Funding Agreement dated as of January 13, 1992 between AMS Properties, Inc. and the Company. (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991) 10.17 Amendment to AMS Transaction Documents. (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991) 10.18 GCI Master Lease Document. (incorporated by reference to the Company's Registration Statement on Form S-11, File No. 33-55684, dated December 23, 1992, and amendments thereto) 10.19 Amended and Restated HRP Shares Pledge Agreement. (incorporated by reference to the Company's Registration Statement on Form S-11, File no. 33-55684, dated December 23, 1992, and amendments thereto) 10.20 Guaranty Cross-Default and Cross-Collateralization Agreement. (incorporated by reference to the Company's Registration Statement on Form S-11, File No. 33-55684, dated December 23, 1992, and amendments thereto) 10.21 Connecticut Subacute Corporation II Lease Document Waterbury. (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995) 10.22 Connecticut Subacute Corporation II Lease Document Cheshire. (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995) 10.23 Connecticut Subacute Corporation II Lease Document New Haven. (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995) 10.24 Vermont Subacute/New Hampshire Subacute Master Lease Agreement (Chapple). (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995) 10.25 Amended and Restated Agreement and Plan of Reorganization (Chapple). (incorporated by reference to the Company's Annual report on Form 10-K for the year ended December 31, 1995) 10.26 Purchase Option Agreement. (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995) 10.27 Amended and Restated Promissory Note, dated July 29, 1996, from Connecticut Subacute Corporation to the Company. (incorporated by reference to the Company's Current Report on Form 8-K dated October 1, 1996) 10.28 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. (incorporated by reference to the Company's Current Report on Form 8-K, dated February 17, 1997) 29 10.29 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. (incorporated by reference to the Company's Current Report on Form 8-K, dated February 17, 1997) 10.30 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, Kleinwort Benson Limited, as agent, Wells Fargo Bank, National Association, as administrative agent, Natwest Bank, N.A., as co-agent, et al. (incorporated by reference to the Company's Current Report on Form 8-K, dated February 17, 1997) 10.31 Second Amendment and Waiver, dated as of March 19, 1997, 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, Dresdner Kleinwort Benson North America LLC (as successor to Kleinwort Benson Limited), as agent, Wells Fargo Bank, National Association, as administrative agent, Fleet National Bank (as successor to Fleet Bank of Massachusetts), as co-agent, et al. (incorporated by reference to the Company's Current Report on Form 8-K dated March 20, 1997) 10.32 Third Amendment dated as of July 30, 1997 to the Third Amended and Restated Revolving Loan Agreement by and among the Company, as borrower, the lenders named therein, Kleinwort Benson North America LLC (as successor to Kleinwort Benson Limited), as agent, Wells Fargo Bank, National Association, as administrative agent, and Fleet National Bank (as successor to NatWest Bank), as co- agent. (incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997) 10.33 Fourth Amendment dated as of November 14, 1997 to the Third Amendment and Restated Revolving Loan Agreement by and among the Company, as borrower, the lenders named therein, Dresdner Kleinwort Benson North America LLC, as agent, and Fleet National Bank, as administrative agent. (filed herewith) 10.34 Merger Agreement dated February 17, 1997 between Health and Retirement Properties Trust and Government Property Investors, Inc. including forms to Escrow Agreement, Investment and Registration Rights Agreement, Voting Agreement, Information Access Agreement, Indemnification Agreement, Service Contract, Non-Solicitation Agreement and Second Closing Escrow Agreement. (incorporated by reference to the Company's Current Report on Form 8-K, dated February 17, 1997) 10.35 Amendment No. 1 to Agreement of Merger dated March 25, 1997 between the Company and Government Property Investors, Inc. (incorporated by reference to the Company's Registration Statement on Form S-3 (File No. 333-29675) filed with the Commission on June 20, 1997) 10.36 Remarketing Agreement (including form of Remarketing Underwriting Agreement) relating to the Remarketed Reset Notes due July 9, 2007 by and between the Company and Merrill Lynch & Co., dated as of July 2, 1997. (incorporated by reference to the Company's Current Report on Form 8-K, dated July 2, 1997) 10.37 Purchase and Sale Agreement dated September 25, 1997 by and between 7 West Associates LLC, as seller, and the Company, as purchaser. (incorporated by reference to the Company's Current Report on Form 8-K, dated October 1, 1997) 10.38 Contribution Agreement (and Escrow Instructions) with respect to the acquisition of the Cedars-Sinai Medical Office Towers dated as of April 20, 1997 by and between Medical Office Buildings, Ltd., as seller, and the Company, as buyer. (incorporated by reference to the Company's Current Report on Form 8-K, dated October 1, 1997) 10.39 Purchase and Sale Agreement dated October 23, 1997 by and between Franklin Office Associates, as seller, and the Company, as purchaser. (incorporated by reference to the Company's Current Report on Form 8-K, dated November 13, 1997) 10.40 Purchase and Sale Agreement dated November 24, 1997 by and between Investors Life Insurance Company of North America and Family Life Insurance Company, as seller and the Company, as purchaser. (incorporated by reference to the Company's Current Report on Form 8-K, dated December 5, 1997) 30 12.1 Statement regarding computation of ratio of earning to fixed charges. (filed herewith) 21.1 Subsidiaries of the Registrant. (filed herewith) 23.1 Consent of Ernst & Young LLP. (filed herewith) 23.2 Consent of Arthur Andersen LLP. (filed herewith) 23.3 Consent of Sullivan & Worcester LLP. (included as part of Exhibit 8.1 hereto) 99.1 Current Report on Form 8-K dated February 27, 1998. (filed herewith) (+) Management contract or compensatory plan or arrangement. (b) During the fourth quarter of 1997, the Company filed the following Current Reports on Form 8-K: (i) Current Report on Form 8-K dated October 1, 1997 relating to the purchase of a 420,368 square foot office building located at 7 West 34th Street in New York City, New York from 7 West Associates LLC, a wholly owned subsidiary of Orchard Properties, Inc., for $110 million (Items 2 and 7), as amended by an Amendment dated December 12, 1997. (ii) Current Report on Form 8-K dated November 13, 1997 relating to the purchase of an office building with approximately 608,161 square foot located at One Franklin Plaza, in Philadelphia, Pennsylvania from Franklin Office Associates for $75.5 million plus closing costs in a negotiated arms-length transaction (Items 2 and 7), as amended by an Amendment dated January 12, 1998. (iii) CurrentReport on Form 8-K dated December 5, 1997 relating to (i) the purchase of Bridgepoint Square, an office complex containing five commercial office properties with approximately 441,145 square foot located in Austin, Texas, from Investors Life Insurance Company of North America and Family Life Insurance Company for $78 million plus closing costs in a negotiated arms-length transaction and (ii) the completion of a private placement of $150 million of 6 3/4% Senior Notes due 2002. (Items 2, 5 and 7), as amended by an Amendment dated January 23, 1998. 31
HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997 (Dollars in thousands) Initial Cost to Gross Amount Carried at Close of Company Period 12/31/97 ------------------ ------------------------- Costs Capitalized Subsequent Buildings to Buildings Accumulated Original & Acquisi- & Depreciation Date Construction Location State Land Equipment tion Land Equipment Total(1) (2) Acquired Date - ------------------------------------------------------------------------------------------------------------------------------------ Retirement and Assisted Living Communities: Scottsdale AZ $ 979 $ 8,807 $ 140 $ 990 $ 8,936 $ 9,926 $ 809 5/16/94 1990 Sun City AZ 1,174 10,569 173 1,189 10,727 11,916 949 6/17/94 1990 Mesa AZ 1,480 13,320 -- 1,480 13,320 14,800 347 12/27/96 1985 Laguna Hills CA 3,132 28,184 475 3,172 28,619 31,791 2,356 9/9/94 1975 Boca Raton FL 4,404 39,633 799 4,474 40,362 44,836 3,655 5/20/94 1994 Deerfield Beach FL 1,664 14,972 298 1,690 15,244 16,934 1,381 5/16/94 1986 Ft. Myers FL 2,349 21,137 419 2,385 21,520 23,905 1,816 8/16/94 1984 Palm Harbor FL 3,327 29,945 591 3,379 30,484 33,863 2,761 5/16/94 1992 Port St. Lucie FL 1,223 11,009 219 1,242 11,209 12,451 1,015 5/20/94 1993 Chicago IL 6,200 55,800 -- 6,200 55,800 62,000 1,453 12/27/96 1990 Arlington Heights IL 3,621 32,587 535 3,665 33,078 36,743 2,724 9/9/94 1986 Silver Spring MD 3,229 29,065 786 3,301 29,779 33,080 2,574 7/25/94 1992 Rochester NY 1,070 9,630 -- 1,070 9,630 10,700 251 12/27/96 1988 Huron SD 45 968 1 44 970 1,014 149 6/30/92 1968 Bellaire TX 1,223 11,010 178 1,238 11,173 12,411 1,012 5/16/94 1991 Arlington VA 1,859 16,734 295 1,885 17,003 18,888 1,470 7/25/94 1992 Charlottesville VA 2,936 26,422 472 2,976 26,854 29,830 2,377 6/17/94 1991 Virginia Beach VA 881 7,926 137 890 8,054 8,944 729 5/16/94 1990 Spokane WA 1,035 13,315 -- 1,035 13,315 14,350 224 5/7/97 1993 -------------------- -------- ------------------------------- --------- Subtotal 41,831 381,033 5,518 42,305 386,077 428,382 28,052 -------------------- -------- ------------------------------- --------- Long-Term Care Facilities: Phoenix AZ 655 2,525 5 655 2,530 3,185 399 6/30/92 1963 Yuma AZ 223 2,100 4 223 2,104 2,327 326 6/30/92 1984 Yuma AZ 103 604 1 103 605 708 94 6/30/92 1984 Fresno CA 738 2,577 188 738 2,765 3,503 564 12/28/90 1968 Lancaster CA 601 1,859 1,029 601 2,888 3,489 524 12/28/90 1963 Newport Beach CA 1,176 1,729 1,223 1,176 2,952 4,128 508 12/28/90 1962 Palm Springs CA 103 1,264 982 103 2,246 2,349 369 12/28/90 1969 San Diego CA 1,114 1,073 480 1,114 1,553 2,667 320 12/28/90 1969 Stockton CA 382 2,750 4 382 2,754 3,136 429 6/30/92 1968 Tarzana CA 1,277 977 806 1,278 1,782 3,060 351 12/28/90 1969 Thousand Oaks CA 622 2,522 310 622 2,832 3,454 557 12/28/90 1965 Van Nuys CA 716 378 225 718 601 1,319 134 12/28/90 1969 S-1 HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997 (Dollars in thousands) Initial Cost to Gross Amount Carried at Close of Company Period 12/31/97 ------------------ ------------------------- Costs Capitalized Subsequent Buildings to Buildings Accumulated Original & Acquisi- & Depreciation Date Construction Location State Land Equipment tion Land Equipment Total(1) (2) Acquired Date - ------------------------------------------------------------------------------------------------------------------------------------ Long-Term Care Facilities - continued: Cannon City CO 292 6,228 -- 292 6,228 6,520 45 9/22/97 1970 Colorado Springs CO 246 5,236 -- 246 5,236 5,482 38 9/22/97 1972 Delta CO 167 3,570 -- 167 3,570 3,737 26 9/22/97 1963 Grand Junction CO 6 2,583 1,316 136 3,769 3,905 402 12/30/93 1978 Grand Junction CO 204 3,875 329 204 4,204 4,408 518 12/30/93 1968 Lakewood CO 232 3,766 724 232 4,490 4,722 846 12/28/90 1972 Littleton CO 185 5,043 349 185 5,392 5,577 1,069 12/28/90 1965 Cheshire CT 520 7,380 1,559 520 8,939 9,459 2,315 11/1/87 1963 Killingly CT 240 5,360 460 240 5,820 6,060 1,799 5/15/87 1972 New Haven CT 1,681 14,953 1,236 1,681 16,189 17,870 2,825 5/11/92 1971 Waterford CT 86 4,714 453 86 5,167 5,253 1,656 5/15/87 1965 Willimantic CT 134 3,566 479 166 4,013 4,179 1,192 5/15/87 1965 College Park GA 300 2,702 23 300 2,725 3,025 136 5/15/96 1985 Glenwood GA 174 1,564 3 174 1,567 1,741 72 5/15/96 1972 Dublin GA 442 3,982 80 442 4,062 4,504 193 5/15/96 1968 Marrietta GA 300 2,702 35 300 2,737 3,037 130 5/15/96 1969 Clarinda IA 77 1,453 293 77 1,746 1,823 200 12/30/93 1968 Council Bluffs IA 225 2,125 (1,133) 225 992 1,217 139 4/1/95 1963 Mediapolis IA 94 1,776 250 94 2,026 2,120 241 12/30/93 1973 Pacific Junction IA 32 368 (57) 32 311 343 25 4/1/95 1978 Winterset IA 111 2,099 492 111 2,591 2,702 296 12/30/93 1973 Nashville IL 75 2,556 80 75 2,636 2,711 530 12/28/90 1964 Ellinwood KS 130 1,420 (230) 130 1,190 1,320 96 4/1/95 1972 St. Joseph MO 111 1,027 195 111 1,222 1,333 124 6/4/93 1976 Tarkio MO 102 1,938 415 102 2,353 2,455 264 12/30/93 1970 Grand Island NE 119 1,331 484 119 1,815 1,934 105 4/1/95 1963 Rochester NH 466 3,219 4 466 3,223 3,689 238 1/30/95 1972 Burlington NJ 1,300 11,700 7 1,300 11,707 13,007 660 9/28/95 1994 Akron OH 330 5,370 727 330 6,097 6,427 1,966 5/15/87 1971 Grove City OH 332 3,081 32 332 3,113 3,445 352 6/4/93 1965 Huron SD 144 3,108 4 144 3,112 3,256 480 6/30/92 1968 Sioux Falls SD 253 3,062 4 253 3,066 3,319 475 6/30/92 1960 Barre VT 261 4,530 133 389 4,535 4,924 335 1/30/95 1979 S-2 HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997 (Dollars in thousands) Initial Cost to Gross Amount Carried at Close of Company Period 12/31/97 ------------------ ------------------------- Costs Capitalized Subsequent Buildings to Buildings Accumulated Original & Acquisi- & Depreciation Date Construction Location State Land Equipment tion Land Equipment Total(1) (2) Acquired Date - ------------------------------------------------------------------------------------------------------------------------------------ Long-Term Care Facilities - continued: Barre VT 129 3,825 4 129 3,829 3,958 283 1/30/95 1972 Bennington VT 160 4,385 5 160 4,390 4,550 325 1/30/95 1971 Burlington VT 791 5,985 410 872 6,314 7,186 464 1/30/95 1968 Springfield VT 50 747 1 50 748 798 55 1/30/95 1976 Springfield VT 89 3,724 157 242 3,728 3,970 276 1/30/95 1971 St. Albans VT 154 710 1 154 711 865 53 1/30/95 1900 St. Johnsbury VT 95 3,416 4 95 3,420 3,515 253 1/30/95 1978 Seattle WA 256 4,869 68 256 4,937 5,193 632 11/1/93 1972 Brookfield WI 834 3,849 8,014 834 11,863 12,697 1,580 12/28/90 1954 Clintonville WI 49 1,625 88 30 1,732 1,762 339 12/28/90 1965 Clintonville WI 14 1,695 37 14 1,732 1,746 340 12/28/90 1960 Madison WI 144 1,633 109 144 1,742 1,886 341 12/28/90 1920 Milwaukee WI 277 3,883 -- 277 3,883 4,160 655 3/27/92 1969 Milwaukee WI 116 3,438 123 116 3,561 3,677 697 12/28/90 1960 Waukesha WI 68 3,452 2,232 68 5,684 5,752 883 12/28/90 1958 Laramie WY 191 3,632 200 191 3,832 4,023 475 12/30/93 1964 Worland WY 132 2,503 589 132 3,092 3,224 339 12/30/93 1970 -------------------- -------- ------------------------------- --------- Subtotal 20,630 201,116 26,045 21,138 226,653 247,791 32,353 -------------------- -------- ------------------------------- --------- Long-Term Care Facilities with Subacute Services: Wallingford CT 557 11,043 2,374 557 13,417 13,974 3,894 12/23/86 1974 Waterbury CT 514 10,186 2,893 630 12,963 13,593 3,548 12/23/86 1971 Forestville CT 465 9,235 3,083 478 12,305 12,783 3,371 12/23/86 1972 Waterbury CT 1,003 9,023 914 1,003 9,937 10,940 1,727 5/11/92 1974 Boston MA 2,164 20,836 1,978 2,164 22,814 24,978 5,955 5/1/89 1968 Worcester MA 1,829 15,071 1,869 1,829 16,940 18,769 4,888 5/1/88 1970 Hyannis MA 829 7,463 -- 829 7,463 8,292 1,396 5/11/92 1972 Middleboro MA 1,771 15,752 -- 1,771 15,752 17,523 2,914 5/11/92 1975 North Andover MA 1,448 11,049 -- 1,448 11,049 12,497 2,067 5/11/92 1985 Canonsburg PA 1,499 13,493 606 1,518 14,080 15,598 3,094 3/1/91 1985 -------------------- -------- ------------------------------- --------- Subtotal 12,079 123,151 13,717 12,227 136,720 148,947 32,854 -------------------- -------- ------------------------------- --------- S-3 HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997 (Dollars in thousands) Initial Cost to Gross Amount Carried at Close of Company Period 12/31/97 ------------------ ------------------------- Costs Capitalized Subsequent Buildings to Buildings Accumulated Original & Acquisi- & Depreciation Date Construction Location State Land Equipment tion Land Equipment Total(1) (2) Acquired Date - ------------------------------------------------------------------------------------------------------------------------------------ Medical and Other Office Buildings and Clinics: Anaheim CA 695 6,257 -- 695 6,257 6,952 78 12/5/97 1992 Anaheim CA 134 1,204 -- 134 1,204 1,338 15 12/5/97 1970 Anaheim CA 82 736 -- 82 736 818 9 12/5/97 1970 Los Angeles CA 10,131 99,569 -- 10,131 99,569 109,700 1,590 5/15/97 1979 San Diego CA 1,425 12,842 362 1,425 13,204 14,629 384 12/31/96 1985 San Diego CA 4,205 38,335 45 4,205 38,380 42,585 999 12/5/96 1985 Sacramento CA 644 3,206 77 644 3,283 3,927 277 12/18/95 1988 Aurora CO 1,440 12,963 -- 1,440 12,963 14,403 162 11/14/97 1993 Washington DC 2,485 22,696 773 2,485 23,469 25,954 764 9/3/96 1976 Washington DC 1,873 16,703 -- 1,873 16,703 18,576 211 12/19/97 1966 Boston MA 3,378 30,397 750 3,378 31,147 34,525 1,803 9/28/95 1985 Boston MA 1,447 13,028 39 1,447 13,067 14,514 748 9/28/95 1993 Boston MA 1,500 13,500 236 1,500 13,736 15,236 699 12/18/95 1988 Charlton MA 141 1,269 8 141 1,277 1,418 20 5/15/97 1988 Fitchburg MA 223 2,004 10 223 2,014 2,237 31 5/15/97 1994 Grafton MA 37 336 5 37 341 378 5 5/15/97 1930 Millbury MA 34 309 4 34 313 347 5 5/15/97 1950 Milford MA 144 1,297 9 144 1,306 1,450 20 5/15/97 1989 Northbridge MA 32 290 5 32 295 327 5 5/15/97 1962 Paxton MA 24 212 4 24 216 240 3 5/15/97 1984 Spencer MA 211 1,902 11 211 1,913 2,124 30 5/15/97 1992 Sturbridge MA 83 751 7 83 758 841 12 5/15/97 1986 Webster MA 315 2,834 14 315 2,848 3,163 44 5/15/97 1995 Westborough MA 166 1,498 8 166 1,506 1,672 23 5/15/97 1977 Westborough MA 396 3,562 15 396 3,577 3,973 56 5/15/97 1986 Westborough MA 42 381 5 42 386 428 6 5/15/97 1900 Westborough MA 24 216 4 24 220 244 3 5/15/97 1953 Westwood MA 303 2,740 50 303 2,790 3,093 78 11/26/96 1980 Westwood MA 537 4,960 -- 537 4,960 5,497 120 1/8/97 1977 Worcester MA 111 1,000 6 111 1,006 1,117 16 5/15/97 1986 Worcester MA 1,132 10,186 38 1,132 10,224 11,356 159 5/15/97 1989 Worcester MA 895 8,052 30 895 8,082 8,977 126 5/15/97 1990 Worcester MA 354 3,189 14 354 3,203 3,557 50 5/15/97 1985 Worcester MA 265 2,385 11 265 2,396 2,661 37 5/15/97 1972 S-4 HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997 (Dollars in thousands) Initial Cost to Gross Amount Carried at Close of Company Period 12/31/97 ------------------ ------------------------- Costs Capitalized Subsequent Buildings to Buildings Accumulated Original & Acquisi- & Depreciation Date Construction Location State Land Equipment tion Land Equipment Total(1) (2) Acquired Date - ------------------------------------------------------------------------------------------------------------------------------------ Medical and Other Office Buildings and Clinics - continued: Worcester MA 158 1,417 7 158 1,424 1,582 22 5/15/97 1992 Baltimore MD -- 12,517 -- -- 12,517 12,517 156 11/18/97 1988 Brooklyn NY 775 7,054 2 775 7,056 7,831 272 6/6/96 1982 New York NY 44,000 66,928 -- 44,000 66,928 110,928 414 10/1/97 1989 White Plains NY 1,200 10,870 2 1,200 10,872 12,072 509 2/6/96 1995 Fort Washington PA 1,189 5,605 -- 1,189 5,605 6,794 41 9/22/97 1967 Fort Washington PA 1,877 8,869 -- 1,877 8,869 10,746 65 9/22/97 1960 Fort Washington PA 689 3,248 -- 689 3,248 3,937 24 9/22/97 1970 Horsham PA 747 3,664 -- 747 3,664 4,411 26 9/22/97 1983 King of Prussia PA 690 3,254 -- 690 3,254 3,944 27 9/22/97 1964 Philadelphia PA 7,897 71,070 -- 7,897 71,070 78,967 888 11/13/97 1987 Lincoln RI 810 7,290 -- 810 7,290 8,100 91 11/13/97 1997 Austin TX 2,319 20,869 -- 2,319 20,869 23,188 261 12/5/97 1996 Austin TX 1,642 14,654 -- 1,642 14,654 16,296 185 12/5/97 1997 Austin TX 1,403 12,626 -- 1,403 12,626 14,029 158 12/5/97 1997 Austin TX 1,226 11,035 -- 1,226 11,035 12,261 138 12/5/97 1997 Austin TX 1,220 11,568 -- 1,220 11,568 12,788 137 12/5/97 1986 Fairfax VA 569 5,122 66 569 5,188 5,757 134 12/3/96 1990 -------------------- -------- ------------------------------- --------- Subtotal 103,319 598,469 2,617 103,319 601,086 704,405 12,136 -------------------- -------- ------------------------------- --------- Government Office Buildings: Petersburg AK 728 272 -- 728 272 1,000 60 3/25/97 1983 Phoenix AZ 2,657 11,562 -- 2,657 11,562 14,219 219 5/15/97 1997 Safford AZ 604 2,760 -- 604 2,760 3,364 50 3/25/97 1992 Tuscon AZ 727 3,318 -- 727 3,318 4,045 60 3/25/97 1993 Los Angeles CA 1,014 9,149 -- 1,014 9,149 10,163 108 7/11/97 1996 San Diego CA 4,058 18,527 -- 4,058 18,527 22,585 334 3/25/97 1996 San Diego CA 2,836 13,007 1,120 2,836 14,127 16,963 233 3/25/97 1996 San Diego CA 2,772 12,658 -- 2,772 12,658 15,430 228 3/25/97 1994 Golden CO 527 -- 3,153 527 3,153 3,680 -- 3/25/97 1997 Washington DC 11,414 52,185 60 11,414 52,245 63,659 939 3/25/97 1996 Washington DC 6,634 30,202 99 6,634 30,301 36,935 546 3/25/97 1989 Savannah GA 517 2,357 -- 517 2,357 2,874 42 3/25/97 1990 Kansas City KS 990 4,521 190 990 4,711 5,701 81 3/25/97 1990 College Park MD 8,957 40,899 -- 8,957 40,899 49,856 737 3/25/97 1994 S-5 HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997 (Dollars in thousands) Initial Cost to Gross Amount Carried at Close of Company Period 12/31/97 ------------------ ------------------------- Costs Capitalized Subsequent Buildings to Buildings Accumulated Original & Acquisi- & Depreciation Date Construction Location State Land Equipment tion Land Equipment Total(1) (2) Acquired Date - ------------------------------------------------------------------------------------------------------------------------------------ Government Office Buildings - continued: Gaithersburg MD 4,164 19,015 -- 4,164 19,015 23,179 342 3/25/97 1995 Germantown MD 2,191 10,004 -- 2,191 10,004 12,195 180 3/25/97 1995 Oxon Hill MD 3,024 13,810 -- 3,024 13,810 16,834 249 3/25/97 1992 Kansas City MO 1,372 6,264 -- 1,372 6,264 7,636 113 3/25/97 1995 Albuquerque NM 469 2,143 -- 469 2,143 2,612 39 3/25/97 1984 Sante Fe NM 1,474 6,727 -- 1,474 6,727 8,201 121 3/25/97 1987 Buffalo NY 4,187 19,117 13 4,187 19,130 23,317 344 3/25/97 1994 Oklahoma City OK 4,369 20,057 -- 4,369 20,057 24,426 359 3/25/97 1992 Houston TX 1,087 4,573 -- 1,087 4,573 5,660 89 3/25/97 1993 Waco TX 1,081 9,657 13 1,081 9,670 10,751 -- 12/23/97 1997 Falls Church VA 3,285 14,999 -- 3,285 14,999 18,284 270 3/25/97 1993 Richland WA 3,774 17,231 -- 3,774 17,231 21,005 310 3/25/97 1995 Falling Waters WV 861 3,931 -- 861 3,931 4,792 71 3/25/97 1993 Cheyenne WY 1,820 8,312 -- 1,820 8,312 10,132 150 3/25/97 1995 -------------------- -------- ------------------------------- --------- Subtotal 77,593 357,257 4,648 77,593 361,905 439,498 6,274 -------------------- -------- ------------------------------- --------- Total Real Estate $255,452 $1,661,026 $52,545 $256,582 $1,712,441 $1,969,023 $111,669 ==================== ======== =============================== ========= (1) Aggregate cost for federal income tax purposes is approximately $1,876,981. (2) Depreciation is provided for on buildings and improvements for periods ranging up to 40 years and on equipment up to 12 years.
S-6
HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE III - continued REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997 (Dollars in thousands) Real Estate and Accumulated Equipment Depreciation --------------- --------------- Balance at January 1, 1995 $ 673,083 $ 39,570 Additions 309,853 21,047 Disposals (24,376) (2,352) Real estate investments of Hospitality Properties Trust (180,349) (2,410) --------------- --------------- Balance at December 31, 1995 778,211 55,855 Additions 227,528 21,066 --------------- --------------- Balance at December 31, 1996 1,005,739 76,921 Additions 998,579 37,619 Disposals (35,295) (2,871) --------------- --------------- Balance at December 31, 1997 $ 1,969,023 $ 111,669 =============== ===============
S-7
HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE December 31, 1997 (Dollars in thousands) Principal Amount of (1) Loans Subject to Face Carrying Delinquent Final Value of Value Principal Location Interest Rate Maturity Date Periodic Payment Terms Mortgage of Mortgage or Interest - ------------------------------------------------------------------------------------------------------------------------------------ Farmington, MI 11.50% 1/1/06 Principal and interest, payable monthly in $4,239 $4,239 $ -- arrears. $3.8 million due at maturity. Jacksonville, FL 10.50% 3/31/06 Interest only, payable monthly in arrears. 5,000 5,000 -- $5.0 million due at maturity. Howell, MI 11.50% 1/1/06 Principal and interest, payable monthly in 5,028 5,028 -- arrears. $4.5 million due at maturity. Medina, OH 8.50% 2/1/98 Principal and interest, payable monthly in 5,760 5,725 -- arrears. $5.8 million due at maturity. Ainsworth, NE 9.00% 12/31/16 Interest only, payable monthly in arrears; 5,171 5,171 -- Ashland, NE principal and interest starting 1998. Blue Hill, NE $2.8 million due at maturity. Gretna, NE Sutherland, NE Waverly, NE Aberdeen, NC 11.35% 4/30/07 Interest only, payable monthly in arrears; 11,472 11,472 -- King, NC $11.5 million repaid in January 1998. New Bern, NC Milwaukee, WI 11.50% 1/31/13 Principal and interest, payable monthly in 11,466 11,466 -- Pewaukee, WI arrears. $9.6 million due at maturity. Torrance, CA 12.50% 12/31/02 Principal and interest, payable monthly in 12,240 12,240 -- Torrance, CA arrears. $11.7 million due at maturity. Anaheim, CA S-8 HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE December 31, 1997 (Dollars in thousands) Principal Amount of (1) Loans Subject to Face Carrying Delinquent Final Value of Value Principal Location Interest Rate Maturity Date Periodic Payment Terms Mortgage of Mortgage or Interest - ------------------------------------------------------------------------------------------------------------------------------------ Slidell, LA 11.00% 12/31/10 Principal and interest, payable monthly in 19,185 19,185 -- arrears. $13.9 million due at maturity. 15 Mortgages 8.02% - 13.75% 2/99-12/16 Interest only or principal and interest, 23,077 21,976 -- payable monthly in arrears. ---------------------------------------- $ 102,638 $ 101,502 $ -- ======================================== (1) Also represents cost for federal income tax purposes.
S-9
HEALTH AND RETIREMENT PROPERTIES TRUST SCHEDULE IV-continued MORTGAGE LOANS ON REAL ESTATE December 31, 1997 (Dollars in thousands) Reconciliation of the carrying amount of mortgage loans at the beginning of the period: Balance at January 1, 1995 $ 125,791 New mortgage loans 40,064 Collections of principal, net of discounts (26,607) ------------- Balance at December 31, 1995 139,248 New mortgage loans 5,918 Collections of principal, net of discounts (7,921) ------------- Balance at December 31, 1996 137,245 New mortgage loans 1,520 Collections of principal, net of discounts (37,263) ------------- Balance at December 31, 1997 $ 101,502 =============
S-10 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 and Chief Operating Officer Dated: March 11, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, or by their attorney-in-fact, in the capacities and on the dates indicated.
Signature Title Date /s/ David J. Hegarty President and Chief Operating Officer March 11, 1998 - ------------------------------------ David J. Hegarty /s/ Ajay Saini Treasurer and Chief Financial Officer March 11, 1998 - ------------------------------------ Ajay Saini /s/ Bruce M. Gans, M.D. Trustee March 11, 1998 - ------------------------------------ Bruce M. Gans, M.D. /s/ Ralph J. Watts Trustee March 11, 1998 - ------------------------------------ Ralph J. Watts /s/ Justinian Manning, C.P. Trustee March 11, 1998 - ------------------------------------ Rev. Justinian Manning, C.P. /s/ Gerard M. Martin Trustee March 11, 1998 - ------------------------------------ Gerard M. Martin /s/ Barry M. Portnoy Trustee March 11, 1998 - ------------------------------------ Barry M. Portnoy
EX-4.10 2 EXHIBIT 4.10 HEALTH AND RETIREMENT PROPERTIES TRUST TO STATE STREET BANK AND TRUST COMPANY Trustee Indenture Dated as of July 9, 1997 Senior Debt Securities
TABLE OF CONTENTS1 PAGE PARTIES..................................................................................................1 RECITALS.................................................................................................1 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions................................................................................1 "Act" ..............................................................................1 "Additional Amounts"...................................................................2 "Affiliate"............................................................................2 "Authenticating Agent".................................................................2 "Authorized Newspaper".................................................................2 "Bankruptcy Law" .......................................................................................2 "Bearer Security"......................................................................2 "Board" ..............................................................................2 "Board Resolution".....................................................................2 "Business Day".........................................................................2 "CEDEL" ..............................................................................2 "Commission"...........................................................................2 "Common Depositary"......................................................................................2 "Company"..............................................................................2 "Company Request" and "Company Order"....................................................................2 "Conversion Event".....................................................................3 "Corporate Trust Office"...............................................................3 "corporation"..........................................................................3 "coupon" ..............................................................................3 "Custodian" .......................................................................................3 "Declaration" .......................................................................................3 "Defaulted Interest"...................................................................3 "Dollar" or "$"........................................................................3 "DTC" ..............................................................................3 "ECU" ..............................................................................3 "Euroclear"............................................................................3 "European Communities".................................................................3 "European Monetary System".............................................................3 "Event of Default".....................................................................3 "Exchange Date" .......................................................................................3 "Foreign Currency".....................................................................3 "Funds from Operations"................................................................3 "GAAP" ..............................................................................3 "Government Obligations"...............................................................4 "Holder" ..............................................................................4 "Indenture"............................................................................4 "Indexed Security".....................................................................4 - -------- 1 This Table of Contents shall not, for any purpose, be deemed to be part of this Indenture. "interest".............................................................................4 "Interest Payment Date"................................................................4 "Maturity".............................................................................4 "Officers' Certificate"................................................................4 "Opinion of Counsel"...................................................................4 "Original Issue Discount Security".....................................................4 "Outstanding"..........................................................................5 "Paying Agent".........................................................................5 "Person" ..............................................................................5 "Place of Payment".....................................................................6 "Predecessor Security".................................................................6 "Redemption Date"......................................................................6 "Redemption Price".....................................................................6 "Registered Security"..................................................................6 "Regular Record Date"..................................................................6 "Repayment Date".......................................................................6 "Responsible Officer"..................................................................6 "Security".............................................................................6 "Security Register" and "Security Registrar"...........................................6 "Significant Subsidiary"...............................................................6 "Special Record Date"..................................................................6 "Stated Maturity"......................................................................7 "Subsidiary"...........................................................................7 "Trust Indenture Act" or "TIA".........................................................7 "Trustee"..............................................................................7 "United States"........................................................................7 "United States person".................................................................7 "Yield to Maturity"....................................................................7 SECTION 102. Compliance Certificates and Opinions.......................................................7 SECTION 103. Form of Documents Delivered to Trustee.....................................................8 SECTION 104. Acts of Holders............................................................................8 SECTION 105. Notices, etc., to Trustee and Company......................................................9 SECTION 106. Notice to Holders; Waiver..................................................................9 SECTION 107. Effect of Headings and Table of Contents..................................................10 SECTION 108. Successors and Assigns....................................................................10 SECTION 109. Separability Clause.......................................................................10 SECTION 110. Benefits of Indenture.....................................................................10 SECTION 111. Governing Law.............................................................................10 SECTION 112. Legal Holidays............................................................................10 SECTION 113. No Personal Liability.....................................................................11 ARTICLE TWO SECURITIES FORMS SECTION 201. Forms of Securities.......................................................................11 SECTION 202. Form of Trustee's Certificate of Authentication...........................................11 SECTION 203. Securities Issuable in Global Form........................................................12 ARTICLE THREE THE SECURITIES -ii- SECTION 301. Amount Unlimited; Issuable in Series......................................................12 SECTION 302. Denominations.............................................................................15 SECTION 303. Execution, Authentication, Delivery and Dating............................................15 SECTION 304. Temporary Securities......................................................................17 SECTION 305. Registration, Registration of Transfer and Exchange.......................................18 SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities..........................................21 SECTION 307. Payment of Interest; Interest Rights Preserved............................................21 SECTION 308. Persons Deemed Owners.....................................................................23 SECTION 309. Cancellation..............................................................................23 SECTION 310. Computation of Interest...................................................................24 ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. Satisfaction and Discharge of Indenture...................................................24 SECTION 402. Application of Trust Funds................................................................25 ARTICLE FIVE REMEDIES SECTION 501. Events of Default.........................................................................25 SECTION 502. Acceleration of Maturity; Rescission and Annulment........................................26 SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee...........................27 SECTION 504. Trustee May File Proofs of Claim..........................................................28 SECTION 505. Trustee May Enforce Claims Without Possession of Securities or Coupons....................28 SECTION 506. Application of Money Collected............................................................29 SECTION 507. Limitation on Suits.......................................................................29 SECTION 508. Unconditional Right of Holders to Receive Principal, Premium, if any, Interest and Additional Amounts....................................................................29 SECTION 509. Restoration of Rights and Remedies........................................................30 SECTION 510. Rights and Remedies Cumulative............................................................30 SECTION 511. Delay or Omission Not Waiver..............................................................30 SECTION 512. Control by Holders of Securities..........................................................30 SECTION 513. Waiver of Past Defaults...................................................................30 SECTION 514. Waiver of Usury, Stay or Extension Laws...................................................30 SECTION 515. Undertaking for Costs.....................................................................31 ARTICLE SIX THE TRUSTEE SECTION 601. Notice of Defaults........................................................................31 SECTION 602. Certain Rights of Trustee.................................................................31 SECTION 603. Not Responsible for Recitals or Issuance of Securities....................................32 SECTION 604. May Hold Securities.......................................................................32 SECTION 605. Money Held in Trust.......................................................................32 SECTION 606. Compensation and Reimbursement............................................................32 SECTION 607. Corporate Trustee Required; Eligibility; Conflicting Interests............................33 SECTION 608. Resignation and Removal; Appointment of Successor.........................................33 SECTION 609. Acceptance of Appointment by Successor....................................................34 SECTION 610. Merger, Conversion, Consolidation or Succession to Business...............................35 -iii- SECTION 611. Appointment of Authentication Agent.......................................................35 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. Disclosure of Names and Addresses of Holders..............................................36 SECTION 702. Reports by Trustee........................................................................37 SECTION 703. Reports by Company........................................................................37 SECTION 704. Company to Furnish to Trustee Names and Addresses of Holders..............................37 ARTICLE EIGHT CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE SECTION 801. Consolidations and Mergers of Company and Sales, Leases and Conveyances Permitted Subject to Certain Conditions.........................................................37 SECTION 802. Rights and Duties of Successor Corporation................................................38 SECTION 803. Officers' Certificate and Opinion of Counsel..............................................38 ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 901. Supplemental Indentures Without Consent of Holders........................................38 SECTION 902. Supplemental Indentures with Consent of Holders...........................................39 SECTION 903. Execution of Supplemental Indentures......................................................40 SECTION 904. Effect of Supplemental Indentures.........................................................40 SECTION 905. Conformity with Trust Indenture Act.......................................................40 SECTION 906. Reference in Securities to Supplemental Indentures........................................40 ARTICLE TEN COVENANTS SECTION 1001. Payment of Principal, Premium, if any, Interest and Additional Amounts...................41 SECTION 1002. Maintenance of Office or Agency..........................................................41 SECTION 1003. Money for Securities Payments to Be Held in Trust........................................42 SECTION 1004. Existence................................................................................43 SECTION 1005. Provision of Financial Information.......................................................43 SECTION 1006. Statement as to Compliance...............................................................43 SECTION 1007. Additional Amounts.......................................................................44 SECTION 1008. Waiver of Certain Covenants..............................................................44 ARTICLE ELEVEN REDEMPTION OF SECURITIES SECTION 1101. Applicability of Article.................................................................44 SECTION 1102. Election to Redeem; Notice to Trustee....................................................44 SECTION 1103. Selection by Trustee of Securities to Be Redeemed........................................45 SECTION 1104. Notice of Redemption.....................................................................45 SECTION 1105. Deposit of Redemption Price..............................................................46 -iv- SECTION 1106. Securities Payable on Redemption Date....................................................46 SECTION 1107. Securities Redeemed in Part..............................................................47 ARTICLE TWELVE SINKING FUNDS SECTION 1201. Applicability of Article.................................................................47 SECTION 1202. Satisfaction of Sinking Fund Payments with Securities....................................47 SECTION 1203. Redemption of Securities for Sinking Fund................................................47 ARTICLE THIRTEEN REPAYMENT AT THE OPTION OF HOLDERS SECTION 1301. Applicability of Article................................................................48 SECTION 1302. Repayment of Securities..................................................................48 SECTION 1303. Exercise of Option.......................................................................48 SECTION 1304. When Securities Presented for Repayment Become Due and Payable...........................49 SECTION 1305. Securities Repaid in Part................................................................49 ARTICLE FOURTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 1401. Applicability of Article; Company's Option to Effect Defeasance or Covenant Defeasance............................................................................49 SECTION 1402. Defeasance and Discharge.................................................................50 SECTION 1403. Covenant Defeasance......................................................................50 SECTION 1404. Conditions to Defeasance or Covenant Defeasance..........................................50 SECTION 1405. Deposited Money and Government Obligations to Be Held in Trust; Other Miscellaneous Provisions..............................................................52 ARTICLE FIFTEEN MEETINGS OF HOLDERS OF SECURITIES SECTION 1501. Purposes for Which Meetings May Be Called................................................52 SECTION 1502. Call, Notice and Place of Meetings.......................................................53 SECTION 1503. Persons Entitled to Vote at Meetings.....................................................53 SECTION 1504. Quorum; Action...........................................................................53 SECTION 1505. Determination of Voting Rights; Conduct and Adjournment of Meetings.......................54 SECTION 1506. Counting Votes and Recording Action of Meetings..........................................54 TESTIMONIUM.............................................................................................58 SIGNATURES AND SEALS....................................................................................58 ACKNOWLEDGMENTS.........................................................................................59 EXHIBIT A -- FORMS OF CERTIFICATION
-vi- INDENTURE, dated as of July 9, 1997, between HEALTH AND RETIREMENT PROPERTIES TRUST, a Maryland real estate investment trust (hereinafter called the "Company"), having its principal office at 400 Centre Street, Newton, Massachusetts 02158 and, State Street Bank and Trust Company, a Massachusetts trust company, as Trustee hereunder (hereinafter called the "Trustee"), having its initial Corporate Trust Office at Two International Place - 5th Floor, Boston, Massachusetts 02110. RECITALS OF THE COMPANY The Company deems it necessary to issue from time to time for lawful purposes its unsecured debt securities (hereinafter called the "Securities") evidencing its unsecured indebtedness, and has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of the Securities, unlimited as to principal amount, to bear interest at the rates or formulas, to mature at such times and to have such other provisions as shall be fixed as hereinafter provided. This Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended, that are deemed to be incorporated into this Indenture by such Act, and shall, to the extent applicable, be governed by such provisions. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of a series thereof, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (2) all other terms used herein which are defined in the TIA, either directly or by reference therein, have the meanings assigned to them therein, and the terms "cash transaction" and "self-liquidating paper", as used in TIA Section 311, shall have the meanings assigned to them in the rules of the Commission adopted under the TIA; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; and (4) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. Certain terms, used principally in Article Three, Article Five, Article Six and Article Ten, are defined in those Articles. "Act", when used with respect to any Holder, has the meaning specified in Section 104. "Additional Amounts" means any additional amounts which are required by a Security or by or pursuant to a Board Resolution, under circumstances specified therein, to be paid by the Company in respect of certain taxes imposed on certain Holders and which are owing to such Holders. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Authenticating Agent" means any authenticating agent appointed by the Trustee pursuant to Section 611. "Authorized Newspaper" means a newspaper, printed in the English language or in an official language of the country of publication, customarily published on each Business Day, whether or not published on Saturdays, Sundays or holidays, and of general circulation in each place in connection with which the term is used or in the financial community of each such place. Whenever successive publications are required to be made in Authorized Newspapers, the successive publications may be made in the same or in different Authorized Newspapers in the same city meeting the foregoing requirements and in each case on any Business Day. "Bankruptcy Law" has the meaning specified in Section 501. "Bearer Security" means any Security established pursuant to Section 201 which is payable to bearer. "Board" means the board of trustees of the Company or any committee of that board duly authorized to act hereunder. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day", when used with respect to any Place of Payment or any other particular location referred to in this Indenture or in the Securities, means, unless otherwise specified with respect to any Securities pursuant to Section 301, any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in that Place of Payment or particular location are authorized or required by law, regulation or executive order to close. "CEDEL" means CEDEL Bank, S.A., or its successor. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties on such date. "Common Depositary" has the meaning specified in Section 304. "Company" means the Person named as the "Company" in the first paragraph of this Indenture until a successor shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor. "Company Request" and "Company Order" mean, respectively, a written request or order signed in the name of the Company by the President or a Vice President, and by its Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. 2 "Conversion Event" means the cessation of use of (i) a Foreign Currency both by the government of the country which issued such currency and for the settlement of transactions by a central bank or other public institution of or within the international banking community, (ii) the ECU both within the European Monetary System and for the settlement of transactions by public institutions of or within the European Communities or (iii) any currency unit (or composite currency) other than the ECU for the purposes for which it was established. "Corporate Trust Office" means the office of the Trustee at which, at any particular time, its corporate trust business shall be principally administered, which office at the date hereof is located at Two International Place - 5th Floor, Boston, Massachusetts 02110. "corporation" includes corporations, associations, companies and business trusts. "coupon" means any interest coupon appertaining to a Bearer Security. "Custodian" has the meaning specified in Section 501. "Declaration" has the meaning specified in Section 113. "Defaulted Interest" has the meaning specified in Section 307. "Dollar" or "$" means a dollar or other equivalent unit in such coin or currency of the United States of America as at the time shall be legal tender for the payment of public and private debts. "DTC" means The Depository Trust Company, or any successor thereto. "ECU" means the European Currency Unit as defined and revised from time to time by the Council of the European Communities. "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels Office, or its successor as operator of the Euroclear System. "European Communities" means the European Economic Community, the European Coal and Steel Community and the European Atomic Energy Community. "European Monetary System" means the European Monetary System established by the Resolution of December 5, 1978 of the Council of the European Communities. "Event of Default" has the meaning specified in Article Five. "Exchange Date" has the meaning specified in Section 304. "Foreign Currency" means any currency, currency unit or composite currency, including, without limitation, the ECU, issued by the government of one or more countries other than the United States of America or by any recognized confederation or association of such governments. "Funds from Operations" for any period means the consolidated net income of the Company and its Subsidiaries for such period without giving effect to depreciation and amortization, gains or losses from extraordinary items, gains or losses on sales of real estate, gains or losses on investments in marketable securities and any provision/benefit for income taxes for such period, plus funds from operations of unconsolidated joint ventures, all determined on a consistent basis in accordance with GAAP. "GAAP" means generally accepted accounting principles in effect from time to time as used in the United States applied on a consistent basis. 3 "Government Obligations" means securities which are (i) direct obligations of the United States of America or the government which issued the Foreign Currency in which the Securities of a particular series are payable, for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America or such government which issued the Foreign Currency in which the Securities of such series are payable, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America or such other government, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such Government Obligation or a specific payment of interest on or principal of any such Government Obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of interest on or principal of the Government Obligation evidenced by such depository receipt. "Holder" means, in the case of a Registered Security, the Person in whose name a Security is registered in the Security Register and, in the case of a Bearer Security, the bearer thereof and, when used with respect to any coupon, shall mean the bearer thereof. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, and shall include the terms of particular series of Securities established as contemplated by Section 301; provided, however, that, if at any time more than one Person is acting as Trustee under this instrument, "Indenture" shall mean, with respect to any one or more series of Securities for which such Person is Trustee, this instrument as originally executed or as it may from time to time be supplemented or amended by one or more applicable provisions hereof and shall include the terms of the or those particular series of Securities for which such Person is Trustee established as contemplated by Section 301, exclusive, however, of any provisions or terms which relate solely to other series of Securities for which such Person is Trustee, regardless of when such terms or provisions were adopted, and exclusive of any provisions or terms adopted by means of one or more indentures supplemental hereto executed and delivered after such Person had become such Trustee but to which such Person, as such Trustee, was not a party. "Indexed Security" means a Security the terms of which provide that the principal amount thereof payable at Stated Maturity may be more or less than the principal face amount thereof at original issuance. "interest", when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, shall mean interest payable after Maturity, and, when used with respect to a Security which provides for the payment of Additional Amounts pursuant to Section 1007, includes such Additional Amounts. "Interest Payment Date", when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security. "Maturity", when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, notice of redemption, notice of option to elect repayment or otherwise. "Officers' Certificate" means a certificate signed by the President or a Vice President and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company (including counsel who is an employee of the Company) and who shall be acceptable to the Trustee. "Original Issue Discount Security" means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502. 4 "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities, or portions thereof, for whose payment or redemption or repayment at the option of the Holder money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities and any coupons appertaining thereto; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Securities, except to the extent provided in Sections 1402 and 1403, with respect to which the Company has effected defeasance and/or covenant defeasance as provided in Article Fourteen; (iv) Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; and (v) Securities converted into Common Shares, Preferred Shares or other securities of the Company pursuant to or in accordance with this Indenture if the terms of such Securities provide for convertibility pursuant to Section 301; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder or are present at a meeting of Holders for quorum purposes, and for the purpose of making the calculations required by TIA Section 313, (i) the principal amount of an Original Issue Discount Security that may be counted in making such determination or calculation and that shall be deemed to be Outstanding for such purpose shall be equal to the amount of principal thereof that would be (or shall have been declared to be) due and payable, at the time of such determination, upon a declaration of acceleration of the maturity thereof pursuant to Section 502, (ii) the principal amount of any Security denominated in a Foreign Currency that may be counted in making such determination or calculation and that shall be deemed Outstanding for such purpose shall be equal to the Dollar equivalent, determined pursuant to Section 301 as of the date such Security is originally issued by the Company, of the principal amount (or, in the case of an Original Issue Discount Security, the Dollar equivalent as of such date of original issuance of the amount determined as provided in clause (i) above) of such Security, (iii) the principal amount of any Indexed Security that may be counted in making such determination or calculation and that shall be deemed outstanding for such purpose shall be equal to the principal face amount of such Indexed Security at original issuance, unless otherwise provided with respect to such Security pursuant to Section 301, and (iv) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in making such calculation or in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities or coupons on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization or government or any agency or political subdivision thereof. 5 "Place of Payment", when used with respect to the Securities of or within any series, means the place or places where the principal of (and premium, if any) and interest on such Securities are payable as specified as contemplated by Sections 301 and 1002. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security or a Security to which a mutilated, destroyed, lost or stolen coupon appertains shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security or the Security to which the mutilated, destroyed, lost or stolen coupon appertains. "Redemption Date", when used with respect to any Security to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Registered Security" shall mean any Security established pursuant to Section 201 which is registered in the Security Register. "Regular Record Date" for the interest payable on any Interest Payment Date on the Registered Securities of or within any series means the date specified for that purpose as contemplated by Section 301, whether or not a Business Day. "Repayment Date" means, when used with respect to any Security to be repaid at the option of the Holder, the date fixed for such repayment by or pursuant to this Indenture. "Responsible Officer", when used with respect to the Trustee, means the chairman or vice-chairman of the board of directors, the chairman or vice-chairman of the executive committee of the board of directors, the president, any vice president (whether or not designated by a number or a word or words added before or after the title "vice president"), the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer, the controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of such officer's knowledge and familiarity with the particular subject. "Security" has the meaning stated in the first recital of this Indenture and, more particularly, means any Security or Securities authenticated and delivered under this Indenture; provided, however, that, if at any time there is more than one Person acting as Trustee under this Indenture, "Securities" with respect to the Indenture as to which such Person is Trustee shall have the meaning stated in the first recital of this Indenture and shall more particularly mean Securities authenticated and delivered under this Indenture, exclusive, however, of Securities of any series as to which such Person is not Trustee. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. "Significant Subsidiary" means any Subsidiary which is a "significant subsidiary" (as defined in Article I, Rule 1-02 of Regulation S-X, promulgated under the Securities Act of 1933, as amended) of the Company. "Special Record Date" for the payment of any Defaulted Interest on the Registered Securities of or within any series means a date fixed by the Trustee pursuant to Section 307. 6 "Stated Maturity", when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security or a coupon representing such installment of interest as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable. "Subsidiary" means a corporation a majority of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries of the Company. For the purposes of this definition, "voting stock" means stock having voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as amended and as in force at the date as of which this Indenture was executed, except as provided in Section 905. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder; provided, however, that if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean only the Trustee with respect to Securities of that series. "United States" means, unless otherwise specified with respect to any Securities pursuant to Section 301, the United States of America (including the states and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction. "United States person" means, unless otherwise specified with respect to any Securities pursuant to Section 301, an individual who is a citizen or resident of the United States, a corporation, partnership or other entity created organized in or under the laws of the United States or an estate or trust the income of which is subject to United States federal income taxation regardless of its source. "Yield to Maturity" means the yield to maturity, computed at the time of issuance of a Security (or, if applicable, at the most recent redetermination of interest on such Security) and as set forth in such Security in accordance with generally accepted United States bond yield computation principles. SECTION 102. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (including certificates delivered pursuant to Section 1006) shall include: (1) a statement that each individual signing such certificate or opinion has read such condition or covenant and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such condition or covenant has been complied with; and 7 (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 103. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by or covered by an opinion of any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion as to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, or a certificate of or representations by counsel, unless such officer knows, or in the exercise of reasonable care should know, that the opinion, certificate or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such Opinion of Counsel, certificate or representations may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company or any Subsidiary stating that the information as to such factual matters is in the possession of the Company or such Subsidiary, unless such counsel knows that the certificate or opinion or representations as to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 104. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders of the Outstanding Securities of all series or one or more series, as the case may be, may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing. If Securities of a series are issuable as Bearer Securities, any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders of Securities of such series may, alternatively, be embodied in and evidenced by the record of Holders of Securities of such series voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Securities of such series duly called and held in accordance with the provisions of Article Fifteen, or a combination of such instruments and any such record. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments and any such record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments or so voting at any such meeting. Proof of execution of any such instrument or of a writing appointing any such agent, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company and any agent of the Trustee or the Company, if made in the manner provided in this Section. The record of any meeting of Holders of Securities shall be proved in the manner provided in Section 1506. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other reasonable manner which the Trustee deems sufficient. (c) The ownership of Registered Securities shall be proved by the Security Register. (d) The ownership of Bearer Securities may be proved by the production of such Bearer Securities or by a certificate executed, as depositary, by any trust company, bank, banker or other depositary, wherever situated, if such certificate shall be deemed by the Trustee to be satisfactory, showing that at the date therein mentioned 8 such Person had on deposit with such depositary, or exhibited to it, the Bearer Securities therein described; or such facts may be proved by the certificate or affidavit of the Person holding such Bearer Securities, if such certificate or affidavit is deemed by the Trustee to be satisfactory. The Trustee and the Company may assume that such ownership of any Bearer Security continues until (1) another certificate or affidavit bearing a later date issued in respect of the same Bearer Security is produced, or (2) such Bearer Security is produced to the Trustee by some other Person, or (3) such Bearer Security is surrendered in exchange for a Registered Security, or (4) such Bearer Security is no longer Outstanding. The ownership of Bearer Securities may also be proved in any other manner which the Trustee deems sufficient. (e) If the Company shall solicit from the Holders of Registered Securities any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, in or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. Notwithstanding TIA Section 316(c), such record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not earlier than the date 30 days prior to the first solicitation of Holders generally in connection therewith and not later than the date such solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than eleven months after the record date. (f) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee, any Security Registrar, any Paying Agent, any Authenticating Agent or the Company in reliance thereon, whether or not notation of such action is made upon such Security. SECTION 105. Notices, etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Department Re: Health and Retirement Properties Trust Notes due 2007, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this Indenture or at any other address previously furnished in writing to the Trustee by the Company. SECTION 106. Notice to Holders; Waiver. Where this Indenture provides for notice of any event to Holders of Registered Securities by the Company or the Trustee, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each such Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders of Registered Securities is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders of Registered Securities or the sufficiency of any notice to Holders of Bearer Securities given as provided herein. Any notice mailed to a Registered Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such Holder actually receives such notice. 9 If by reason of the suspension of or irregularities in regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification to Holders of Registered Securities as shall be made with the approval of the Trustee shall constitute a sufficient notification to such Holders for every purpose hereunder. Except as otherwise expressly provided herein or otherwise specified with respect to any Securities pursuant to Section 301, where this Indenture provides for notice to Holders of Bearer Securities of any event, such notice shall be sufficiently given if published in an Authorized Newspaper in The City of New York and in such other city or cities as may be specified in such Securities on a Business Day, such publication to be not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. Any such notice shall be deemed to have been given on the date of such publication or, if published more than once, on the date of the first such publication. If by reason of the suspension of publication of any Authorized Newspaper or Authorized Newspapers or by reason of any other cause it shall be impracticable to publish any notice to Holders of Bearer Securities as provided above, then such notification to Holders of Bearer Securities as shall be given with the approval of the Trustee shall constitute sufficient notice to such Holders for every purpose hereunder. Neither the failure to give notice by publication to any particular Holder of Bearer Securities as provided above, nor any defect in any notice so published, shall affect the sufficiency of such notice with respect to other Holders of Bearer Securities or the sufficiency of any notice to Holders of Registered Securities given as provided herein. Any request, demand, authorization, direction, notice, consent or waiver required or permitted under this Indenture shall be in the English language, except that any published notice may be in an official language of the country of publication. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 107. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 108. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 109. Separability Clause. In case any provision in this Indenture or in any Security or coupon shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 110. Benefits of Indenture. Nothing in this Indenture or in the Securities or coupons, express or implied, shall give to any Person, other than the parties hereto, any Security Registrar, any Paying Agent, any Authenticating Agent and their successors hereunder and the Holders any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 111. Governing Law. This Indenture and the Securities and coupons shall be governed by and construed in accordance with the law of The Commonwealth of Massachusetts. This Indenture is subject to the provisions of the TIA that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. SECTION 112. Legal Holidays. In any case where any Interest Payment Date, Redemption Date, Repayment Date, sinking fund payment date, Stated Maturity or Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or any Security or coupon other than a provision in the Securities of any series which specifically states that such provision shall apply in lieu hereof), 10 payment of interest or any Additional Amounts or principal (and premium, if any) or sinking fund payment need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date, Redemption Date, Repayment Date or sinking fund payment date, or at the Stated Maturity or Maturity; provided that no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date, Redemption Date, Repayment Date, sinking fund payment date, Stated Maturity or Maturity, as the case may be. SECTION 113. No Personal Liability. THE AMENDED AND RESTATED DECLARATION OF TRUST OF THE COMPANY DATED JULY 1, 1994, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HEALTH AND 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 THE COMPANY SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE COMPANY. ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. ARTICLE TWO SECURITIES FORMS SECTION 201. Forms of Securities. The Registered Securities, if any, of each series and the Bearer Securities, if any, of each series and related coupons shall be in substantially the forms as shall be established in one or more indentures supplemental hereto or approved from time to time by or pursuant to a Board Resolution in accordance with Section 301, shall have such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture or any indenture supplemental hereto, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements placed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any securities exchange on which the Securities may be listed, or to conform to usage. Unless otherwise specified as contemplated by Section 301, Bearer Securities shall have interest coupons attached. The definitive Securities and coupons shall be printed, lithographed or engraved or produced by any combination of these methods on a steel engraved border or steel engraved borders or may be produced in any other manner, all as determined by the officers of the Company executing such Securities or coupons, as evidenced by their execution of such Securities or coupons. SECTION 202. Form of Trustee's Certificate of Authentication. Subject to Section 611, the Trustee's certificate of authentication shall be in substantially the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. --------------------------------- as Trustee By______________________________ Authorized Officer 11 SECTION 203. Securities Issuable in Global Form. If Securities of or within a series are issuable in global form, as specified in and as contemplated by Section 301, then, notwithstanding clause (8) of Section 301 and the provisions of Section 302, any such Security shall represent such of the Outstanding Securities of such series as shall be specified therein and may provide that it shall represent the aggregate amount of Outstanding Securities of such series from time to time endorsed thereon and that the aggregate amount of Outstanding Securities of such series represented thereby may from time to time be increased or decreased to reflect exchanges. Any endorsement of a Security in global form to reflect the amount, or any increase or decrease in the amount, of Outstanding Securities represented thereby shall be made by the Trustee in such manner and upon instructions given by such Person or Persons as shall be specified therein or in the Company Order to be delivered to the Trustee pursuant to Section 303 or 304. Subject to the provisions of Section 303 and, if applicable, Section 304, the Trustee shall deliver and redeliver any Security in permanent global form in the manner and upon instructions given by the Person or Persons specified therein or in the applicable Company Order. If a Company Order pursuant to Section 303 or 304 has been, or simultaneously is, delivered, any instructions by the Company with respect to endorsement or delivery or redelivery of a Security in global form shall be in writing but need not comply with Section 102 and need not be accompanied by an Opinion of Counsel. The provisions of the last sentence of Section 303 shall apply to any Security represented by a Security in global form if such Security was never issued and sold by the Company and the Company delivers to the Trustee the Security in global form together with written instructions (which need not comply with Section 102 and need not be accompanied by an Opinion of Counsel) with regard to the reduction in the principal amount of Securities represented thereby, together with the written statement contemplated by the last sentence of Section 303. Notwithstanding the provisions of Section 307, unless otherwise specified as contemplated by Section 301, payment of principal of and any premium and interest on any Security in permanent global form shall be made to the Person or Persons specified therein. Notwithstanding the provisions of Section 308 and except as provided in the preceding paragraph, the Company, the Trustee and any agent of the Company and the Trustee shall treat as the Holder of such principal amount of Outstanding Securities represented by a permanent global Security (i) in the case of a permanent global Security in registered form, the Holder of such permanent global Security in registered form or (ii) in the case of a permanent global Security in bearer form, Euroclear or CEDEL. ARTICLE THREE THE SECURITIES SECTION 301. Amount Unlimited; Issuable in Series. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. There shall be established in one or more Board Resolutions or pursuant to authority granted by one or more Board Resolutions and, subject to Section 303, set forth, or determined in the manner provided, in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series, any or all of the following, as applicable (each of which (except for the matters set forth in clauses (1), (2) and (14) below), if so provided, may be determined from time to time by the Company with respect to unissued Securities of the series when issued from time to time): (1) the title of the Securities of the series (which shall distinguish the Securities of such series from all other series of Securities); (2) any limit upon the aggregate principal amount of the Securities of the series that may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 304, 305, 306, 906, 1107 or 1305); 12 (3) the date or dates, or the method by which such date or dates will be determined, on which the principal of the Securities of the series shall be payable; (4) the rate or rates at which the Securities of the series shall bear interest, if any, or the method by which such rate or rates shall be determined, the date or dates from which such interest shall accrue or the method by which such date or dates shall be determined, the Interest Payment Dates on which such interest will be payable and the Regular Record Date, if any, for the interest payable on any Registered Security on any Interest Payment Date, or the method by which such date shall be determined, and the basis upon which interest shall be calculated if other than that of a 360-day year of twelve 30-day months; (5) the place or places where the principal of, any premium and interest on and any Additional Amounts payable in respect of, Securities of the series shall be payable, any Registered Securities of the series may be surrendered for registration of transfer, exchange or conversion and notices or demands to or upon the Company in respect of the Securities of the series and this Indenture may be served; (6) the period or periods within which or the date or dates on which, the price or prices at which, and other terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company, if the Company is to have the option; (7) the obligation, if any, of the Company to redeem, repay or purchase Securities of the series pursuant to any sinking fund or analogous provision or at the option of a Holder thereof, and the period or periods within which or the date or dates on which, the price or prices at which, and other terms and conditions upon which Securities of the series shall be redeemed, repaid or purchased, in whole or in part, pursuant to such obligation; (8) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which any Registered Securities of the series shall be issuable and the denomination or denominations in which any Bearer Securities of the series shall be issuable; (9) if other than Dollars, the Foreign Currency or Currencies in which payment of the principal of (and premium, if any), interest, if any, on, and Additional Amounts, if any, on the Securities of the series shall be payable, in which the Securities of the series shall be redeemed or purchased or in which the Securities of the series shall be denominated; (10) if other than the principal amount thereof, the portion of the principal amount of Securities of the series that shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 502 or, if applicable, the portion of the principal amount of Securities of the series that is convertible in accordance with the provisions of this Indenture, or the method by which such portion shall be determined; (11) whether the amount of payments of principal of (and premium, if any) or interest, if any, on the Securities of the series may be determined with reference to an index, formula or other method (which index, formula or method may be based, without limitation, on one or more currencies, currency units, composite currencies, commodities, equity indices or other indices), and the manner in which such amounts shall be determined; (12) whether the principal of (and premium, if any) or interest, if any on or Additional Amounts, if any, on the Securities of the series are to be payable, at the election of the Company or a Holder thereof, in a currency or currencies, currency unit or units or composite currency or currencies other than that in which such Securities are denominated or stated to be payable, the period or periods within which, and the terms and conditions upon which, such election may be made, and the time and manner of, and identity of the exchange rate agent with responsibility for determining the exchange rate between the currency or currencies, currency unit or units or composite currency or currencies in which such Securities are denominated or stated 13 to be payable and the currency or currencies, currency unit or units or composite currency or currencies in which such Securities are to be paid; (13) provisions, if any, granting special rights to the Holders of Securities of the series upon the occurrence of such events as may be specified; (14) any deletions from, modifications of or additions to the Events of Default or covenants of the Company set forth in this Indenture with respect to Securities of the series (whether or not such Events of Default or covenants are consistent with the Events of Default or covenants set forth herein); (15) whether Securities of the series are to be issuable as Registered Securities, Bearer Securities (with or without coupons) or both, any restrictions applicable to the offer, sale or delivery of Bearer Securities and the terms upon which Bearer Securities of the series may be exchanged for Registered Securities of the series and vice versa (if permitted by applicable laws and regulations), whether any Securities of the series are to be issuable initially in temporary global form and whether any Securities of the series are to be issuable in permanent global form with or without coupons and, if so, whether beneficial owners of interests in any such permanent global Security may exchange such interests for Securities of such series and of like tenor of any authorized form and denomination and the circumstances under which any such exchanges may occur, if other than in the manner provided in Section 305, and, if Registered Securities of the series are to be issuable as a global Security, the identity of the depositary for such series; (16) the date as of which any Bearer Securities of the series and any temporary global Security representing Outstanding Securities of the series shall be dated if other than the date of original issuance of the first Security of the series to be issued; (17) the Person to whom any interest on any Registered Security of the series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, the manner in which, or the Person to whom, any interest on any Bearer Security of the series shall be payable, if otherwise than upon presentation and surrender of the coupons appertaining thereto as they severally mature, and the extent to which, or the manner in which, any interest payable on a temporary global Security on an Interest Payment Date will be paid if other than in the manner provided in Section 304; (18) the applicability, if any, of Sections 1402 and/or 1403 to the Securities of the series and any provisions in modification of, in addition to or in lieu of any of the provisions of Article Fourteen; (19) if the Securities of such series are to be issuable in definitive form (whether upon original issue or upon exchange of a temporary Security of such series) only upon receipt of certain certificates or other documents or satisfaction of other conditions, then the form and/or terms of such certificates, documents or conditions; (20) if the Securities of the series are to be issued upon the exercise of warrants, the time, manner and place for such Securities to be authenticated and delivered; (21) whether and under what circumstances the Company will pay Additional Amounts as contemplated by Section 1007 on the Securities of the series to any Holder who is not a United States person (including any modification to the definition of such term) in respect of any tax, assessment or governmental charge and, if so, whether the Company will have the option to redeem such Securities rather than pay such Additional Amounts (and the terms of any such option); (22) the obligation, if any, of the Company to permit the conversion of the Securities of such series into Common Shares or Preferred Shares of the Company or other securities, as the case may be, and the terms and conditions upon which such conversion shall be effected (including, without limitation, the 14 initial conversion price or rate, the conversion period, any adjustment of the applicable conversion price and any requirements relative to the reservation of such shares for purposes of conversion); (23) the terms and conditions, if any, upon which payment of the Securities of such series shall be subordinated to the Securities of another series or other indebtedness of the Company (including, without limitation, indebtedness which ranks senior to such Securities; restrictions on payments to Holders of such Securities while a default with respect to such senior indebtedness is continuing; restrictions, if any, on payments to the Holders of such Securities following an Event of Default; and any requirements for Holders of such Securities to remit certain payments to the holders of such senior indebtedness); (24) if the Securities of the series are to be guaranteed, the term and conditions of such guarantee; (25) if other than the Trustee, the identity of each Security Registrar and/or Paying Agent for the series; and (26) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture). All Securities of any one series and the coupons appertaining to any Bearer Securities of such series shall be substantially identical except, in the case of Registered Securities, as to denominations and except as may otherwise be provided in or pursuant to the Board Resolution establishing the series (subject to Section 303) and set forth in an Officers' Certificate or in any indenture supplemental hereto. All Securities of any one series need not be issued at the same time and, unless otherwise provided, a series may be reopened, without the consent of the Holders, for issuances of additional Securities of such series. If any of the terms of the Securities of any series are established by action taken pursuant to one or more Board Resolutions, a copy of an appropriate record of such action(s) shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the Securities of such series. SECTION 302. Denominations. The Securities of each series shall be issuable in such denominations as shall be specified as contemplated by Section 301. With respect to Securities of any series denominated in Dollars, in the absence of any such provisions, the Registered Securities of such series, other than Registered Securities issued in global form (which may be of any denomination), shall be issuable in denominations of $1,000 and any integral multiple thereof. SECTION 303. Execution, Authentication, Delivery and Dating. The Securities and any coupons appertaining thereto shall be executed on behalf of the Company by its President or one of its Vice Presidents, under its seal reproduced thereon, and attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities and coupons may be manual or facsimile signatures of the present or any future such authorized officer and may be imprinted or otherwise reproduced on the Securities. Securities or coupons bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities or coupons. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series, together with any coupon appertaining thereto, executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities; provided, however, that, in connection with its original issuance, no Bearer Security shall be mailed or otherwise delivered to any location in the 15 United States; and provided further that, unless otherwise specified with respect to any series of Securities pursuant to Section 301, a Bearer Security may be delivered in connection with its original issuance only if the Person entitled to receive such Bearer Security shall have furnished a certificate in the form set forth in Exhibit A-1 to this Indenture or such other certificate as may be specified with respect to any series of Securities pursuant to Section 301, dated no earlier than 15 days prior to the earlier of the date on which such Bearer Security is delivered and the date on which any temporary Security first becomes exchangeable for such Bearer Security in accordance with the terms of such temporary Security and this Indenture. If any Security shall be represented by a permanent global Bearer Security, then, for purposes of this Section and Section 304, the notation of a beneficial owner's interest therein upon original issuance of such Security or upon exchange of a portion of a temporary global Security shall be deemed to be delivery in connection with its original issuance of such beneficial owner's interest in such permanent global Security. Except as permitted by Section 306, the Trustee shall not authenticate and deliver any Bearer Security unless all appurtenant coupons for interest then matured have been detached and cancelled. If all the Securities of any series are not to be issued at one time and if the Board Resolution or supplemental indenture establishing such series shall so permit, such Company Order may set forth procedures acceptable to the Trustee for the issuance of such Securities and determining the terms of particular Securities of such series, such as interest rate or formula, maturity date, date of issuance and date from which interest shall accrue. In authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to TIA Sections 315(a) through 315(d)) shall be fully protected in relying upon, (i) an Opinion of Counsel stating that (a) the form or forms of such Securities and any coupons have been established in conformity with the provisions of this Indenture; (b) the terms of such Securities and any coupons have been established in conformity with the provisions of this Indenture; and (c) such Securities, together with any coupons appertaining thereto, when completed by appropriate insertions and executed and delivered by the Company to the Trustee for authentication in accordance with this Indenture, authenticated and delivered by the Trustee in accordance with this Indenture and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute legal, valid and binding obligations of the Company, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization and other similar laws of general applicability relating to or affecting the enforcement of creditors' rights generally and to general equitable principles; and (ii) an Officers' Certificate stating that all conditions precedent provided for in this Indenture relating to the issuance of the Securities have been complied with and that, to the best of the knowledge of the signers of such certificate, no Event of Default with respect to any of the Securities shall have occurred and be continuing. If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties, obligations or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee. Notwithstanding the provisions of Section 301 and of the preceding paragraph, if all the Securities of any series are not to be issued at one time, it shall not be necessary to deliver an Officers' Certificate otherwise required pursuant to Section 301 or a Company Order, or an Opinion of Counsel or an Officers' Certificate otherwise required pursuant to the preceding paragraph at the time of issuance of each Security of such series, but such order, opinion and certificates, with appropriate modifications to cover such future issuances, shall be delivered at or before the time of issuance of the first Security of such series. 16 Each Registered Security shall be dated the date of its authentication and each Bearer Security shall be dated as of the date specified as contemplated by Section 301. No Security or coupon shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security or Security to which such coupon appertains a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized officer, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 309 together with a written statement (which need not comply with Section 102 and need not be accompanied by an Opinion of Counsel) stating that such Security has never been issued and sold by the Company, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. SECTION 304. Temporary Securities. (a) Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued, in registered form, or, if authorized, in bearer form with one or more coupons or without coupons, and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities. In the case of Securities of any series, such temporary Securities may be in global form. Except in the case of temporary Securities in global form (which shall be exchanged in accordance with Section 304(b) or as otherwise provided in or pursuant to a Board Resolution), if temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series (accompanied by any non-matured coupons appertaining thereto), the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of the same series of authorized denominations; provided, however, that no definitive Bearer Security shall be delivered in exchange for a temporary Registered Security; and provided further that a definitive Bearer Security shall be delivered in exchange for a temporary Bearer Security only in compliance with the conditions set forth in Section 303. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series. (b) Unless otherwise provided in or pursuant to a Board Resolution, this Section 304(b) shall govern the exchange of temporary Securities issued in global form other than through the facilities of DTC. If any such temporary Security is issued in global form, then such temporary global Security shall, unless otherwise provided therein, be delivered to the London office of a depositary or common depositary (the "Common Depositary"), for the benefit of Euroclear and CEDEL, for credit to the respective accounts of the beneficial owners of such Securities (or to such other accounts as they may direct). Without unnecessary delay but in any event not later than the date specified in, or determined pursuant to the terms of, any such temporary global Security (the "Exchange Date"), the Company shall deliver to the Trustee definitive Securities, in aggregate principal amount equal to the principal amount of such temporary global Security, executed by the Company. On or after the Exchange Date, such temporary global Security shall be surrendered by the Common Depositary to the Trustee, as the Company's agent for such purpose, to be exchanged, in whole or from time to time in part, for definitive Securities without charge, and the Trustee shall authenticate and deliver, in exchange for each portion of such temporary global Security, an equal aggregate principal amount of definitive Securities of the same series of authorized denominations and of like tenor as the portion of such temporary global Security to be exchanged. 17 The definitive Securities to be delivered in exchange for any such temporary global Security shall be in bearer form, registered form, permanent global bearer form or permanent global registered form, or any combination thereof, as specified as contemplated by Section 301, and, if any combination thereof is so specified, as requested by the beneficial owner thereof; provided, however, that, unless otherwise specified in such temporary global Security, upon such presentation by the Common Depositary, such temporary global Security is accompanied by a certificate dated the Exchange Date or a subsequent date and signed by Euroclear as to the portion of such temporary global Security held for its account then to be exchanged and a certificate dated the Exchange Date or a subsequent date and signed by CEDEL as to the portion of such temporary global Security held for its account then to be exchanged, each in the form set forth in Exhibit A-2 to this Indenture or in such other form as may be established pursuant to Section 301; and provided further that definitive Bearer Securities shall be delivered in exchange for a portion of a temporary global Security only in compliance with the requirements of Section 303. Unless otherwise specified in such temporary global Security, the interest of a beneficial owner of Securities of a series in a temporary global Security shall be exchanged for definitive Securities of the same series and of like tenor following the Exchange Date when the account holder instructs Euroclear or CEDEL, as the case may be, to request such exchange on his behalf and delivers to Euroclear or CEDEL, as the case may be, a certificate in the form set forth in Exhibit A-1 to this Indenture (or in such other forms as may be established pursuant to Section 301), dated no earlier than 15 days prior to the Exchange Date, copies of which certificate shall be available from the offices of Euroclear and CEDEL, the Trustee, any Authenticating Agent appointed for such series of Securities and each Paying Agent. Unless otherwise specified in such temporary global Security, any such exchange shall be made free of charge to the beneficial owners of such temporary global Security, except that a Person receiving definitive Securities must bear the cost of insurance, postage, transportation and the like unless such Person takes delivery of such definitive Securities in person at the offices of Euroclear or CEDEL. Definitive Securities in bearer form to be delivered in exchange for any portion of a temporary global Security shall be delivered only outside the United States. Until exchanged in full as hereinabove provided, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of the same series and of like tenor authenticated and delivered hereunder, except that, unless otherwise specified as contemplated by Section 301, interest payable on a temporary global Security on an Interest Payment Date for Securities of such series occurring prior to the applicable Exchange Date shall be payable to Euroclear and CEDEL on such Interest Payment Date upon delivery by Euroclear and CEDEL to the Trustee of a certificate or certificates in the form set forth in Exhibit A-2 to this Indenture (or in such other forms as may be established pursuant to Section 301), for credit without further interest on or after such Interest Payment Date to the respective accounts of persons who are the beneficial owners of such temporary global Security on such Interest Payment Date and who have each delivered to Euroclear or CEDEL, as the case may be, a certificate dated no earlier than 15 days prior to the Interest Payment Date occurring prior to such Exchange Date in the form set forth as Exhibit A-1 to this Indenture (or in such other forms as may be established pursuant to Section 301). Notwithstanding anything to the contrary herein contained, the certifications made pursuant to this paragraph shall satisfy the certification requirements of the preceding two paragraphs of this Section 304 (b) and of the third paragraph of Section 303 of this Indenture and the interests of the Persons who are the beneficial owners of a temporary global Security with respect to which such certification was made will be exchanged for definitive Securities of the same series and of like tenor on the Exchange Date or the date of certification if such date occurs after the Exchange Date, without further act or deed by such beneficial owners. Except as otherwise provided in this paragraph, no payments of principal or interest owing with respect to a beneficial interest in a temporary global Security will be made unless and until such interest in such temporary global Security shall have been exchanged for an interest in a definitive Security. Any interest so received by Euroclear and CEDEL and not paid as herein provided shall be returned to the Trustee prior to the expiration of two years after such Interest Payment Date in order to be repaid to the Company. SECTION 305. Registration, Registration of Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee or in any office or agency of the Company in a Place of Payment a register for each series of Securities (the registers maintained in such office or in any such office or agency of the Company in a Place of Payment being herein sometimes referred to collectively as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Registered Securities and of transfers of Registered Securities. The Security Register shall be in written form or any other form 18 capable of being converted into written form within a reasonable time. The Trustee, at its Corporate Trust Office, is hereby initially appointed "Security Registrar" for the purpose of registering Registered Securities and transfers of Registered Securities on such Security Register as herein provided. In the event that the Trustee shall cease to be Security Registrar, it shall have the right to examine the Security Register at all reasonable times. Subject to the provisions of this Section 305, upon surrender for registration of transfer of any Registered Security of any series at any office or agency of the Company in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Registered Securities of the same series, of any authorized denominations and of a like aggregate principal amount, bearing a number not contemporaneously outstanding, and containing identical terms and provisions. Subject to the provisions of this Section 305, at the option of the Holder, Registered Securities of any series may be exchanged for other Registered Securities of the same series, of any authorized denomination or denominations and of a like aggregate principal amount, containing identical terms and provisions, upon surrender of the Registered Securities to be exchanged at any such office or agency. Whenever any such Registered Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Registered Securities which the Holder making the exchange is entitled to receive. Unless otherwise specified with respect to any series of Securities as contemplated by Section 301, Bearer Securities may not be issued in exchange for Registered Securities. If (but only if) permitted by the applicable Board Resolution and (subject to Section 303) set forth in the applicable Officers' Certificate, or in any indenture supplemental hereto, delivered as contemplated by Section 301, at the option of the Holder, Bearer Securities of any series may be exchanged for Registered Securities of the same series of any authorized denominations and of a like aggregate principal amount and tenor, upon surrender of the Bearer Securities to be exchanged at any such office or agency, with all unmatured coupons and all matured coupons in default thereto appertaining. If the Holder of a Bearer Security is unable to produce any such unmatured coupon or coupons or matured coupon or coupons in default, any such permitted exchange may be effected if the Bearer Securities are accompanied by payment in funds acceptable to the Company in an amount equal to the face amount of such missing coupon or coupons, or the surrender of such missing coupon or coupons may be waived by the Company and the Trustee if there is furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to any Paying Agent any such missing coupon in respect of which such a payment shall have been made, such Holder shall be entitled to receive the amount of such payment; provided, however, that, except as otherwise provided in Section 1002, interest represented by coupons shall be payable only upon presentation and surrender of those coupons at an office or agency located outside the United States. Notwithstanding the foregoing, in case a Bearer Security of any series is surrendered at any such office or agency in a permitted exchange for a Registered Security of the same series and like tenor after the close of business at such office or agency on (i) any Regular Record Date and before the opening of business at such office or agency on the relevant Interest Payment Date, or (ii) any Special Record Date and before the opening of business at such office or agency on the related proposed date for payment of Defaulted Interest, such Bearer Security shall be surrendered without the coupon relating to such Interest Payment Date or proposed date for payment, as the case may be, and interest or Defaulted Interest, as the case may be, will not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the Holder of such coupon when due in accordance with the provisions of this Indenture. Whenever any Bearer Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. Notwithstanding the foregoing, except as otherwise specified as contemplated by Section 301, any permanent global Security shall be exchangeable only as provided in this paragraph. If the depositary for any permanent global Security is DTC, then, unless the terms of such global Security expressly permit such global Security to be exchanged in whole or in part for definitive Securities, a global Security may be transferred, in whole but not in part, only to a nominee of DTC, or by a nominee of DTC to DTC, or to a successor to DTC for such global Security selected or approved by the Company or to a nominee of such successor to DTC. If at any time DTC notifies the Company that 19 it is unwilling or unable to continue as depositary for the applicable global Security or Securities or if at any time DTC ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, if so required by applicable law or regulation, the Company shall appoint a successor depositary with respect to such global Security or Securities. If (x) a successor depositary for such global Security or Securities is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such unwillingness, inability or ineligibility, (y) an Event of Default has occurred and is continuing and the beneficial owners representing a majority in principal amount of the applicable series of Securities represented by such global Security or Securities advise DTC to cease acting as depositary for such global Security or Securities or (z) the Company, in its sole discretion, determines at any time that all Outstanding Securities (but not less than all) of any series issued or issuable in the form of one or more global Securities shall no longer be represented by such global Security or Securities, then the Company shall execute, and the Trustee shall authenticate and deliver, definitive Securities of like series, rank, tenor and terms in definitive form in an aggregate principal amount equal to the principal amount of such global Security or Securities. If any beneficial owner of an interest in a permanent global Security is otherwise entitled to exchange such interest for Securities of such series and of like tenor and principal amount of another authorized form and denomination, as specified as contemplated by Section 301 and provided that any applicable notice provided in the permanent global Security shall have been given, then without unnecessary delay but in any event no later than the earliest date on which such interest may be so exchanged, the Company shall execute, and the Trustee shall authenticate and deliver, definitive Securities in aggregate principal amount equal to the principal amount of such beneficial owner's interest in such permanent global Security. On or after the earliest date on which such interests may be so exchanged, such permanent global Security shall be surrendered for exchange by DTC or such other depositary as shall be specified in the Company Order with respect thereto to the Trustee, as the Company's agent for such purpose; provided, however, that no such exchanges may occur during a period beginning at the opening of business 15 days before any selection of Securities to be redeemed and ending on the relevant Redemption Date if the Security for which exchange is requested may be among those selected for redemption; and provided further that no Bearer Security delivered in exchange for a portion of a permanent global Security shall be mailed or otherwise delivered to any location in the United States. If a Registered Security is issued in exchange for any portion of a permanent global Security after the close of business at the office or agency where such exchange occurs on (i) any Regular Record Date and before the opening of business at such office or agency on the relevant Interest Payment Date, or (ii) any Special Record Date and before the opening of business at such office or agency on the related proposed date for payment of Defaulted Interest, interest or Defaulted Interest, as the case may be, will not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of such Registered Security, but will be payable on such Interest Payment Date or proposed date for payment, as the case may be, only to the Person to whom interest in respect of such portion or such permanent global Security is payable in accordance with the provisions of this Indenture. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Registered Security presented or surrendered for registration of transfer or for exchange or redemption shall (if so required by the Company or the Security Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906, 1107 or 1305 not involving any transfer. The Company or the Trustee, as applicable, shall not be required (i) to issue, register the transfer of or exchange any Security if such Security may be among those selected for redemption during a period beginning at the opening of business 15 days before selection of the Securities to be redeemed under Section 1103 and ending at the close of business on (A) if such Securities are issuable only as Registered Securities, the day of the mailing of the relevant notice of redemption and (B) if such Securities are issuable as Bearer Securities, the day of the first publication of the 20 relevant notice of redemption or, if such Securities are also issuable as Registered Securities and there is no publication, the mailing of the relevant notice of redemption, or (ii) to register the transfer of or exchange any Registered Security so selected for redemption in whole or in part, except, in the case of any Registered Security to be redeemed in part, the portion thereof not to be redeemed, or (iii) to exchange any Bearer Security so selected for redemption except that such a Bearer Security may be exchanged for a Registered Security of that series and of like tenor; provided that such Registered Security shall be simultaneously surrendered for redemption, or (iv) to issue, register the transfer of or exchange any Security which has been surrendered for repayment at the option of the Holder, except that portion, if any, of such Security which is not to be so repaid. SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security or a Security with a mutilated coupon appertaining to it is surrendered to the Trustee or the Company, together with, in proper cases, such security or indemnity as may be required by the Company or the Trustee to save each of them or any agent of either of them harmless, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and principal amount, containing identical terms and provisions and bearing a number not contemporaneously outstanding, with coupons corresponding to the coupons, if any, appertaining to the surrendered Security. If there shall be delivered to the Company and to the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security or coupon, and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of written notice to the Company or the Trustee that such Security or coupon has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security or in exchange for the Security to which a destroyed, lost or stolen coupon appertains (with all appurtenant coupons not destroyed, lost or stolen), a new Security of the same series and principal amount, containing identical terms and provisions and bearing a number not contemporaneously outstanding, with coupons corresponding to the coupons, if any, appertaining to such destroyed, lost or stolen Security or to the Security to which such destroyed, lost or stolen coupon appertains. Notwithstanding the provisions of the previous two paragraphs, in case any such mutilated, destroyed, lost or stolen Security or coupon has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, with coupons corresponding to the coupons, if any, appertaining to such destroyed, lost or stolen Security or to the Security to which such destroyed, lost or stolen coupon appertains, pay such Security or coupon; provided, however, that payment of principal of (and premium, if any), any interest on and any Additional Amounts with respect to, Bearer Securities shall, except as otherwise provided in Section 1002, be payable only at an office or agency located outside the United States and, unless otherwise specified as contemplated by Section 301, any interest on Bearer Securities shall be payable only upon presentation and surrender of the coupons appertaining thereto. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security of any series with its coupons, if any, issued pursuant to this Section in lieu of any destroyed, lost or stolen Security, or in exchange for a Security to which a destroyed, lost or stolen coupon appertains, shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security and its coupons, if any, or the destroyed, lost or stolen coupon shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series and their coupons, if any, duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or coupons. SECTION 307. Payment of Interest; Interest Rights Preserved. Except as otherwise specified with respect to a series of Securities in accordance with the provisions of Section 301, interest on any Registered Security that 21 is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company maintained for such purpose pursuant to Section 1002; provided, however, that each installment of interest on any Registered Security may at the Company's option be paid by (i) mailing a check for such interest, payable to or upon the written order of the Person entitled thereto pursuant to Section 308, to the address of such Person as it appears on the Security Register or (ii) transfer to an account maintained by the payee located inside the United States. Unless otherwise provided as contemplated by Section 301 with respect to the Securities of any series, payment of interest may be made, in the case of a Bearer Security, by transfer to an account maintained by the payee with a bank located outside the United States. Unless otherwise provided as contemplated by Section 301, every permanent global Security will provide that interest, if any, payable on any Interest Payment Date will be paid to DTC, Euroclear and/or CEDEL, as the case may be, with respect to that portion of such permanent global Security held for its account by Cede & Co. or the Common Depositary, as the case may be, for the purpose of permitting such party to credit the interest received by it in respect of such permanent global Security to the accounts of the beneficial owners thereof. In case a Bearer Security of any series is surrendered in exchange for a Registered Security of such series after the close of business (at an office or agency in a Place of Payment for such series) on any Regular Record Date and before the opening of business (at such office or agency) on the next succeeding Interest Payment Date, such Bearer Security shall be surrendered without the coupon relating to such Interest Payment Date and interest will not be payable on such Interest Payment Date in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the Holder of such coupon when due in accordance with the provisions of this Indenture. Except as otherwise specified with respect to a series of Securities in accordance with the provisions of Section 301, any interest on any Registered Security of any series that is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the registered Holder thereof on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Registered Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Registered Security of such series and the date of the proposed payment (which shall not be less than 20 days after such notice is received by the Trustee), and at the same time the Company shall deposit with the Trustee an amount of money in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall not be more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Registered Securities of such series at his address as it appears in the Security Register not less than 10 days prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published at least once in an Authorized Newspaper in each Place of Payment, but such publications shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and 22 the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Registered Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). In case a Bearer Security of any series is surrendered for transfer or exchange at the office or agency in a Place of Payment for such series after the close of business at such office or agency on any Special Record Date and before the opening of business at such office or agency on the related proposed date for payment of Defaulted Interest, such Bearer Security shall be surrendered without the coupon relating to such proposed date of payment and Defaulted Interest will not be payable on such proposed date of payment in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the Holder of such coupon when due in accordance with the provisions of this Indenture. (2) The Company may make payment of any Defaulted Interest on the Registered Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section and Section 305, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 308. Persons Deemed Owners. Prior to due presentment of a Registered Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Registered Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any), and (subject to Sections 305 and 307) interest on, such Registered Security and for all other purposes whatsoever, whether or not such Registered Security is overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. Title to any Bearer Security and any coupons appertaining thereto shall pass by delivery. The Company, the Trustee and any agent of the Company or the Trustee may treat the Holder of any Bearer Security and the Holder of any coupon as the absolute owner of such Security or coupon for the purpose of receiving payment thereof or on account thereof and for all other purposes whatsoever, whether or not such Security or coupon is overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. None of the Company, the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Security in global form or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Notwithstanding the foregoing, with respect to any global Security, nothing herein shall prevent the Company, the Trustee, or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by any depositary, as a Holder, with respect to such global Security or impair, as between such depositary and owners of beneficial interests in such global Security, the operation of customary practices governing the exercise of the rights of such depositary (or its nominee) as Holder of such global Security. SECTION 309. Cancellation. All Securities and coupons surrendered for payment, redemption, repayment at the option of the Holder, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee, and any such Securities and coupons and Securities and coupons surrendered directly to the Trustee for any such purpose shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by the Trustee. 23 If the Company shall so acquire any of the Securities, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. Cancelled Securities and coupons held by the Trustee shall be destroyed by the Trustee and the Trustee shall deliver a certificate of such destruction to the Company, unless by a Company Order the Company directs their return to it. SECTION 310. Computation of Interest. Except as otherwise specified as contemplated by Section 301 with respect to Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year consisting of twelve 30-day months. ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. Satisfaction and Discharge of Indenture. This Indenture shall upon Company Request cease to be of further effect with respect to any series of Securities specified in such Company Request (except as to any surviving rights of registration of transfer or exchange of Securities of such series herein expressly provided for and any right to receive Additional Amounts, as provided in Section 1007), and the Trustee, upon receipt of a Company Order, and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to such series when (1) either (A) all Securities of such series theretofore authenticated and delivered and all coupons, if any, appertaining thereto (other than (i) coupons appertaining to Bearer Securities surrendered for exchange for Registered Securities and maturing after such exchange, whose surrender is not required or has been waived as provided in Section 305, (ii) Securities and coupons of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306, (iii) coupons appertaining to Securities called for redemption and maturing after the relevant Redemption Date, whose surrender has been waived as provided in Section 1106, and (iv) Securities and coupons of such series for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all Securities of such series and, in the case of (i) or (ii) below, any coupons appertaining thereto, not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) if redeemable at the option of the Company, are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has irrevocably deposited or caused to be deposited with the Trustee as funds in trust for such purpose an amount in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are 24 payable, sufficient to pay and discharge the entire indebtedness on such Securities and such coupons not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest, and any Additional Amounts with respect thereto, to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture as to such series have been complied with. The obligations of the Company to the Trustee and any predecessor Trustee under Section 606, the obligations of the Company to any Authenticating Agent under Section 611 and, if money shall have been deposited with and held by the Trustee pursuant to subclause (B) of clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive the satisfaction and discharge of this Indenture. SECTION 402. Application of Trust Funds. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities, the coupons and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any), and any interest and Additional Amounts for whose payment such money has been deposited with or received by the Trustee, but such money need not be segregated from other funds except to the extent required by law. ARTICLE FIVE REMEDIES SECTION 501. Events of Default. "Event of Default", wherever used herein with respect to any particular series of Securities, means any one of the following events (whatever the reason for such Event of Default and whether or not it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest upon or any Additional Amounts payable in respect of any Security of that series or of any coupon appertaining thereto, when such interest, Additional Amounts or coupon becomes due and payable, and continuance of such default for a period of 30 days; or (2) default in the payment of the principal of (or premium, if any, on) any Security of that series when it becomes due and payable at its Maturity; or (3) default in the deposit of any sinking fund payment, when and as due by the terms of any Security of that series; or (4) default in the performance of, or breach of, any covenant of the Company in this Indenture (other than a covenant a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has been expressly included in this Indenture solely for the benefit of a series of Securities other than that series), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least a majority in principal amount of the Outstanding Securities of that series a 25 written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (5) a default under any bond, debenture, note or other evidence of indebtedness of the Company, or under any mortgage, indenture or other instrument of the Company (including a default with respect to Securities of any series other than that series) under which there may be issued or by which there may be secured any indebtedness of the Company (or by any Subsidiary, the repayment of which the Company has guaranteed or for which the Company is directly responsible or liable as obligor or guarantor), whether such indebtedness now exists or shall hereafter be created, which default shall constitute a failure to pay an aggregate principal amount exceeding $25,000,000 of such indebtedness when due and payable after the expiration of any applicable grace period with respect thereto and shall have resulted in such indebtedness in an aggregate principal amount exceeding $25,000,000 becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been rescinded or annulled, within a period of 10 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least a majority in principal amount of the Outstanding Securities of that series a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled and stating that such notice is a "Notice of Default" hereunder; or (6) the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, or (D) makes a general assignment for the benefit of its creditors; or (7) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Significant Subsidiary in an involuntary case, (B) appoints a Custodian of the Company or any Significant Subsidiary or for all or substantially all of either of its property, or (C) orders the liquidation of the Company or any Significant Subsidiary, and the order or decree remains unstayed and in effect for 90 days; or (8) any other Event of Default provided with respect to Securities of that series. As used in this Section 501, the term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or State law for the relief of debtors and the term "Custodian" means any receiver, trustee, assignee, liquidator or other similar official under any Bankruptcy Law. SECTION 502. Acceleration of Maturity; Rescission and Annulment. If an Event of Default with respect to Securities of any series at the time Outstanding occurs and is continuing (other than an Event of Default described in Section 501(6) or 501(7)), then and in every such case the Trustee or the Holders of not less than a majority 26 in principal amount of the Outstanding Securities of that series may declare the principal (or, if any Securities are Original Issue Discount Securities or Indexed Securities, such portion of the principal as may be specified in the terms thereof) of all the Securities of that series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by the Holders), and upon any such declaration such principal or specified portion thereof shall become immediately due and payable. If an Event of Default described in Section 501(6) or 501(7) with respect to any series of Securities at the time outstanding occurs, the principal amount of all of the Securities of that series (or, in the case of any such Original Issue Discount Securities or Indexed Securities, such portion of the principal as may be specified in the terms thereof) will automatically, and without any action by the Trustee or any Holder thereof, become immediately due and payable. At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (1) the Company has paid or deposited with the Trustee a sum sufficient to pay in the currency, currency unit or composite currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series): (A) all overdue installments of interest on and any Additional Amounts payable in respect of all Outstanding Securities of that series and any related coupons, (B) the principal of (and premium, if any, on) any Outstanding Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon at the rate or rates borne by or provided for in such Securities, (C) to the extent that payment of such interest is lawful, interest upon overdue installments of interest and any Additional Amounts at the rate or rates borne by or provided for in such Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default with respect to Securities of that series, other than the nonpayment of the principal of (or premium, if any) or interest on Securities of that series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if: (1) default is made in the payment of any installment of interest or Additional Amounts, if any, on any Security of any series and any related coupon when such interest or Additional Amount becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Security of any series at its Maturity, then the Company will, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Securities of such series and coupons, the whole amount then due and payable on such Securities and coupons for principal (and premium, if any) and interest and Additional Amounts thereon, with interest upon any overdue principal (and premium, if any) and, to the extent that payment of such interest shall be legally enforceable, upon any overdue installments of 27 interest or Additional Amounts thereon, if any, at the rate or rates borne by or provided for in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon such Securities of such series and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities of such series, wherever situated. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series and any related coupons by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 504. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities of any series shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal of, or premium, if any, or interest on, the Securities) shall be entitled and empowered, by intervention in such proceeding or otherwise: (i) to file and prove a claim for the whole amount, or such lesser amount as may be provided for in the Securities of such series, of principal (and premium, if any) and interest and Additional Amount, if any, owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Holder of Securities of such series and coupons to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee and any predecessor Trustee, their agents and counsel, and any other amounts due the Trustee or any predecessor Trustee under Section 606. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of a Security or coupon any plan of reorganization, arrangement, adjustment or composition affecting the Securities or coupons or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder of a Security or coupon in any such proceeding. SECTION 505. Trustee May Enforce Claims Without Possession of Securities or Coupons. All rights of action and claims under this Indenture or any of the Securities or coupons may be prosecuted and enforced by the Trustee without the possession of any of the Securities or coupons or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, 28 disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of Securities and coupons in respect of which such judgment has been recovered. SECTION 506. Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest and any Additional Amounts, upon presentation of the Securities or coupons, or both, as the case may be, and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due to the Trustee and any predecessor Trustee under Section 606; SECOND: To the payment of the amounts then due and unpaid upon the Securities and coupons for principal (and premium, if any) and interest and any Additional Amounts payable, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the aggregate amounts due and payable on such Securities and coupons for principal (and premium, if any), interest and Additional Amounts, respectively; and THIRD: To the payment of the remainder, if any, to the Company. SECTION 507. Limitation on Suits. No Holder of any Security of any series or any related coupon shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series; (2) the Holders of not less than a majority in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. SECTION 508. Unconditional Right of Holders to Receive Principal, Premium, if any, Interest and Additional Amounts. Notwithstanding any other provision in this Indenture, the Holder of any Security or coupon shall have the right which is absolute and unconditional to receive payment of the principal of (and premium, if any) and (subject to Sections 305 and 307) interest on, and any Additional Amounts in respect of, such Security or payment of such coupon on the respective due dates expressed in such Security or coupon (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. 29 SECTION 509. Restoration of Rights and Remedies. If the Trustee or any Holder of a Security or coupon has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case the Company, the Trustee and the Holders of Securities and coupons shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 510. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or coupons in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders of Securities or coupons is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 511. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security or coupon to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders of Securities or coupons, as the case may be. SECTION 512. Control by Holders of Securities. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Securities of such series; provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) the Trustee need not take any action which might expose it to personal liability or be unduly prejudicial to the Holders of Securities of such series not joining therein. SECTION 513. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series and any related coupons waive any past default hereunder with respect to such series and its consequences, except a default (1) in the payment of the principal of (or premium, if any) or interest on or Additional Amounts payable in respect of any Security of such series or any related coupons, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 514. Waiver of Usury, Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully 30 do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 515. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than a majority in principal amount of the Outstanding Securities, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Security on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date). ARTICLE SIX THE TRUSTEE SECTION 601. Notice of Defaults. Within 90 days after the occurrence of any default hereunder with respect to the Securities of any series, the Trustee shall transmit in the manner and to the extent provided in TIA Section 313(c), notice of such default hereunder known to the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest on or any Additional Amounts or sinking fund installment with respect to the Securities of such series, the Trustee shall be protected in withholding such notice if and so long as Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders of the Securities and coupons of such series; and provided further that in the case of any default or breach of the character specified in Section 501(4) with respect to the Securities and coupons of such series, no such notice to Holders shall be given until at least 60 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to the Securities of such series. SECTION 602. Certain Rights of Trustee. Subject to the provisions of TIA Section 315(a) through 315(d): (1) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order (other than delivery of any Security, together with any coupons appertaining thereto, to the Trustee for authentication and delivery pursuant to Section 303 which shall be sufficiently evidenced as provided therein) and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting to take any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; 31 (4) the Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders of Securities of any series or any related coupons pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; and (8) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. The Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers. SECTION 603. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificate of authentication, and in any coupons shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities or coupons, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder. Neither the Trustee nor the Authenticating Agent shall be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 604. May Hold Securities. The Trustee, any Paying Agent, Security Registrar, Authenticating Agent or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and coupons and, subject to TIA Sections 310(b) and 311, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar, Authenticating Agent or such other agent. SECTION 605. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. SECTION 606. Compensation and Reimbursement. The Company agrees: (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); 32 (2) except as otherwise expressly provided herein, to reimburse each of the Trustee and any predecessor Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify each of the Trustee and any predecessor Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its own part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 501(6) or Section 501(7), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or state bankruptcy, insolvency or other similar law. As security for the performance of the obligations of the Company under this Section, the Trustee shall have a lien prior to the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (or premium, if any) or interest on particular Securities or coupons. The provisions of this Section shall survive the termination of this Indenture. SECTION 607. Corporate Trustee Required; Eligibility; Conflicting Interests. There shall at all times be a Trustee hereunder which shall be eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined capital and surplus of at least $50,000,000. If such corporation publishes reports of condition at least annually, pursuant to law or the requirements of Federal, state, Territorial or District of Columbia supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 608. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 609. (b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with the provisions of TIA Section 310(b) after written request therefor by the Company or by any Holder of a Security who has been a bona fide Holder of a Security for at least six months, or 33 (2) the Trustee shall cease to be eligible under Section 607(a) and shall fail to resign after written request therefor by the Company or by any Holder of a Security who has been a bona fide Holder of a Security for at least six months, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by or pursuant to a Board Resolution may remove the Trustee and appoint a successor Trustee with respect to all Securities, or (ii) subject to TIA Section 315(e), any Holder of a Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any reason with respect to the Securities of one or more series, the Company, by or pursuant to a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series). If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders of Securities and accepted appointment in the manner hereinafter provided any Holder of a Security who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to Securities of such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series in the manner provided for notices to the Holders of Securities in Section 106. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. SECTION 609. Acceptance of Appointment by Successor. (a) In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, upon request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee, and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder, subject nevertheless to its claim, if any, provided for in Section 606. (b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto, pursuant to Article Nine hereof, wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such 34 provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. (c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in, and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be. (d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 610. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder; provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities or coupons shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities or coupons so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities or coupons. In case any Securities or coupons shall not have been authenticated by such predecessor Trustee, any such successor Trustee may authenticate and deliver such Securities or coupons, in either its own name or that of its predecessor Trustee, with the full force and effect which this Indenture provides for the certificate of authentication of the Trustee. SECTION 611. Appointment of Authentication Agent. At any time when any of the Securities remain Outstanding, the Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon exchange, registration of transfer or partial redemption or repayment thereof, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Any such appointment shall be evidenced by an instrument in writing signed by a Responsible Officer of the Trustee, a copy of which instrument shall be promptly furnished to the Company. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and, except as may otherwise be provided pursuant to Section 301, shall at all times be a bank or trust company or corporation organized and doing business and in good standing under the laws of the United States of America or of any State or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by federal or state authorities. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time an 35 Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent for any series of Securities may at any time resign by giving written notice of resignation to the Trustee for such series and to the Company. The Trustee for any series of Securities may at any time terminate the agency of an Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee for such series may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall give notice of such appointment to all Holders of Securities of the series with respect to which such Authenticating Agent will serve in the manner set forth in Section 106. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent herein. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation including reimbursement of its reasonable expenses for its services under this Section. If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to or in lieu of the Trustee's certificate of authentication, an alternate certificate of authentication substantially in the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. ----------------------------------- as Trustee By:_________________________________ as Authenticating Agent By:__________________________________ Authorized Officer ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. Disclosure of Names and Addresses of Holders. Every Holder of Securities or coupons, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any Authenticating Agent nor any Paying Agent nor any Security Registrar shall be held accountable by reason of the disclosure of any information as to the names and addresses of the Holders of Securities in accordance 36 with TIA Section 312, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under TIA Section 312(b). SECTION 702. Reports by Trustee. Within 60 days after May 15 of each year commencing with the first May 15 after the first issuance of Securities pursuant to this Indenture, the Trustee shall transmit by mail to all Holders of Securities as provided in TIA Section 313(c) a brief report dated as of such May 15 if required by TIA Section 313(a). SECTION 703. Reports by Company. The Company will: (1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934; or, if the Company is not required to file information, documents or reports pursuant to either of such Sections, then it will file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (3) transmit by mail to the Holders of Securities, within 30 days after the filing thereof with the Trustee, in the manner and to the extent provided in TIA Section 313(c), such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this section as may be required by rules and regulations prescribed from time to time by the Commission. SECTION 704. Company to Furnish to Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee: (a) semi-annually, not later than 25 days after the Regular Record Date for interest for each series of Securities, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Registered Securities of such series as of such Regular Record Date, or if there is no Regular Record Date for interest for such series of Securities, semiannually, upon such dates as are set forth in the Board Resolution or indenture supplemental hereto authorizing such series, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that, so long as the Trustee is the Security Registrar, no such list shall be required to be furnished. ARTICLE EIGHT CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE SECTION 801. Consolidations and Mergers of Company and Sales, Leases and Conveyances Permitted Subject to Certain Conditions. The Company may consolidate with, or sell, lease or convey all or substantially all of its assets to, or merge with or into any other corporation; provided that in any such case, (i) either the Company 37 shall be the continuing corporation, or the successor corporation shall be a corporation organized and existing under the laws of the United States or a State thereof and such successor corporation shall expressly assume the due and punctual payment of the principal of (and premium, if any) and any interest (including all Additional Amounts, if any, payable pursuant to Section 1007) on all of the Securities, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company by supplemental indenture, complying with Article Nine hereof, satisfactory to the Trustee, executed and delivered to the Trustee by such corporation and (ii) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or any Subsidiary as a result thereof as having been incurred by the Company or such Subsidiary at the time of such transaction, no Event of Default, and no event which, after notice or the lapse of time, or both, would become an Event of Default, shall have occurred and be continuing. SECTION 802. Rights and Duties of Successor Corporation. In case of any such consolidation, merger, sale, lease or conveyance and upon any such assumption by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party of the first part, and the predecessor corporation, except in the event of a lease, shall be relieved of any further obligation under this Indenture and the Securities. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of the Company, any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor corporation, instead of the Company, and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Securities which such successor corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale, lease or conveyance, such changes in phraseology and form (but not in substance) may be made in the Securities thereafter to be issued as may be appropriate. SECTION 803. Officers' Certificate and Opinion of Counsel. Any consolidation, merger, sale, lease or conveyance permitted under Section 801 is also subject to the condition that the Trustee receive an Officers' Certificate and an Opinion of Counsel to the effect that any such consolidation, merger, sale, lease or conveyance, and the assumption of the Company's obligations under this Indenture by any successor corporation, complies with the provisions of this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 901. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders of Securities or coupons, the Company, when authorized by or pursuant to a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities contained; or (2) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or 38 (3) to add any additional Events of Default for the benefit of the Holders of all or any series of Securities (and if such Events of Default are to be for the benefit of less than all series of Securities, stating that such Events of Default are expressly being included solely for the benefit of such series); provided, however, that in respect of any such additional Events of Default such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default or may limit the right of the Holders of a majority in aggregate principal amount of that or those series of Securities to which such additional Events of Default apply to waive such default; or (4) to add to or change any of the provisions of this Indenture to provide that Bearer Securities may be registrable as to principal, to change or eliminate any restrictions on the payment of principal of or any premium or interest on Bearer Securities, to permit Bearer Securities to be issued in exchange for Registered Securities, to permit Bearer Securities to be issued in exchange for Bearer Securities of other authorized denominations or to permit or facilitate the issuance of Securities in uncertificated form; provided, that any such action shall not adversely affect the interests of the Holders of Securities of any series or any related coupons in any material respect; or (5) to change or eliminate any of the provisions of this Indenture; provided that any such change or elimination shall become effective only when there is no Security Outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or (6) to secure the Securities; or (7) to establish the form or terms of Securities of any series and any related coupons as permitted by Sections 201 and 301, including the provisions and procedures relating to Securities convertible into Common Shares or Preferred Shares of the Company, as the case may be; or (8) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee; or (9) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture; provided such provisions shall not adversely affect the interests of the Holders of Securities of any series or any related coupons in any material respect; or (10) to supplement any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the defeasance and discharge of any series of Securities pursuant to Sections 401, 1402 and 1403; provided that any such action shall not adversely affect the interests of the Holders of Securities of such series and any related coupons or any other series of Securities in any material respect. SECTION 902. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of all Outstanding Securities affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by or pursuant to a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities and any related coupons under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby: 39 (1) change the Stated Maturity of the principal of (or premium, if any, on) or any installment of principal of or interest on, any Security; or reduce the principal amount thereof or the rate or amount of interest thereon or any Additional Amounts payable in respect thereof, or any premium payable upon the redemption thereof, or change any obligation of the Company to pay Additional Amounts pursuant to Section 1007 (except as contemplated by Section 801(i) and permitted by Section 901(1)), or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502 or the amount thereof provable in bankruptcy pursuant to Section 504, or adversely affect any right of repayment at the option of the Holder of any Security, or change any Place of Payment where, or the currency or currencies, currency unit or units or composite currency or currencies in which, any Security or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption or repayment at the option of the Holder, on or after the Redemption Date or the Repayment Date, as the case may be), or (2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver with respect to such series (or compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or reduce the requirements of Section 1504 for quorum or voting, or (3) modify any of the provisions of this Section, Section 513 or Section 1008, except to increase the required percentage to effect such action or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. SECTION 903. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modification thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 904. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder and of any coupon appertaining thereto shall be bound thereby. SECTION 905. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. SECTION 906. Reference in Securities to Supplemental Indentures. Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall, if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in 40 the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. ARTICLE TEN COVENANTS SECTION 1001. Payment of Principal, Premium, if any, Interest and Additional Amounts. The Company covenants and agrees for the benefit of the Holders of each series of Securities that it will duly and punctually pay the principal of (and premium, if any) and interest on and any Additional Amounts payable in respect of the Securities of that series in accordance with the terms of such series of Securities, any coupons appertaining thereto and this Indenture. Unless otherwise specified as contemplated by Section 301 with respect to any series of Securities, any interest due on and any Additional Amounts payable in respect of Bearer Securities on or before Maturity, other than Additional Amounts, if any, payable as provided in Section 1007 in respect of principal of (or premium, if any, on) such a Security, shall be payable only upon presentation and surrender of the several coupons for such interest installments as are evidenced thereby as they severally mature. Unless otherwise specified with respect to Securities of any series pursuant to Section 301, at the option of the Company, all payments of principal may be paid by check to the registered Holder of the Registered Security or other person entitled thereto against surrender of such Security. SECTION 1002. Maintenance of Office or Agency. If Securities of a series are issuable only as Registered Securities, the Company shall maintain in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment or conversion, where Securities of that series may be surrendered for registration of transfer or exchange, and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. If Securities of a series are issuable as Bearer Securities, the Company will maintain: (A) in the Borough of Manhattan, The City of New York, an office or agency where any Registered Securities of that series may be presented or surrendered for payment or conversion, where any Registered Securities of that series may be surrendered for registration of transfer, where Securities of that series may be surrendered for exchange, where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served and where Bearer Securities of that series and related coupons may be presented or surrendered for payment or conversion in the circumstances described in the following paragraph (and not otherwise); (B) subject to any laws or regulations applicable thereto, in a Place of Payment for that series which is located outside the United States, an office or agency where Securities of that series and related coupons may be presented and surrendered for payment (including payment of any Additional Amounts payable on Securities of that series pursuant to Section 1007) or conversion; provided, however, that if the Securities of that series are listed on the Luxembourg Stock Exchange or any other stock exchange located outside the United States and such stock exchange shall so require, the Company will maintain a Paying Agent for the Securities of that series in Luxembourg or any other required city located outside the United States, as the case may be, so long as the Securities of that series are listed on such exchange; and (C) subject to any laws or regulations applicable thereto, in a Place of Payment for that series located outside the United States an office or agency where any Registered Securities of that series may be surrendered for registration of transfer, where Securities of that series may be surrendered for exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of each such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, except that Bearer Securities of that series and the related coupons may be presented and surrendered for payment (including payment of any Additional Amounts payable on Bearer Securities of that series pursuant to Section 1007) or conversion at the offices specified in the Security in London, England, and the Company hereby appoints the same as its agent to receive such respective presentations, surrenders, notices and demands, and the Company hereby appoints the Trustee its agent to receive all such presentations, surrenders, notices and demands. Unless otherwise specified with respect to any Securities pursuant to Section 301, no payment of principal, premium or interest on or Additional Amounts in respect of Bearer Securities shall be made at any office or agency of the Company in the United States or by check mailed to any address in the United States or by transfer to an 41 account maintained with a bank located in the United States; provided, however, that, if the Securities of a series are payable in Dollars, payment of principal of and any premium and interest on any Bearer Security (including any Additional Amounts payable on Securities of such series pursuant to Section 1007) shall be made at the office of the Company's Paying Agent in the City of Boston, if (but only if) payment in Dollars of the full amount of such principal, premium, interest or Additional Amounts, as the case may be, at all offices or agencies outside the United States maintained for such purpose by the Company in accordance with this Indenture, is illegal or effectively precluded by exchange controls or other similar restrictions. The Company may from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all of such purposes, and may from time to time rescind such designation; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in accordance with the requirements set forth above for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. Unless otherwise specified with respect to any Securities pursuant to Section 301 with respect to a series of Securities, the Company hereby designates as a Place of Payment for each series of Securities the office or agency of the Company in the City of Boston, and initially appoints the Trustee at its Corporate Trust Office as Paying Agent in such city and as its agent to receive all such presentations, surrenders, notices and demands. Unless otherwise specified with respect to any Securities pursuant to Section 302, if and so long as the Securities of any series (i) are denominated in a Foreign Currency or (ii) may be payable in a Foreign Currency or so long as it is required under any other provision of this Indenture, then the Company will maintain with respect to each such series of Securities, or as so required, at least one exchange rate agent. SECTION 1003. Money for Securities Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent with respect to any series of any Securities and any related coupons, it will, by no later than 11:00 am (Boston time) on each due date of the principal of (and premium, if any), or interest on or Additional Amounts in respect of, any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) sufficient to pay the principal (and premium, if any) or interest or Additional Amounts so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities and any related coupons, it will, on or before each due date of the principal of (and premium, if any), or interest on or Additional Amounts in respect of, any Securities of that series, deposit with a Paying Agent a sum (in the currency or currencies, currency unit or units or composite currency or currencies described in the preceding paragraph) sufficient to pay the principal (and premium, if any) or interest or Additional Amounts, so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest or Additional Amounts and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (1) hold all sums held by it for the payment of principal of (and premium, if any) or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any such payment of principal (and premium, if any) or interest; and 42 (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums. Except as otherwise provided in the Securities of any series, any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on, or any Additional Amounts in respect of, any Security of any series and remaining unclaimed for two years after such principal (and premium, if any), interest or Additional Amounts has become due and payable shall be paid to the Company upon Company Request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment of such principal of (and premium, if any) or interest on, or any Additional Amounts in respect of, such Security, without interest thereon, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in an Authorized Newspaper, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 1004. Existence. Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (declaration and statutory) and franchises; provided, however, that the Company shall not be required to preserve any right or franchise if the Board shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company. SECTION 1005. Provision of Financial Information. Whether or not the Company is subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company will, to the extent permitted under the Securities Exchange Act of 1934, as amended, file with the Commission the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to such Section 13 or 15(d) (the "Financial Statements") if the Company were so subject, such documents to be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been required so to file such documents if the Company were so subject. The Company will also in any event (x) within 15 days of each Required Filing Date (i) transmit by mail to all Holders, as their names and addresses appear in the Security Register, without cost to such Holders copies of the annual reports and quarterly reports which the Company would have been required to file with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, if the Company were subject to such Sections, and (ii) file with the Trustee copies of the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, if the Company were subject to such Sections and (y) if filing such documents by the Company with the Commission is not permitted under the Securities Exchange Act of 1934, as amended, promptly upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such documents to any prospective Holder. SECTION 1006. Statement as to Compliance. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year, a brief certificate from the principal executive officer, principal financial officer or principal accounting officer as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture and, in the event of any noncompliance, specifying such noncompliance and the nature and status thereof. For purposes of this Section 1006, such compliance shall be determined without regard to any period of grace or requirement of notice under this Indenture. 43 SECTION 1007. Additional Amounts. If any Securities of a series provide for the payment of Additional Amounts, the Company will pay to the Holder of any Security of such series or any coupon appertaining thereto Additional Amounts as may be specified as contemplated by Section 301. Whenever in this Indenture there is mentioned, in any context except in the case of Section 502(1), the payment of the principal of or any premium or interest on, or in respect of, any Security of any series or payment of any related coupon or the net proceeds received on the sale or exchange of any Security of any series, such mention shall be deemed to include mention of the payment of Additional Amounts provided by the terms of such series established pursuant to Section 301 to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof pursuant to such terms and express mention of the payment of Additional Amounts (if applicable) in any provisions hereof shall not be construed as excluding Additional Amounts in those provisions hereof where such express mention is not made. Except as otherwise specified as contemplated by Section 301, if the Securities of a series provide for the payment of Additional Amounts, at least 20 days prior to the first Interest Payment Date with respect to that series of Securities (or if the Securities of that series will not bear interest prior to Maturity, the first day on which a payment of principal and any premium is made), and at least 10 days prior to each date of payment of principal and any premium or interest if there has been any change with respect to the matters set forth in the below-mentioned Officers' Certificate, the Company will furnish the Trustee and the Company's principal Paying Agent or Paying Agents, if other than the Trustee, with an Officers' Certificate instructing the Trustee and such Paying Agent or Paying Agents whether such payment of principal of and any premium or interest on the Securities of that series shall be made to Holders of Securities of that series or any related coupons who are not United States persons without withholding for or on account of any tax, assessment or other governmental charge described in the Securities of the series. If any such withholding shall be required, then such Officers' Certificate shall specify by country the amount, if any, required to be withheld on such payments to such Holders of Securities of that series or related coupons and the Company will pay to the Trustee or such Paying Agent the Additional Amounts required by the terms of such Securities. In the event that the Trustee or any Paying Agent, as the case may be, shall not so receive the above-mentioned certificate, then the Trustee or such Paying Agent shall be entitled (i) to assume that no such withholding or deduction is required with respect to any payment of principal or interest with respect to any Securities of a series or related coupons until it shall have received a certificate advising otherwise and (ii) to make all payments of principal and interest with respect to the Securities of a series or related coupons without withholding or deductions until otherwise advised. The Company covenants to indemnify the Trustee and any Paying Agent for, and to hold them harmless against, any loss, liability or expense reasonably incurred without negligence or bad faith on their part arising out of or in connection with actions taken or omitted by any of them or in reliance on any Officers' Certificate furnished pursuant to this Section or in reliance on the Company's not furnishing such an Officers' Certificate. SECTION 1008. Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any term, provision or condition set forth in Sections 1004 or 1005, if before or after the time for such compliance the Holders of at least a majority in principal amount of all outstanding Securities of such series, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. ARTICLE ELEVEN REDEMPTION OF SECURITIES SECTION 1101. Applicability of Article. Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 301 for Securities of any series) in accordance with this Article. SECTION 1102. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities shall be evidenced by or pursuant to a Board Resolution. In case of any redemption at the election of the Company of less than all of the Securities of any series, the Company shall, at least 45 days prior to the giving of the 44 notice of redemption in Section 1104 (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction. SECTION 1103. Selection by Trustee of Securities to Be Redeemed. If less than all the Securities of any series issued on the same day with the same terms are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series issued on such date with the same terms not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to the minimum authorized denomination for Securities of that series or any integral multiple thereof) of the principal amount of Securities of such series of a denomination larger than the minimum authorized denomination for Securities of that series. The Trustee shall promptly notify the Company and the Security Registrar (if other than itself) in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. SECTION 1104. Notice of Redemption. Notice of redemption shall be given in the manner provided in Section 106 and as may be further specified in an indenture supplemental hereto, not less than 30 days nor more than 60 days prior to the Redemption Date, unless a shorter period is specified by the terms of such series established pursuant to Section 301, to each Holder of Securities to be redeemed, but failure to give such notice in the manner herein provided to the Holder of any Security designated for redemption as a whole or in part, or any defect in the notice to any such Holder, shall not affect the validity of the proceedings for the redemption of any other such Security or portion thereof. Any notice that is mailed to the Holders of Registered Securities in the manner herein provided shall be conclusively presumed to have been duly given, whether or not such Holders receive such notice. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, accrued interest to the Redemption Date payable as provided in Section 1106, if any, and Additional Amounts, if any, (3) if less than all Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amount) of the particular Security or Securities to be redeemed, (4) in case any Security is to be redeemed in part only, the notice which relates to such Security shall state that on and after the Redemption Date, upon surrender of such Security, the holder will receive, without charge, a new Security or Securities of authorized denominations for the principal amount thereof remaining unredeemed, (5) that on the Redemption Date the Redemption Price and accrued interest to the Redemption Date payable as provided in Section 1106, if any, will become due and payable upon each such Security, or the portion thereof, to be redeemed and, if applicable, that interest thereon shall cease to accrue on and after said date, 45 (6) the Place or Places of Payment where such Securities, together in the case of Bearer Securities with all coupons appertaining thereto, if any, maturing after the Redemption Date, are to be surrendered for payment of the Redemption Price and accrued interest, if any, or for conversion, (7) that the redemption is for a sinking fund, if such is the case, (8) that unless otherwise specified in such notice, Bearer Securities of any series, if any, surrendered for redemption must be accompanied by all coupons maturing subsequent to the Redemption Date or the amount of any such missing coupon or coupons will be deducted from the Redemption Price, unless security or indemnity satisfactory to the Company, the Trustee for such series and any Paying Agent is furnished, (9) if Bearer Securities of any series are to be redeemed and any Registered Securities of such series are not to be redeemed, and if such Bearer Securities may be exchanged for Registered Securities not subject to redemption on this Redemption Date pursuant to Section 305 or otherwise, the last date, as determined by the Company, on which such exchanges may be made, (10) the CUSIP number of such Security, if any, and (11) if applicable, that a Holder of Securities who desires to convert Securities for redemption must satisfy the requirements for conversion contained in such Securities, the then existing conversion price or rate, and the date and time when the option to convert shall expire. Notice of redemption of Securities to be redeemed shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 1105. Deposit of Redemption Price. On or prior to 11:00 am (Boston time) on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, which it may not do in the case of a sinking fund payment under Article Twelve, segregate and hold in trust as provided in Section 1003) an amount of money in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) sufficient to pay on the Redemption Date the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities or portions thereof which are to be redeemed on that date. SECTION 1106. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) (together with accrued interest, if any, to the Redemption Date), and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall, if the same were interest-bearing, cease to bear interest and the coupons for such interest appertaining to any Bearer Securities so to be redeemed, except to the extent provided below, shall be void. Upon surrender of any such Security for redemption in accordance with said notice, together with all coupons, if any, appertaining thereto maturing after the Redemption Date, such Security shall be paid by the Company at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided, however, that installments of interest on Bearer Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable only at an office or agency located outside the United States (except as otherwise provided in Section 1002) and, unless otherwise specified as contemplated by Section 301, only upon presentation and surrender of coupons for such interest; and provided further that, except as otherwise provided with respect to Securities convertible into Common Shares or Preferred Shares of the Company, installments of interest on Registered Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. 46 If any Bearer Security surrendered for redemption shall not be accompanied by all appurtenant coupons maturing after the Redemption Date, such Security may be paid after deducting from the Redemption Price an amount equal to the face amount of all such missing coupons, or the surrender of such missing coupon or coupons may be waived by the Company and the Trustee if there be furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to the Trustee or any Paying Agent any such missing coupon in respect of which a deduction shall have been made from the Redemption Price, such Holder shall be entitled to receive the amount so deducted; provided, however, that interest represented by coupons shall be payable only at an office or agency located outside the United States (except as otherwise provided in Section 1002) and, unless otherwise specified as contemplated by Section 301, only upon presentation and surrender of those coupons. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate borne by the Security. SECTION 1107. Securities Redeemed in Part. Any Registered Security which is to be redeemed only in part (pursuant to the provisions of this Article or of Article Twelve) shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security without service charge a new Security or Securities of the same series, of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. ARTICLE TWELVE SINKING FUNDS SECTION 1201. Applicability of Article. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series except as otherwise specified as contemplated by Section 301 for Securities of such series. The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a "mandatory sinking fund payment", and any payment in excess of such minimum amount provided for by the terms of such Securities of any series is herein referred to as an "optional sinking fund payment". If provided for by the terms of any Securities of any series, the cash amount of any mandatory sinking fund payment may be subject to reduction as provided in Section 1202. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series. SECTION 1202. Satisfaction of Sinking Fund Payments with Securities. The Company may, in satisfaction of all or any part of any mandatory sinking fund payment with respect to the Securities of a series, (1) deliver Outstanding Securities of such series (other than any previously called for redemption) together in the case of any Bearer Securities of such series with all unmatured coupons appertaining thereto and (2) apply as a credit Securities of such series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, as provided for by the terms of such Securities, or which have otherwise been acquired by the Company; provided that such Securities so delivered or applied as a credit have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the applicable Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such mandatory sinking fund payment shall be reduced accordingly. SECTION 1203. Redemption of Securities for Sinking Fund. Not less than 60 days prior to each sinking fund payment date for Securities of any series, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing mandatory sinking fund payment for that series pursuant to the terms of that 47 series, the portion thereof, if any, which is to be satisfied by payment of cash in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities of that series pursuant to Section 1202, and the optional amount, if any, to be added in cash to the next ensuing mandatory sinking fund payment, and will also deliver to the Trustee any Securities to be so delivered and credited. If such Officers' Certificate shall specify an optional amount to be added in cash to the next ensuing mandatory sinking fund payment, the Company shall thereupon be obligated to pay the amount therein specified. Not less than 30 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1103 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 1104. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1106 and 1107. ARTICLE THIRTEEN REPAYMENT AT THE OPTION OF HOLDERS SECTION 1301. Applicability of Article. Repayment of Securities of any series before their Stated Maturity at the option of Holders thereof shall be made in accordance with the terms of such Securities, if any, and (except as otherwise specified by the terms of such series established pursuant to Section 301) in accordance with this Article. SECTION 1302. Repayment of Securities. Securities of any series subject to repayment in whole or in part at the option of the Holders thereof will, unless otherwise provided in the terms of such Securities, be repaid at a price equal to the principal amount thereof, together with interest, if any, thereon accrued to the Repayment Date specified in or pursuant to the terms of such Securities. The Company covenants that on or before the Repayment Date it will deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) sufficient to pay the principal (or, if so provided by the terms of the Securities of any series, a percentage of the principal) of, and (except if the Repayment Date shall be an Interest Payment Date) accrued interest on, all the Securities or portions thereof, as the case may be, to be repaid on such date. SECTION 1303. Exercise of Option. Securities of any series subject to repayment at the option of the Holders thereof will contain an "Option to Elect Repayment" form on the reverse of such Securities. In order for any Security to be repaid at the option of the Holder, the Trustee must receive at the Place of Payment therefor specified in the terms of such Security (or at such other place or places of which the Company shall from time to time notify the Holders of such Securities) not earlier than 60 days nor later than 30 days prior to the Repayment Date (1) the Security so providing for such repayment together with the "Option to Elect Repayment" form on the reverse thereof duly completed by the Holder or by the Holder's attorney duly authorized in writing or (2) a telegram, telex, facsimile transmission or a letter from a member of a national securities exchange, or the National Association of Securities Dealers, Inc. ("NASD"), or a commercial bank or trust company in the United States setting forth the name of the Holder of the Security, the principal amount of the Security, the principal amount of the Security to be repaid, the CUSIP number, if any, or a description of the tenor and terms of the Security, a statement that the option to elect repayment is being exercised thereby and a guarantee that the Security to be repaid, together with the duly completed form entitled "Option to Elect Repayment" on the reverse of the Security, will be received by the Trustee not later than the fifth Business Day after the date of such telegram, telex, facsimile transmission or letter; provided, however, that such telegram, telex, facsimile transmission or letter shall only be effective if such Security and form duly completed are received by the Trustee by such fifth Business Day. If less than the entire principal amount of such Security is to be repaid in accordance with the terms of such Security, the principal amount of such Security to be repaid, in increments of the minimum denomination for Securities of such series, and the denomination or denominations of the Security or Securities to be issued to the Holder for the portion of the principal amount of such Security surrendered that is not to be repaid, must be specified. The principal amount of any security providing for repayment at the option of the Holder 48 thereof may not be repaid in part if, following such repayment, the unpaid principal amount of such Security would be less than the minimum authorized denomination of Securities of the series of which such Security to be repaid is a part. Except as otherwise may be provided by the terms of any Security providing for repayment at the option of the Holder thereof, exercise of the repayment option by the Holder shall be irrevocable unless waived by the Company. SECTION 1304. When Securities Presented for Repayment Become Due and Payable. If Securities of any series providing for repayment at the option of the Holders thereof shall have been surrendered as provided in this Article and as provided by or pursuant to the terms of such Securities, such Securities or the portions thereof, as the case may be, to be repaid shall become due and payable and shall be paid by the Company on the Repayment Date therein specified, and on and after such Repayment Date (unless the Company shall default in the payment of such Securities on such Repayment Date) such Securities shall, if the same were interest-bearing, cease to bear interest and the coupons for such interest appertaining to any Bearer Securities so to be repaid, except to the extent provided below, shall be void. Upon surrender of any such Security for repayment in accordance with such provisions, together with all coupons, if any, appertaining thereto maturing after the Repayment Date, the principal amount of such Security so to be repaid shall be paid by the Company, together with accrued interest, if any, to the Repayment Date; provided, however, that coupons whose Stated Maturity is on or prior to the Repayment Date shall be payable only at an office or agency located outside the United States (except as otherwise provided in Section 1002) and, unless otherwise specified pursuant to Section 301, only upon presentation and surrender of such coupons; and provided further that, in the case of Registered Securities, installments of interest, if any, whose Stated Maturity is on or prior to the Repayment Date shall be payable (but without interest thereon, unless the Company shall default in the payment thereof) to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. If any Bearer Security surrendered for repayment shall not be accompanied by all appurtenant coupons maturing after the Repayment Date, such Security may be paid after deducting from the amount payable therefor as provided in Section 1302 an amount equal to the face amount of all such missing coupons, or the surrender of such missing coupon or coupons may be waived by the Company and the Trustee if there be furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to the Trustee or any Paying Agent any such missing coupon in respect of which a deduction shall have been made as provided in the preceding sentence, such Holder shall be entitled to receive the amount so deducted; provided, however, that interest represented by coupons shall be payable only at an office or agency located outside the United States (except as otherwise provided in Section 1002) and, unless otherwise specified as contemplated by Section 301, only upon presentation and surrender of those coupons. If the principal amount of any Security surrendered for repayment shall not be so repaid upon surrender thereof, such principal amount (together with interest, if any, thereon accrued to such Repayment Date) shall, until paid, bear interest from the Repayment Date at the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) set forth in such Security. SECTION 1305. Securities Repaid in Part. Upon surrender of any Registered Security which is to be repaid in part only, the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge and at the expense of the Company, a new Registered Security or Securities of the same series, of any authorized denomination specified by the Holder, in an aggregate principal amount equal to and in exchange for the portion of the principal of such Security so surrendered which is not to be repaid. ARTICLE FOURTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 1401. Applicability of Article; Company's Option to Effect Defeasance or Covenant Defeasance. If, pursuant to Section 301, provision is made for either or both of (a) defeasance of the Securities of or within a series under Section 1402 or (b) covenant defeasance of the Securities of or within a series under Section 1403, 49 then the provisions of such Section or Sections, as the case may be, together with the other provisions of this Article (with such modifications thereto as may be specified pursuant to Section 301 with respect to any Securities), shall be applicable to such Securities and any coupons appertaining thereto, and the Company may at its option by Board Resolution, at any time, with respect to such Securities and any coupons appertaining thereto, elect to have Section 1402 (if applicable) or Section 1403 (if applicable) be applied to such Outstanding Securities and any coupons appertaining thereto upon compliance with the conditions set forth below in this Article. SECTION 1402. Defeasance and Discharge. Upon the Company's exercise of the above option applicable to this Section with respect to any Securities of or within a series, the Company shall be deemed to have been discharged from its obligations with respect to such Outstanding Securities and any coupons appertaining thereto on the date the conditions set forth in Section 1404 are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by such Outstanding Securities and any coupons appertaining thereto, which shall thereafter be deemed to be "Outstanding" only for the purposes of Section 1405 and the other Sections of this Indenture referred to in clauses (A) and (B) below, and to have satisfied all of its other obligations under such Securities and any coupons appertaining thereto and this Indenture insofar as such Securities and any coupons appertaining thereto are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of such Outstanding Securities and any coupons appertaining thereto to receive, solely from the trust fund described in Section 1404 and as more fully set forth in such Section, payments in respect of the principal of (and premium, if any) and interest, if any, on such Securities and any coupons appertaining thereto when such payments are due, (B) the Company's obligations with respect to such Securities under Sections 305, 306, 1002 and 1003 and with respect to the payment of Additional Amounts, if any, on such Securities as contemplated by Section 1007, (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article Fourteen. Subject to compliance with this Article Fourteen, the Company may exercise its option under this Section notwithstanding the prior exercise of its option under Section 1403 with respect to such Securities and any coupons appertaining thereto. SECTION 1403. Covenant Defeasance. Upon the Company's exercise of the above option applicable to this Section with respect to any Securities of or within a series, the Company shall be released from its obligations under Sections 1004 and 1005 and, if specified pursuant to Section 301, its obligations under any other covenant, with respect to such Outstanding Securities and any coupons appertaining thereto on and after the date the conditions set forth in Section 1404 are satisfied (hereinafter, "covenant defeasance"), and such Securities and any coupons appertaining thereto shall thereafter be deemed to be not "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with Sections 1004 and 1005 or such other covenant, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to such Outstanding Securities and any coupons appertaining thereto, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section or such other covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or such other covenant or by reason of reference in any such Section or such other covenant to any other provision herein or in any other document and such omission to comply shall not constitute a default or an Event of Default under Section 501(4) or 501(9) or otherwise, as the case may be, but except as specified above, the remainder of this Indenture and such Securities and any coupons appertaining thereto shall be unaffected thereby. SECTION 1404. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to application of Section 1402 or Section 1403 to any Outstanding Securities of or within a series and any coupons appertaining thereto: (a) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 607 who shall agree to comply with the provisions of this Article Fourteen applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities and any coupons appertaining thereto, (1) an amount in such currency, currencies or currency unit in which such Securities and any coupons appertaining thereto are then specified as payable at Stated 50 Maturity) which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment of principal of (and premium, if any) and interest, if any, on such Securities and any coupons appertaining thereto, or (2) Government Obligations applicable to such Securities and coupons appertaining thereto (determined on the basis of the currency, currencies or currency unit in which such Securities and coupons appertaining thereto are then specified as payable at Stated Maturity) which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment of principal of (and premium, if any) and interest, if any, on such Securities and any coupons appertaining thereto, money in an amount, or (3) a combination thereof in an amount, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (i) the principal of (and premium, if any) and interest, if any, on such Outstanding Securities and any coupons appertaining thereto on the Stated Maturity of such principal or installment of principal or interest and (ii) any mandatory sinking fund payments or analogous payments applicable to such Outstanding Securities and any coupons appertaining thereto on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such Securities and any coupons appertaining thereto. (b) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company is a party or by which it is bound. (c) No Event of Default or event which with notice or lapse of time or both would become an Event of Default with respect to such Securities and any coupons appertaining thereto shall have occurred and be continuing on the date of such deposit or, insofar as Sections 501(6) and 501(7) are concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (d) In the case of an election under Section 1402, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of execution of this Indenture, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of such Outstanding Securities and any coupons appertaining thereto will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. (e) In the case of an election under Section 1403, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such Outstanding Securities and any coupons appertaining thereto will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. (f) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance under Section 1402 or the covenant defeasance under Section 1403 (as the case may be) have been complied with and an Opinion of Counsel to the effect that either (i) as a result of a deposit pursuant to subsection (a) above and the related exercise of the Company's option under Section 1402 or Section 1403 (as the case may be), registration is not required under the Investment Company Act of 1940, as amended, by the Company, with respect to the trust funds representing such deposit or by the Trustee for such trust funds or (ii) all necessary registrations under said Act have been effected. 51 (g) Notwithstanding any other provisions of this Section, such defeasance or covenant defeasance shall be effected in compliance with any additional or substitute terms, conditions or limitations which may be imposed on the Company in connection therewith pursuant to Section 301. SECTION 1405. Deposited Money and Government Obligations to Be Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 1003, all money and Government Obligations (or other property as may be provided pursuant to Section 301) (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 1405, the "Trustee") pursuant to Section 1404 in respect of any Outstanding Securities of any series and any coupons appertaining thereto shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and any coupons appertaining thereto and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities and any coupons appertaining thereto of all sums due and to become due thereon in respect of principal (and premium, if any) and interest and Additional Amounts, if any, but such money need not be segregated from other funds except to the extent required by law. Unless otherwise specified with respect to any Security pursuant to Section 301, if, after a deposit referred to in Section 1404(a) has been made, (a) the Holder of a Security in respect of which such deposit was made is entitled to, and does, elect pursuant to Section 301 or the terms of such Security to receive payment in a currency or currency unit other than that in which the deposit pursuant to Section 1404(a) has been made in respect of such Security, or (b) a Conversion Event occurs in respect of the currency or currency unit in which the deposit pursuant to Section 1404(a) has been made, the indebtedness represented by such Security and any coupons appertaining thereto shall be deemed to have been, and will be, fully discharged and satisfied through the payment of the principal of (and premium, if any), and interest, if any, on such Security as the same becomes due out of the proceeds yielded by converting (from time to time as specified below in the case of any such election) the amount or other property deposited in respect of such Security into the currency or currency unit in which such Security becomes payable as a result of such election or Conversion Event based on the applicable market exchange rate for such currency or currency unit in effect on the second Business Day prior to each payment date, in the case of such an election, or, the applicable market exchange rate in effect for such currency or currency unit (as nearly as feasible), in the case of such Conversion Event. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the Government Obligations deposited pursuant to Section 1404 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of such Outstanding Securities and any coupons appertaining thereto. Anything in this Article to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or Government Obligations (or other property and any proceeds therefrom) held by it as provided in Section 1404 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect a defeasance or covenant defeasance, as applicable, in accordance with this Article. ARTICLE FIFTEEN MEETINGS OF HOLDERS OF SECURITIES SECTION 1501. Purposes for Which Meetings May Be Called. A meeting of Holders of Securities of any series may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders of Securities of such series. 52 SECTION 1502. Call, Notice and Place of Meetings. (a) The Trustee may at any time call a meeting of Holders of Securities of any series for any purpose specified in Section 1501, to be held at such time and at such place in the City of Boston, or in London as the Trustee shall determine. Notice of every meeting of Holders of Securities of any series, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 106, not less than 21 nor more than 180 days prior to the date fixed for the meeting. (b) In case at any time the Company, pursuant to a Board Resolution, or the Holders of at least 25% in principal amount of the Outstanding Securities of any series shall have requested the Trustee to call a meeting of the Holders of Securities of such series for any purpose specified in Section 1501, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have made the first publication of the notice of such meeting within 21 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Securities of such series in the amount above specified, as the case may be, may determine the time and the place in the City of Boston, or in London for such meeting and may call such meeting for such purposes by giving notice thereof as provided in subsection (a) of this Section. SECTION 1503. Persons Entitled to Vote at Meetings. To be entitled to vote at any meeting of Holders of Securities of any series, a Person shall be (1) a Holder of one or more Outstanding Securities of such series, or (2) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities of such series by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders of Securities of any series shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. SECTION 1504. Quorum; Action. The Persons entitled to vote a majority in principal amount of the Outstanding Securities of a series shall constitute a quorum for a meeting of Holders of Securities of such series; provided, however, that if any action is to be taken at such meeting with respect to a consent or waiver which this Indenture expressly provides may be given by the Holders of not less than a specified percentage in principal amount of the Outstanding Securities of a series, the Persons entitled to vote such specified percentage in principal amount of the Outstanding Securities of such series shall constitute a quorum. In the absence of a quorum within 30 minutes after the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities of such series, be dissolved. In any other case the meeting may be adjourned for a period of not less than 10 days determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 1502(a), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of any adjourned meeting shall state expressly the percentage, as provided above, of the principal amount of the Outstanding Securities of such series which shall constitute a quorum. Except as limited by the proviso to Section 902, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted by the affirmative vote of the Holders of a majority in principal amount of the Outstanding Securities of that series; provided, however, that, except as limited by the proviso to Section 902, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action which this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage, which is less than a majority, in principal amount of the Outstanding Securities of a series may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the Holders of such specified percentage in principal amount of the Outstanding Securities of that series. Any resolution passed or decision taken at any meeting of Holders of Securities of any series duly held in accordance with this Section shall be binding on all the Holders of Securities of such series and the related coupons, whether or not present or represented at the meeting. 53 Notwithstanding the foregoing provisions of this Section 1504, if any action is to be taken at a meeting of Holders of Securities of any series with respect to any request, demand, authorization, direction, notice, consent, waiver or other action that this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage in principal amount of all Outstanding Securities affected thereby, or of the Holders of such series and one or more additional series: (i) there shall be no minimum quorum requirement for such meeting; and (ii) the principal amount of the Outstanding Securities of such series that vote in favor of such request, demand, authorization, direction, notice, consent, waiver or other action shall be taken into account in determining whether such request, demand, authorization, direction, notice, consent, waiver or other action has been made, given or taken under this Indenture. SECTION 1505. Determination of Voting Rights; Conduct and Adjournment of Meetings. (a) Notwithstanding any provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities of a series in regard to proof of the holding of Securities of such series and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Securities shall be proved in the manner specified in Section 104 and the appointment of any proxy shall be proved in the manner specified in Section 104 or by having the signature of the Person executing the proxy witnessed or guaranteed by any trust company, bank or banker authorized by Section 104 to certify to the holding of Bearer Securities. Such regulations may provide that written instruments appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 104 or other proof. (b) The Trustee shall, by an instrument in writing appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Holders of Securities as provided in Section 1502(b), in which case the Company or the Holders of Securities of the series calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting. (c) At any meeting each Holder of a Security of such series or proxy shall be entitled to one vote for each $1,000 principal amount of the Outstanding Securities of such series held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Security of such series or proxy. (d) Any meeting of Holders of Securities of any series duly called pursuant to Section 1502 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting, and the meeting may be held as so adjourned without further notice. SECTION 1506. Counting Votes and Recording Action of Meetings. The vote upon any resolution submitted to any meeting of Holders of Securities of any series shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities of such series or of their representatives by proxy and the principal amounts and serial numbers of the Outstanding Securities of such series held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record, at least in duplicate, of the proceedings of each meeting of Holders of Securities of any Series shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the fact, setting forth a copy of the notice of the meeting and showing that said notice was given as 54 provided in Section 1502 and, if applicable, Section 1504. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. This Indenture may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Indenture. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. HEALTH AND RETIREMENT PROPERTIES TRUST By: /s/ Ajay Saini Title: Treasurer [SEAL] Attest: /s/ David J. Hegarty Title: President STATE STREET BANK AND TRUST COMPANY By: /s/ James E. Mogavero Title: Assistant Vice President [SEAL] Attest: /s/ Michael T. Quaile Title: Assistant Secretary 55 COMMONWEALTH OF MASSACHUSETTS ) ) ss: COUNTY OF SUFFOLK ) On the 9th day of July, 1997, before me personally came Ajay Saini, to me known, who, being by me duly sworn, did depose and say that he is the Treasurer of HEALTH AND RETIREMENT PROPERTIES TRUST, one of the persons described in and which executed the foregoing instrument; that he/she knows the seal of said trust; that the seal affixed to said instrument is such seal; that it was so affixed by authority of the Board of said trust, and that he/she signed his/her name thereto by like authority. [Notarial Seal] /s/ Laura A. Morgan Notary Public COMMISSION EXPIRES 2/7/2003 COMMONWEALTH OF MASSACHUSETTS ) ) ss: COUNTY OF SUFFOLK ) On the 9th day of July, 1997, before me personally came James E. Mogavero, to me known, who, being by me duly sworn, did depose and say that he/she is a Assistant Vice President of State Street Bank, one of the persons described in and which executed the foregoing instrument; that he/she knows the seal of said corporation; that the seal affixed to said instrument is such seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he/she signed his/her name thereto by likely authority. [Notarial Seal] /s/ Linda M. Byrne Notary Public COMMISSION EXPIRES 6/26/2003 56 EXHIBIT A FORMS OF CERTIFICATION EXHIBIT A-1 FORM OF CERTIFICATE TO BE GIVEN BY PERSON ENTITLED TO RECEIVE BEARER SECURITY OR TO OBTAIN INTEREST PAYABLE PRIOR TO THE EXCHANGE DATE [Insert title or sufficient description of Securities to be delivered] This is to certify that, as of the date hereof, and except as set forth below, the above-captioned Securities held by you for our account (i) are owned by person(s) that are not citizens or residents of the United States, domestic partnerships, domestic corporations or any estate or trust the income of which is subject to United States federal income taxation regardless of its source ("United States person(s)"), (ii) are owned by United States person(s) that are (a) foreign branches of United States financial institutions (financial institutions, as defined in United States Treasury Regulations Section 2.165-12(c)(1)(v) are herein referred to as "financial institutions") purchasing for their own account or for resale, or (b) United States person(s) who acquired the Securities through foreign branches of United States financial institutions and who hold the Securities through such United States financial institutions on the date hereof (and in either case (a) or (b), each such United States financial institutions hereby agrees, on its own behalf or through its agent, that you may advise Health and Rehabilitation Properties Trust or its agent that such financial institutions will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the United States Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (iii) are owned by United States or foreign financial institution(s) for purposes of resale during the restricted period (as defined in United States Treasury Regulations Section 1.163- 5(c)(1)(i)(D)(7), and, in addition, if the owner is a United States or foreign financial institutions described in clause (iii) above (whether or not also described in clause (i) or (ii)), this is to further certify that such financial institutions has not acquired the Securities for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions. As used herein, "United States" means the United States of America (including the States and the District of Columbia); and its "possessions" include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. We undertake to advise you promptly by tested telex on or prior to the date on which you intend to submit your certification relating to the above-captioned Securities held by you for our account in accordance with your Operating Procedures if any applicable statement herein is not correct on such date, and in the absence of any such notification it may be assumed that this certification applies as of such date. This certificate excepts and does not relate to (U.S.$) _______________ of such interest in the above-captioned Securities in respect of which we are not able to certify and as to which we understand an exchange for an interest in a Permanent Global Security or an exchange for and delivery of definitive Securities (or, if relevant, collection of any interest) cannot be made until we do so certify. We understand that this certificate may be required in connection with certain tax legislation in the United States. If administrative or legal proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certificate or a copy thereof to any interested party in such proceedings. Dated: , 19 A-1 [To be dated no earlier than the 15th day prior to (i) the Exchange Date or (ii) the relevant Interest Payment Date occurring prior to the Exchange Date, as applicable] [Name of Person Making Certification] (Authorized Signatory) Name: Title: A-2 EXHIBIT A-2 FORM OF CERTIFICATE TO BE GIVEN BY EUROCLEAR AND CEDEL S.A. IN CONNECTION WITH THE EXCHANGE OF A PORTION OF A TEMPORARY GLOBAL SECURITY OR TO OBTAIN INTEREST PAYABLE PRIOR TO THE EXCHANGE DATE CERTIFICATE [Insert title or sufficient description of Securities to be delivered] This is to certify that, based solely on written certifications that we have received in writing, by tested telex or by electronic transmission from each of the persons appearing in our records as persons entitled to a portion of the principal amount set forth below (our "Member Organizations") substantially in the form attached hereto, as of the date hereof, [U.S.$) principal amount of the above-captioned Securities (i) is owned by person(s) that are not citizens or residents of the United States, domestic partnerships, domestic corporations or any estate or trust the income of which is subject to United States Federal income taxation regardless of its source ("United States person(s)"), (ii) is owned by United States person(s) that are (a) foreign branches of United States financial institutions (financial institutions, as defined in U.S. Treasury Regulations Section 1.165-12(c)(1)(v) are herein referred to as "financial institutions") purchasing for their own account or for resale, or (b) United States person(s) who acquired the Securities through foreign branches of United States financial institutions and who hold the Securities through such United States financial institutions on the date hereof (and in either case (a) or (b), each such financial institutions will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (iii) is owned by United States or foreign financial institution(s) for purposes of resale during the restricted period (as defined in United States Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and, to the further effect, that financial institutions described in clause (iii) above (whether or not also described in clause (i) or (ii)) have certified that they have not acquired the Securities for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions. As used herein, "United States" means the United States of America (including the States and the District of Columbia); and its "possessions" include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. We further certify that (i) we are not making available herewith for exchange (or, if relevant, collection of any interest) any portion of the temporary global Security representing the above-captioned Securities excepted in the above-referenced certificates of Member Organizations and (ii) as of the date hereof we have not received any notification from any of our Member Organizations to the effect that the statements made by such Member Organizations with respect to any portion of the part submitted herewith for exchange (or, if relevant, collection of any interest) are no longer true and cannot be relied upon as of the date hereof. We understand that this certification is required in connection with certain tax legislation in the United States. If administrative or legal proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certificate or a copy thereof to any interested party in such proceedings. Date: 19 [To be dated no earlier than the Exchange Date or the relevant Interest Payment Date occurring prior to the Exchange Date, as applicable] [Morgan Guaranty Trust Company New York, Brussels Office,] as Operator of the Euroclear System [Cedel S.A.] A-3 EX-4.11 3 EXHIBIT 4.11 SUPPLEMENTAL INDENTURE by and between HEALTH AND RETIREMENT PROPERTIES TRUST and STATE STREET BANK AND TRUST COMPANY July 9, 1997 HEALTH AND RETIREMENT PROPERTIES TRUST $200,000,000 Remarketed Reset Notes due July 9, 2007 This SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") made and entered into as of July 9, 1997 between Health and Retirement Properties Trust, a Maryland real estate investment trust (the "Company"), and State Street Bank and Trust Company, a national banking association (the "Trustee"). WITNESSETH THAT: WHEREAS, the Company and the Trustee have executed and delivered an Indenture, dated as of July 9, 1997 (the "Indenture"), relating to the Company's issuance, from time to time, of various series of debt securities; and WHEREAS, the Company has determined to issue debt securities known as its $200,000,000 Remarketed Reset Notes due July 9, 2007 (the "Notes"); and WHEREAS, the Indenture provides that certain terms and conditions for each series of debt securities issued by the Company thereunder may be set forth in an indenture supplemental to the Indenture; NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH: ARTICLE ONE DEFINED TERMS Section 101. The following definitions supplement, and, to the extent inconsistent with, replace the definitions in Section 101 of the Indenture: "Acquired Debt" means Debt of a Person (i) existing at the time such Person becomes a Subsidiary or (ii) assumed in connection with the acquisition of assets from such Person, in each case, other than Debt incurred in connection with, or in contemplation of, such Person's becoming a Subsidiary or such acquisition. Acquired Debt shall be deemed to be incurred on the date of the related acquisition of assets from any Person or the date the acquired Person becomes a Subsidiary. "Alternate Spread" means the percentage equal to LIBOR for the Quarterly Period beginning on the Commencement Date of the relevant Subsequent Spread Period. "Annual Service Charge" as of any date means the maximum amount which is expensed in any 12-month period for interest on Debt of the Company and its Subsidiaries. "Business Day" means any day other than a Saturday or Sunday or a day on which banking institutions in The City of New York are required or authorized to close and, in the case of Notes in the Floating Rate Mode, that is also a London Business Day. "Capital Stock" means, with respect to any Person, any capital stock (including preferred stock), shares, interests, participation or other ownership interests (however designated) of such Person and any rights (other than debt securities convertible into or exchangeable for capital stock), warrants or options to purchase any thereof. "Commencement Date" means the first date of a Subsequent Spread Period. "Consolidated Income Available for Debt Service" for any period means Earnings from Operations of the Company and its Subsidiaries plus amounts which have been deducted, and minus amounts which have been added, for the following (without duplication): (i) interest on Debt of the Company and its Subsidiaries, (ii) provision for taxes of the Company and its Subsidiaries based on income, (iii) amortization of debt discount and deferred financing costs, (iv) provisions for gains and losses on properties and property depreciation and amortization, (v) the effect of any noncash charge resulting from a change in accounting principles in determining Earnings from Operations for such period and (vi) amortization of deferred charges. "Debt" of the Company or any Subsidiary means, without duplication, any indebtedness of the Company or any Subsidiary, whether or not contingent, in respect of (i) borrowed money or evidenced by bonds, notes, debentures or similar instruments, (ii) indebtedness for borrowed money secured by any Encumbrance existing on property owned by the Company or any Subsidiary, (iii) the reimbursement obligations, contingent or otherwise, in connection with any letters of credit actually issued (other than letters of credit issued to provide credit enhancement or support with respect to other indebtedness of the Company or any Subsidiary otherwise reflected as Debt hereunder) or amounts representing the balance deferred and unpaid of the purchase price of any property or services, except any such balance that constitutes an accrued expense or trade payable, or all conditional sale obligations or obligations under any title retention agreement, (iv) the principal amount of all obligations of the Company or any Subsidiary with respect to redemption, repayment or other repurchase of any Disqualified Stock, or (v) any lease of property by the Company or any Subsidiary as lessee which is reflected on the Company's consolidated balance sheet as a capitalized lease in accordance with GAAP, to the extent, in the case of items of indebtedness under (i) through (iii) above, that any such items (other than letters of credit) would appear as a liability on the Company's consolidated balance sheet in accordance with GAAP, and also includes, to the extent not otherwise included, any obligation by the Company or any Subsidiary to be liable for, or to pay, as obligor, guarantor or otherwise (other than for purposes of collection in the ordinary course of business), Debt of another Person (other than the Company or any Subsidiary) (it being understood that Debt shall be deemed to be incurred by the Company or any Subsidiary whenever the Company or such Subsidiary shall create, assume, guarantee or otherwise become liable in respect thereof). "Disqualified Stock" means, with respect to any Person, any Capital Stock of such Person which by the terms of such Capital Stock (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable), upon the happening of any event or otherwise (i) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise (other than Capital Stock which is redeemable solely in exchange for common stock or shares), (ii) is convertible into or exchangeable or exercisable for Debt or Disqualified Stock, 2 or (iii) is redeemable at the option of the holder thereof, in whole or in part (other than Capital Stock which is redeemable solely in exchange for common stock or shares), in each case on or prior to the stated maturity of the Notes. "Duration/Mode Determination Date" means the fifteenth calendar date prior to the Commencement Date of each Subsequent Spread Period on which the character and duration of the interest rate on the Notes as well as the redemption type (and any other relevant terms) for the Subsequent Spread Period will be agreed to by the Company and the Remarketing Underwriter. "Earnings from Operations" for any period means net earnings excluding gains and losses on sales of investments, as reflected in the financial statements of the Company and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "Encumbrance" means any mortgage, lien, charge, pledge or security interest of any kind. "Initial Quarterly Period" is defined in the third paragraph of Section 201(c) hereof. "Initial Spread" means the Spread applicable during the Initial Spread Period. "Initial Spread Period" means the one-year period from and including July 9, 1997 to but excluding July 9, 1998 during which the interest rate on the Notes will be reset quarterly and will equal LIBOR plus the Initial Spread. "Interest Payment Date" means any date interest is paid on the Notes. "Interest Reset Date" means the first day of a Quarterly Period. "LIBOR Determination Date" means the second London Business Day preceding each Interest Reset Date, on which the Rate Agent will determine LIBOR applicable for a Quarterly Period. "LIBOR" means, with respect to determining the interest rate on Notes in the Floating Rate Mode, the offered rate for three-month deposits in U.S. Dollars of not less than U.S. $1,000,000, commencing on the second London Business Day immediately following such LIBOR Determination Date, which appears on Telerate Page 3750 as of approximately 11:00 a.m., London time, on such LIBOR Determination Date. With respect to a LIBOR Determination Date on which no rate appears on Telerate Page 3750 as of approximately 11:00 a.m., London time, on such LIBOR Determination Date, the Rate Agent shall request the principal London offices of each of four major reference banks in the London interbank market selected by the Rate Agent to provide the Rate Agent with a quotation of the rate at which three-month deposits in U.S. Dollars, commencing on the second London Business Day immediately following such LIBOR Determination Date, are offered by it to prime banks in the London 3 interbank market as of approximately 11:00 a.m., London time, on such LIBOR Determination Date and in a principal amount equal to an amount of not less than U.S. $1,000,000 that is representative for a single transaction in such market at such time. If at least two such quotations are provided, LIBOR for such LIBOR Determination Date will be the arithmetic mean of such quotations as calculated by the Rate Agent. If fewer than two quotations are provided, LIBOR for such LIBOR Determination Date will be the arithmetic mean of the rates quoted as of approximately 11:00 a.m., New York City time, on such LIBOR Determination Date by three major banks in The City of New York selected by the Rate Agent (after consultation with the Company) for loans in U.S. Dollars to leading European banks, having a three-month maturity commencing on the second London Business Day immediately following such LIBOR Determination Date and in a principal amount equal to an amount of not less than U.S. $1,000,000 that is representative for a single transaction in such market at such time; provided, however, that if the banks selected as aforesaid by the Rate Agent are not quoting as mentioned in this sentence, LIBOR for such LIBOR Determination Date will be LIBOR determined with respect to the immediately preceding LIBOR Determination Date, or in the case of the first LIBOR Determination Date, LIBOR for the Initial Quarterly Period. "London Business Day" means any day on which dealings in deposits in U.S. Dollars are transacted in the London interbank market. "Make-Whole Amount" means, in connection with any optional redemption or accelerated payment of any Note, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (determined on the third Business Day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made, over (ii) the aggregate principal amount of the Notes being redeemed or paid. For purposes of this Supplemental Indenture and the Notes, references in the Indenture to the payment of the principal (and premium, if any) and interest on the Notes shall be deemed to include the payment of the Make-Whole Amount, if any, due upon redemption with respect to the Notes. "Make-Whole Redemption" means redemption at a redemption price equal to the sum of (i) the principal amount of the Notes being redeemed plus accrued interest thereon, if any, to the redemption date and (ii) the Make-Whole Amount, if any, with respect to such Notes. "Par Redemption" means redemption at a redemption price equal to 100% of the principal amount thereof, plus accrued interest thereon, if any, to the redemption date. "Premium Redemption" means redemption at a redemption price or prices greater than 100% of the principal amount thereof, plus accrued interest thereon, if any, to the redemption date, as determined on the Duration/Mode Determination Date. 4 "Quarterly Period" means the period from and including the most recent Interest Payment Date to which interest has been paid to but excluding the next Interest Payment Date. "Rate Agent" means the nationally recognized broker-dealer selected by the Company as its agent to determine (i) LIBOR and the interest rate on the Notes for any Quarterly Period and/or (ii) the yield to maturity on the applicable United States Treasury security that is used in connection with the determination of the applicable Fixed Rate, and the ensuing applicable Fixed Rate. "Record Date" means the fifteenth calendar day, whether or not a Business Day, next preceding the applicable Interest Payment Date. "Reinvestment Rate" means .25% (twenty-five one hundredths of one percent) plus the yield on treasury securities at constant maturity under the heading "Week Ending" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Remarketing Underwriter" means the nationally recognized broker-dealer selected by the Company to act as Remarketing Underwriter. "Remarketing Underwriting Agreement" means the agreement entered into by the Company and the Remarketing Underwriter in the event the Company and the Remarketing Underwriter agree on the Spread on the Spread Determination Date with respect to any Subsequent Spread Period. "Secured Debt" means Debt secured by any mortgage, lien, charge, pledge or security interest of any kind. "Spread" refers to the percentage that, added to LIBOR (when in the Floating Rate Mode) or the comparable Treasury rate (when in the Fixed Rate Mode), equals the interest rate payable on the Notes. "Spread Determination Date" is the tenth calendar day prior to the Commencement Date of such Subsequent Spread Period on which the Spread for each Subsequent Spread Period will be established by 3:00 p.m., New York City time. 5 "Statistical Release" means the statistical release designated "H. 15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under this Supplemental Indenture, then such other reasonably comparable index which shall be designated by the Rate Agent, after consultation with the Company. "Subsequent Spread" means the Spread determined by agreement between the Remarketing Underwriter and the Company to result in a rate which will enable 100% of tendered Notes to be remarketed. "Subsequent Spread Period" means one or more periods of at least six months and not more than nine years (or any integral multiple of six months therein), designated by the Company, commencing on a January 9 or July 9 (or as otherwise specified by the Company and the Remarketing Underwriter on the applicable Duration/Mode Determination Date in connection with the establishment of each Subsequent Spread Period) through and including July 9, 2007. "Subsidiary" means any corporation or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests of which are owned, directly or indirectly, by the Company or one or more other Subsidiaries of the Company. For the purposes of this definition, "voting equity securities" means equity securities having voting power for the election of directors, whether at all times or only so long as no senior class of security has such voting power by reason of any contingency. "Telerate Page 3750" means the display designated on page "3750" on the Telerate Service (or such other page as may replace the 3750 page on that service or such other service or services as may be nominated by the British Bankers' Association for the purpose of displaying London interbank offered rates for U.S. Dollar deposits). "Tender Date" is defined in Section 201(e) hereof. "Tender Notice" is defined in Section 201(e) hereof. "Total Assets" as of any date means the sum of (i) the Undepreciated Real Estate Assets and (ii) all other assets of the Company and its Subsidiaries determined in accordance with GAAP (but excluding accounts receivable and intangibles). "Total Unencumbered Assets" means the sum of (i) those Undepreciated Real Estate Assets not subject to an Encumbrance for borrowed money and (ii) all other assets of the Company and its Subsidiaries not subject to an Encumbrance for borrowed money determined in accordance with GAAP (but excluding accounts receivable and intangibles). "Undepreciated Real Estate Assets" as of any date means the cost (original cost plus capital improvements) of real estate assets of the Company and its Subsidiaries on such date, 6 before depreciation and amortization determined on a consolidated basis in accordance with GAAP. "Unsecured Debt" means Debt which is not secured by any of the properties of the Company or any Subsidiary. ARTICLE TWO TERMS OF THE NOTES Section 201. Pursuant to Section 301 of the Indenture, the Notes shall have the following terms and conditions: (a) Title; Limitation on Aggregate Principal Amount. The Notes shall be known as the Company's $200,000,000 Remarketed Reset Notes due July 9, 2007. The Notes will be limited to an aggregate principal amount of $200,000,000. (b) Principal Repayment; Currency. The stated maturity of the Notes is July 9, 2007, provided, however, the Notes may be earlier redeemed at the option of the Company as provided in paragraph (d) below. The principal of each Note payable on the maturity date shall be paid against presentation and surrender thereof at the corporate trust office of the Trustee, located initially at Two International Place, Boston, Massachusetts 02110, in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public or private debts. The Company will not pay Additional Amounts (as defined in the Indenture) on the Notes. (c) Interest Payments. During the Initial Spread Period, the interest rate on the Notes will be reset on each Interest Reset Date, and will equal LIBOR plus the Initial Spread. The Initial Spread is .45%. After the Initial Spread Period, unless notice of redemption of the Notes as a whole has been given, the duration, redemption dates, redemption type, redemption prices (if applicable), Commencement Date, Interest Payment Date and interest rate mode will be agreed to by the Company and the Remarketing Underwriter by 3:00 p.m., New York City time, on each applicable Duration/Mode Determination Date and the Spread will be agreed to by the Company and the Remarketing Underwriter by 3:00 p.m., New York City time, on the corresponding Spread Determination Date. Interest on the Notes during each Subsequent Spread Period shall be payable, as applicable, either (i) at a floating interest rate (such Notes being in the "Floating Rate Mode", and such interest rate being a "Floating Rate") or (ii) at a fixed interest rate (such Notes being in the "Fixed Rate Mode" and such interest rate being a "Fixed Rate"), in each case as determined by the Remarketing Underwriter and the Company in accordance with a Remarketing Agreement between the Remarketing Underwriter and the Company (the "Remarketing Agreement"). After the Initial Spread Period, the Spread applicable to each Subsequent Spread Period will be determined on each subsequent Spread Determination Date which precedes the beginning of the corresponding Subsequent Spread Period, pursuant to agreement between the Company 7 and the Remarketing Underwriter (except as otherwise provided below), and the interest rate mode used for each Subsequent Spread Period may be a Floating Rate Mode or a Fixed Rate Mode, at the discretion of the Company and the Remarketing Underwriter. If the Company and the Remarketing Underwriter are unable to agree on the Spread for any Subsequent Spread Period, (1) the Subsequent Spread Period will be one year, (2) the Notes will be reset to the Floating Rate Mode, (3) the Spread for such Subsequent Spread Period will be the Alternate Spread and (4) the Notes will be redeemable at the option of the Company, in whole or in part, upon at least five Business Days' notice given by no later than the fifth Business Day after the relevant Spread Determination Date, at a redemption price equal to 100% of the principal amount thereof, together with accrued interest to the redemption date, except that the Notes may not be redeemed prior to the Tender Date or later than the last day of such one-year Subsequent Spread Period. During the Initial Spread Period, interest on the Notes will be payable in Dollars quarterly in arrears on October 9, 1997, January 9, 1998, April 9, 1998 and July 9, 1998 (or, if not a Business Day, on the next succeeding Business Day except as described herein). After the Initial Spread Period, (i) if the Notes are in the Floating Rate Mode, interest on the Notes will be payable, unless otherwise specified on the applicable Duration/Mode Determination Date, quarterly in arrears on each January 9, April 9, July 9 and October 9, during the applicable Subsequent Spread Period, or (ii) if the Notes are in the Fixed Rate Mode, interest on the Notes will be payable, unless otherwise specified on the applicable Duration/Mode Determination Date, semiannually in arrears on each January 9 and July 9 beginning on the Commencement Date and for the duration of the applicable Subsequent Spread Period. Interest on the Notes is payable to the persons in whose names the Notes are registered at the close of business on the applicable Record Date next preceding the applicable Interest Payment Date. Interest on the Notes will accrue from and including each Interest Payment Date (or in the case of the Initial Quarterly Period, July 9, 1997) to but excluding the next succeeding Interest Payment Date or maturity date, as the case may be. The Initial Quarterly Period will be the period from and including July 9, 1997 to but excluding the first Interest Payment Date (October 9, 1997) (the "Initial Quarterly Period"). Thereafter, each Quarterly Period during the Initial Spread Period or any Subsequent Spread Period will be from and including the most recent Interest Payment Date to which interest has been paid to but excluding the next Interest Payment Date. Payment of interest on the Notes shall be made by the Trustee to or at the direction of The Depository Trust Company or its nominee, Cede & Co., who will in turn immediately credit the account of the Remarketing Underwriter. If any Interest Payment Date (other than at maturity), redemption date, Interest Reset Date, Duration/Mode Determination Date, Spread Determination Date, Commencement Date or Tender Date would otherwise be a day that is not a Business Day, such Interest Payment Date, redemption date, Interest Reset Date, Duration/Mode Determination Date, Spread Determination Date, Commencement Date or Tender Date will be postponed to the next succeeding day that is a Business Day, except that if such Business Day is in the next succeeding calendar month, such Interest Payment Date, redemption date, Interest Reset Date, Commencement Date or Tender Date shall be the next preceding Business Day. If the maturity 8 date for the Notes falls on a day that is not a Business Day, the related payment of principal and interest will be made on the next succeeding Business Day as if it were made on the date such payment was due, and no interest will accrue on the amounts so payable for the period for the period from and after such dates. If the Notes are in the Floating Rate Mode, such Notes will bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a 360-day year) equal to LIBOR for the applicable Quarterly Period plus the applicable Spread, as agreed to by the Company and the Remarketing Underwriter, and such interest rate will be reset quarterly. If the Notes are in the Fixed Rate Mode, interest will equal the applicable Spread, as agreed to by the Company and the Remarketing Underwriter, plus the applicable Treasury rate, computed on the basis of a 360-day year of twelve 30-day months. Interest in the Fixed Rate Mode will accrue from and including each Interest Payment Date to but excluding the next succeeding Interest Payment Date or maturity date, as the case may be. If any Interest Payment Date or any redemption date in the Fixed Rate Mode falls on a day that is not a Business Day (in either case, other than any Interest Payment Date or redemption date that falls on a Commencement Date, in which case such Commencement Date will be postponed to the next day that is a Business Day), the related payment of principal and interest will be made on the next succeeding Business Day as if it were made on the date such payment was due, and no interest will accrue on the amounts so payable for the period from and after such date. Unless the Company shall have otherwise provided pursuant to Section 4 of the Remarketing Agreement, dated as of July 2, 1997 between the Company and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), the Rate Agent will be Merrill Lynch. All percentages resulting from any calculation in respect of a Note will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upward, and all dollar amounts used in or resulting from such calculation in respect of a Note will be rounded to the nearest cent (with one-half cent rounded upward). Unless notice of redemption of the Notes as a whole has been given, the Company will cause a notice to be given to holders of Notes on the New York Business Day (as defined below) following the Spread Determination Date for each Subsequent Spread Period in the manner described below, specifying (1) the duration of such Subsequent Spread Period, (2) the mode (i.e., Fixed Rate Mode or Floating Rate Mode), (3) the Commencement Date, (4) any redemption dates, (5) any redemption type (i.e., par, premium or make-whole), (6) any redemption prices, (7) the Spread for such Subsequent Spread Period, (8) the identity of the Remarketing Underwriter, if applicable, and (9) any other relevant provisions. The term "New York Business Day" means any day other than a Saturday or Sunday or a day on which banking institutions in The City of New York are required or authorized to close. 9 (d) Prepayment at the Option of the Company; Redemption. The Notes are not redeemable prior to July 9, 1998. On that date and thereafter, the Notes may be redeemable, at the option of the Company, on those Interest Payment Dates that are specified as redemption dates by the Company on the applicable Duration/Mode Determination Date, in whole or in part, upon notice thereof given at any time during the 45 calendar day period ending on the tenth calendar day prior to the redemption date (provided that notice of any partial redemption must be given to the Noteholders at least 15 calendar days prior to the redemption date), in accordance with the redemption type selected on the Duration/Mode Determination Date. The redemption type to be chosen by the Company and the Remarketing Underwriter on the Duration/Mode Determination Date may be one of the following: (i) Par Redemption; (ii) Premium Redemption; or (iii) Make-Whole Redemption. (e) Tender at Option of Beneficial Owners. The Company will request, not later than seven nor more than 15 calendar days prior to any Spread Determination Date, that The Depository Trust Company ("DTC") notify its Participants of such Spread Determination Date and of the procedures that must be followed if any beneficial owner of a Note wishes to tender such Note as described herein. If the Company and the Remarketing Underwriter agree on the Spread on the Spread Determination Date with respect to any Subsequent Spread Period, each Note may be tendered to the Remarketing Underwriter for purchase from the tendering Noteholder at 100% of its principal amount and for remarketing by the Remarketing Underwriter on the calendar day (or if such day is not a Business Day, on the next succeeding Business Day except as otherwise provided herein) immediately following the end of each Subsequent Spread Period (the "Tender Date"). In the case of the Initial Spread Period, the Notes may be tendered on July 9, 1998. Notice of a beneficial owner's election to tender to the Remarketing Underwriter, which notice is irrevocable (the "Tender Notice"), must be received by the Remarketing Underwriter during the period commencing on the calendar day following the Spread Determination Date (or, if not a Business Day, on the next succeeding Business Day) and ending at 5:00 p.m., New York City time, on the fifth calendar day following the relevant Spread Determination Date. The obligation of the Remarketing Underwriter to purchase tendered Notes from the tendering Noteholders will be subject to certain conditions and termination events as provided in the Remarketing Underwriting Agreement. If, pursuant to those certain conditions or termination events set forth in the Remarketing Underwriting Agreement, the Remarketing Underwriter does not purchase all Notes on the relevant Tender Date, for which a Tender Notice shall have been given, (1) all Tender Notices relating thereto will be null and void, (2) none of the Notes for which such Tender Notices shall have been given will be purchased by the Remarketing Underwriter on such Tender Date, (3) the Subsequent Spread Period will be one year, which Subsequent Spread Period shall be deemed to have commenced on the applicable Commencement Date, (4) the Notes will be reset to the Floating Rate Mode, (5) the Spread for such Subsequent Spread Period will be the Alternate Spread and (6) the Notes will be redeemable at the option of the Company, in whole or in part, upon at least ten Business Days' notice given by no later than the fifth Business Day following the relevant Tender Date on the date set forth in such notice, which shall be no later than the last day of such one-year Subsequent Spread Period, at a redemption price equal to 100% of the principal amount thereof, together with accrued interest to the redemption date. No beneficial owner of any Note shall have any rights or claims against the Company or the Remarketing 10 Underwriter as a result of the Remarketing Underwriter not purchasing such Notes, except as provided in clause (5) of the preceding sentence. If the Remarketing Underwriter does not purchase all Notes tendered for purchase on any Tender Date, it will promptly notify the Company and the Trustee. As soon as practicable after receipt of such notice, the Company will cause a notice to be given to holders of the Notes specifying (1) the one-year duration of the Subsequent Spread Period, (2) that the Notes will be reset to the Floating Rate Mode, (3) the Spread for such Subsequent Spread Period (which shall be the Alternate Spread) and (4) LIBOR for the initial Quarterly Period of such Subsequent Spread Period. (f) Form of Notes. The Notes shall be issued by the Company in registered form as set forth in Exhibit A attached hereto and all of the terms and provisions thereof are incorporated herein by reference. The Notes will be issued in the form of single fully registered global security without coupons (the "Global Note") which will be deposited with, or on behalf of, DTC, and registered in the name of DTC's nominee, Cede & Co. Except under the circumstance described below, the Notes will not be issuable in a definitive form. Unless and until it is exchanged in whole or in part for the individual notes represented thereby, a Global Note may not be transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any nominee of DTC to a successor depository or any nominee of such successor. So long as DTC or its nominee is the registered owner of such Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Note for all purposes under this Supplemental Indenture. Except as described below, owners of beneficial interest in Notes evidenced by a Global Note will not be entitled to have any of the individual Notes represented by such Global Note registered in their names, will not receive or be entitled to receive physical delivery of any such Notes in definitive form and will not be considered the owners or holders thereof under the Indenture or this Supplemental Indenture. If DTC is at any time unwilling, unable or ineligible to continue as depository and a successor depository is not appointed by the Company within 90 days, the Company will issue individual Notes in exchange for the Global Note representing such Notes. In addition, the Company may at any time and in its sole discretion, subject to certain limitations set forth in the Indenture, determine not to have any of such Notes represented by one or more Global Notes and in such event will issue individual Notes in exchange for the Global Note or Notes representing such debt Securities. Individual Notes so issued will be issued in denominations of $1,000 and integral multiples thereof and will be issued in registered form only, without coupons. 11 (g) Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Company shall be directed to it at 400 Centre Street, Newton, Massachusetts 02158, Attention: David J. Hegarty, President; notices to the Trustee shall be directed to it at Two International Place, Boston, Massachusetts 02110, Attention: Corporate Trust Division. ARTICLE THREE ADDITIONAL COVENANTS Section 301. In addition to the covenants of the Company set forth in Article Ten of the Indenture, for the benefit of the holders of the Notes: (a) Limitations on Incurrence of Debt. (i) The Company will not, and will not permit any Subsidiary to, incur any Debt if, immediately after giving effect to the incurrence of such additional Debt and the application of the proceeds thereof, the aggregate principal amount of all outstanding Debt of the Company and its Subsidiaries on a consolidated basis determined in accordance with GAAP is greater than 60% of the sum ("Adjusted Total Assets") of (without duplication) (i) the Total Assets of the Company and its Subsidiaries as of the end of the calendar quarter covered in the Company's Annual Report on Form 10-K, or the Quarterly Report on Form 10-Q, as the case may be, most recently filed with the Securities and Exchange Commission (or, if such filing is not permitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with the Trustee) prior to the incurrence of such additional Debt and (ii) the purchase price of any real estate assets or mortgages receivable acquired, and the amount of any securities offering proceeds received (to the extent that such proceeds were not used to acquire real estate assets or mortgages receivable or used to reduce Debt), by the Company or any Subsidiary since the end of such calendar quarter, including those proceeds obtained in connection with the incurrence of such additional Debt. (ii) In addition to the foregoing limitations on the incurrence of Debt, the Company will not, and will not permit any Subsidiary to, incur any Secured Debt if, immediately after giving effect to the incurrence of such additional Secured Debt and the application of the proceeds thereof, the aggregate principal amount of all outstanding Secured Debt of the Company and its Subsidiaries on a consolidated basis is greater than 40% of Adjusted Total Assets. (iii) In addition to the foregoing limitations on the Incurrence of Debt, the Company will not, and will not permit any Subsidiary to, incur any Debt if the ratio of Consolidated Income Available for Debt Service to the Annual Service Charge for the four consecutive fiscal quarters most recently ended prior to the date on which such additional Debt is to be incurred shall have been less than 1.5x, on a pro forma basis after giving effect thereto and to the application of the proceeds therefrom, and calculated on the assumption that (i) such Debt and any other Debt incurred by the Company and its Subsidiaries since the first day of such four-quarter period and the application of the proceeds therefrom, including to refinance other Debt, 12 had occurred at the beginning of such period; (ii) the repayment or retirement of any other Debt by the Company and its Subsidiaries since the first date of such four-quarter period had been repaid or retired at the beginning of such period (except that, in making such computation, the amount of Debt under any revolving credit facility shall be computed based upon the average daily balance of such Debt during such period); (iii) in the case of Acquired Debt or Debt incurred in connection with any acquisition since the first day of such four-quarter period, the related acquisition had occurred as of the first day of such period with appropriate adjustments with respect to such acquisition being included in such pro forma calculation; and (iv) in the case of any acquisition or disposition by the Company or its Subsidiaries of any asset or group of assets since the first day of such four-quarter period, whether by merger, stock purchase or sale, or asset purchase or sale, such acquisition or disposition or any related repayment of Debt had occurred as of the first day of such period with the appropriate adjustments with respect to such acquisition or disposition being included in such pro forma calculation. (b) Maintenance of Total Unencumbered Assets. The Company and its Subsidiaries will maintain Total Unencumbered Assets of not less than 200% of the aggregate outstanding principal amount of the Unsecured Debt of the Company and its Subsidiaries on a consolidated basis. (c) Applicability of Discharge, Defeasance and Covenant Defeasance Provisions. The Discharge, Defeasance and Covenant Defeasance provisions in Article Fourteen of the Indenture will apply to the Notes. ARTICLE FOUR ADDITIONAL EVENTS OF DEFAULT For purposes of this Supplemental Indenture and the Notes, in addition to the Events of Default set forth in Section 501 of the Indenture, it shall also constitute an "Event of Default" if an event of default under any bond, debenture, note or other evidence of indebtedness of the Company (including an event of default with respect to any other series of securities), or under any mortgage, indenture or other instrument of the Company under which there may be issued or by which there may be secured or evidenced any indebtedness of the Company (or by any Subsidiary, the repayment of which the Company has guaranteed or for which the Company is directly responsible or liable as obligor or guarantor), whether such indebtedness now exists or shall hereafter be created, shall happen and shall result in an aggregate principal amount exceeding $20,000,000 becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been rescinded or annulled, within a period of ten days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25% in principal amount of the outstanding Notes, a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled and stating that such notice is a "Notice of Default" hereunder. 13 ARTICLE FIVE EFFECTIVENESS This Supplemental Indenture shall be effective for all purposes as of the date and time this Supplemental Indenture has been executed and delivered by the Company and the Trustee in accordance with Article Nine of the Indenture. As supplemented hereby, the Indenture is hereby confirmed as being in full force and effect. ARTICLE SIX MISCELLANEOUS Section 601. In the event any provision of this Supplemental Indenture shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof or any provision of the Indenture. Section 602. To the extent that any terms of the Notes are inconsistent with the terms of the Indenture, the terms of the Notes shall govern and supersede such inconsistent terms. Section 603. This Supplemental Indenture shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. Section 604. This Supplemental Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. 14 IN WITNESS WHEREOF, the Company and the Trustee have caused this Supplemental Indenture to be executed as an instrument under seal in their respective corporate names and attested by their duly authorized officers, all as of the date first above written. (SEAL) HEALTH AND RETIREMENT PROPERTIES TRUST Attest: By: /s/ Ajay Saini Name: Ajay Saini Title: Treasurer /s/ David J. Hegarty Name: David J. Hegarty Title: President (SEAL) STATE STREET BANK AND TRUST COMPANY Attest: By: /s/ James E. Mogavero Name: James E. Mogavero Title: Assistant Vice President /s/ Michael Quaile Name: Michael Quaile Title: Assistant Secretary 15 EX-4.12 4 EXHIBIT 4.12 SUPPLEMENTAL INDENTURE NO. 2 DATED AS OF FEBRUARY 23, 1998 (Supplementing the Supplemental Indenture dated as of July 9, 1997) by and between HEALTH AND RETIREMENT PROPERTIES TRUST and STATE STREET BANK AND TRUST COMPANY HEALTH AND RETIREMENT PROPERTIES TRUST Remarketed Reset Notes due July 9, 2007 This SUPPLEMENTAL INDENTURE NO. 2 (this "Supplement") made and entered into as of February 23, 1998 between HEALTH AND RETIREMENT PROPERTIES TRUST, a Maryland real estate investment trust (the "Company"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, as Trustee (the "Trustee"). WITNESSETH THAT: WHEREAS, the Company and the Trustee have executed and delivered an Indenture, dated as of July 9, 1997 (the "Indenture"), relating to the Company's issuance, from time to time, of various series of debt securities; and WHEREAS, the Company and the Trustee have executed and delivered a Supplemental Indenture, dated as of July 9, 1997 (the "Supplemental Indenture No. 1") to the Indenture pursuant to which the Company has issued a series (the "Series") of debt securities known as the Company's "$200,000,000 Remarketed Reset Notes due July 9, 2007" (the "Reset Notes"); and WHEREAS, the Company has determined to issue an additional $50,000,000 of Reset Notes pursuant to the Indenture and Supplemental Indenture No. 1, and proposes to supplement Supplemental Indenture No. 1 to provide for such issuance; and NOW, THEREFORE, THIS SUPPLEMENT WITNESSETH: ARTICLE 1 SUPPLEMENT Pursuant to Section 301 of the Indenture, the Series is hereby reopened to increase the maximum principal amount thereof by $50,000,000 to $250,000,000. Henceforth the Series shall be known as the Company's Remarketed Reset Notes due July 9, 2007. ARTICLE 2 EFFECTIVENESS This Supplement shall be effective for all purposes as of the date and time this Supplement has been executed and delivered by the Company and the Trustee in accordance with Article Nine of the Indenture. As supplemented hereby, Supplemental Indenture No. 1 is hereby confirmed as being in full force and effect. ARTICLE 3 MISCELLANEOUS Section 3.1 In the event any provision of this Supplement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof or any provision of the Indenture. Section 3.2 This Supplement shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. Section 3.3 This Supplement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. IN WITNESS WHEREOF, the Company and the Trustee have caused this Supplement to be executed as an instrument under seal in their respective corporate names and attested by their duly authorized officers, all as of the date first above written. HEALTH AND RETIREMENT PROPERTIES TRUST By: /s/ Ajay Saini Ajay Saini Treasurer STATE STREET BANK AND TRUST COMPANY, as Trustee By: /s/ Robert L. Bice II Name: Robert L. Bice II Title: Vice President -2- EX-4.16 5 EXHIBIT 4.16 SUPPLEMENTAL INDENTURE NO. 3 by and between HEALTH AND RETIREMENT PROPERTIES TRUST and STATE STREET BANK AND TRUST COMPANY as of February 23, 1998 SUPPLEMENTAL TO THE INDENTURE DATED AS OF JULY 9, 1997 ------------------------------------ HEALTH AND RETIREMENT PROPERTIES TRUST $100,000,000 6.70% Senior Notes due 2005 This SUPPLEMENTAL INDENTURE NO. 3 (this "Supplemental Indenture") made and entered into as of February 23, 1998 between HEALTH AND RETIREMENT PROPERTIES TRUST, a Maryland real estate investment trust (the "Company"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, as Trustee (the "Trustee"). WITNESSETH THAT: WHEREAS, the Company and the Trustee have executed and delivered an Indenture dated as of July 9, 1997 (the "Indenture"), relating to the Company's issuance, from time to time, of various series of debt securities; and WHEREAS, the Company has determined to issue debt securities known as its $100,000,000 6.70% Senior Notes due 2005; and WHEREAS, the Indenture provides that certain terms and conditions for each series of debt securities issued by the Company thereunder may be set forth in an indenture supplemental to the Indenture; NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH: ARTICLE 1 DEFINED TERMS Section 1.1 The following definitions supplement, and, to the extent inconsistent with, replace the definitions in Section 101 of the Indenture: "Acquired Debt" means Debt of a Person (i) existing at the time such Person becomes a Subsidiary or (ii) assumed in connection with the acquisition of assets from such Person, in each case, other than Debt incurred in connection with, or in contemplation of, such Person's becoming a Subsidiary or such acquisition. Acquired Debt shall be deemed to be incurred on the date of the related acquisition of assets from any Person or the date the acquired Person becomes a Subsidiary. "Annual Debt Service" as of any date means the maximum amount which is expensed in any 12- month period for interest on Debt of the Company and its Subsidiaries. "Business Day" means any day other than a Saturday or Sunday or a day on which banking institutions in The City of New York or in the city in which the Corporate Trust Office of the Trustee is located, are required or authorized to close. "Capital Stock" means, with respect to any Person, any capital stock (including preferred stock), shares, interests, participation or other ownership interests (however designated) of such Person and any rights (other than debt securities convertible into or exchangeable for capital stock), warrants or options to purchase any thereof. "Consolidated Income Available for Debt Service" for any period means Earnings from Operations of the Company and its Subsidiaries plus amounts which have been deducted, and minus amounts which have been added, for the following (without duplication): (i) interest on Debt of the Company and its Subsidiaries, (ii) provision for taxes of the Company and its Subsidiaries based on income, (iii) amortization of debt discount and deferred financing costs, (iv) provisions for gains and losses on properties and property depreciation and amortization, (v) the effect of any noncash charge resulting from a change in accounting principles in determining Earnings from Operations for such period and (vi) amortization of deferred charges. "Debt" of the Company or any Subsidiary means, without duplication, any indebtedness of the Company or any Subsidiary, whether or not contingent, in respect of (i) borrowed money or evidenced by bonds, notes, debentures or similar instruments, (ii) indebtedness for borrowed money secured by any Encumbrance existing on property owned by the Company or any Subsidiary, (iii) the reimbursement obligations, contingent or otherwise, in connection with any letters of credit actually issued (other than letters of credit issued to provide credit enhancement or support with respect to other indebtedness of the Company or any Subsidiary otherwise reflected as Debt hereunder) or amounts representing the balance deferred and unpaid of the purchase price of any property or services, except any such balance that constitutes an accrued expense or trade payable, or all conditional sale obligations or obligations under any title retention agreement, (iv) the principal amount of all obligations of the Company or any Subsidiary with respect to redemption, repayment or other repurchase of any Disqualified Stock, or (v) any lease of property by the Company or any Subsidiary as lessee which is reflected on the Company's consolidated balance sheet as a capitalized lease in accordance with GAAP, to the extent, in the case of items of indebtedness under (i) through (iii) above, that any such items (other than letters of credit) would appear as a liability on the Company's consolidated balance sheet in accordance with GAAP, and also includes, to the extent not otherwise included, any obligation by the Company or any Subsidiary to be liable for, or to pay, as obligor, guarantor or otherwise (other than for purposes of collection in the ordinary course of business), Debt of another Person (other than the Company or any Subsidiary) (it being understood that Debt shall be deemed to be incurred by the Company or any Subsidiary whenever the Company or such Subsidiary shall create, assume, guarantee or otherwise become liable in respect thereof). "Disqualified Stock" means, with respect to any Person, any Capital Stock of such Person which by the terms of such Capital Stock (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable), upon the happening of any event or otherwise (i) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise (other than Capital Stock which is redeemable solely in exchange for common stock or shares), (ii) is convertible into or exchangeable or exercisable for Debt or Disqualified Stock, or (iii) is redeemable at the option of the holder thereof, in whole or in part (other than Capital Stock which is redeemable solely in exchange for common stock or shares), in each case on or prior to the Stated Maturity of the Notes. "Earnings from Operations" for any period means net earnings excluding gains and losses on sales of investments, extraordinary items and property valuation losses, as reflected in the financial statements of the Company and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "Encumbrance" means any mortgage, lien, charge, pledge or security interest of any kind. "Interest Payment Date" means any date on which interest is due and payable on the Notes in accordance with the terms thereof. "Issuance Date" means the closing date for the sale and original issuance of the Notes. "Make-Whole Amount" means, in connection with any optional redemption or accelerated payment of any Note, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (determined on the third Business Day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made, over (ii) the aggregate principal amount of the Notes being redeemed -2- or paid. For purposes of this Supplemental Indenture and the Notes, references in the Indenture to the payment of the principal (and premium, if any) and interest on the Notes shall be deemed to include the payment of the Make-Whole Amount, if any, due upon redemption with respect to the Notes. "Notes" means the Company's $100,000,000 aggregate principal amount of 6.70% Senior Notes, due 2005, issued under this Indenture, as amended or supplemented from time to time. "Record Date" means the fifteenth calendar day, whether or not a Business Day, next preceding the applicable Interest Payment Date. "Reinvestment Rate" means a rate per annum equal to the sum of 0.25% (twenty-five one hundredths of one percent) plus the yield on treasury securities at constant maturity under the heading "Week Ending" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "SEC" means the Securities and Exchange Commission. "Secured Debt" means Debt secured by any mortgage, lien, charge, pledge or security interest of any kind. "Securities Act" means the Securities Act of 1933, as amended. "Statistical Release" means the statistical release designated "H. 15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under this Supplemental Indenture, then any publicly available source of similar market data which shall be designated by the Company. "Subsidiary" means any corporation or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests of which are owned, directly or indirectly, by the Company or one or more other Subsidiaries of the Company. For the purposes of this definition, "voting equity securities" means equity securities having voting power for the election of directors, whether at all times or only so long as no senior class of security has such voting power by reason of any contingency. "Total Assets" as of any date means the sum of (i) the Undepreciated Real Estate Assets and (ii) all other assets of the Company and its Subsidiaries determined in accordance with GAAP (but excluding accounts receivable and intangibles). "Total Unencumbered Assets" means the sum of (i) those Undepreciated Real Estate Assets not subject to an Encumbrance for borrowed money and (ii) all other assets of the Company and its Subsidiaries not subject to an Encumbrance for borrowed money determined in accordance with GAAP (but excluding accounts receivable and intangibles). -3- "Undepreciated Real Estate Assets" as of any date means the cost (original cost plus capital improvements) of real estate assets of the Company and its Subsidiaries on such date, before depreciation and amortization determined on a consolidated basis in accordance with GAAP. "Unsecured Debt" means Debt which is not secured by any of the properties of the Company or any Subsidiary. ARTICLE 2 TERMS OF THE NOTES Section 2.1 Pursuant to Section 301 of the Indenture, the Notes shall have the following terms and conditions: (a) Title; Limitation on Aggregate Principal Amount; Form of Notes. The Notes shall be known as the Company's $100,000,000 6.70% Senior Notes due 2005. The Notes will be limited to an aggregate principal amount of $100,000,000. The Notes (together with the Trustee's certificate of authentication) shall be substantially in the form of Exhibit A hereto, which is hereby incorporated in and made a part of this Supplemental Indenture. The Notes will be issued in the form of single fully registered global security without coupons (the "Global Note") which will be deposited with, or on behalf of, The Depository Trust Company ("DTC"), and registered in the name of DTC's nominee, Cede & Co. Except under the circumstance described below, the Notes will not be issuable in a definitive form. Unless and until it is exchanged in whole or in part for the individual notes represented thereby, the Global Note may not be transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any nominee of DTC to a successor depository or any nominee of such successor. So long as DTC or its nominee is the registered owner of such Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Note for all purposes under this Supplemental Indenture. Except as described below, owners of beneficial interest in Notes evidenced by the Global Note will not be entitled to have any of the individual Notes represented by such Global Note registered in their names, will not receive or be entitled to receive physical delivery of any such Notes in definitive form and will not be considered the owners or holders thereof under the Indenture or this Supplemental Indenture. If DTC is at any time unwilling, unable or ineligible to continue as depository and a successor depository is not appointed by the Company within 90 days, the Company will issue individual Notes in exchange for the Global Note representing such Notes. In addition, the Company may at any time and in its sole discretion, subject to certain limitations set forth in the Indenture, determine not to have any of such Notes represented by one or more Global Notes and in such event will issue individual Notes in exchange for the Global Note or Notes representing such debt Securities. Individual Notes so issued will be issued in denominations of $1,000 and integral multiples thereof and will be issued in registered form only, without coupons. (b) Principal Repayment; Currency. The Stated Maturity of the Notes is February 23, 2005, provided, however, the Notes may be earlier redeemed at the option of the Company as provided in paragraph (c) below. The principal of each Note payable on its maturity date shall be paid against presentation and surrender thereof at the Corporate Trust Office of the Trustee, located initially at Two International Place, Boston, Massachusetts 02110, in such coin or currency of the United States of America as at the time of -4- payment is legal tender for the payment of public or private debts. The Company will not pay Additional Amounts (as defined in the Indenture) on the Notes. (c) Redemption at the Option of the Company; Acceleration. The Notes will be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice to each Holder of Notes to be redeemed at its address appearing in the Security Register, at a price equal to the sum of (i) the principal amount of the Notes being redeemed, plus accrued and unpaid interest to but excluding the applicable redemption date and (ii) the Make-Whole Amount. Upon the acceleration of the Notes in accordance with Section 502 of the Indenture, the principal amount of the Notes, plus accrued and unpaid interest thereon and the Make-Whole Amount shall become due and payable immediately. (d) Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Company shall be directed to it at 400 Centre Street, Newton, Massachusetts 02158, Attention: David J. Hegarty, President; notices to the Trustee shall be directed to it at Two International Place, Boston, Massachusetts 02110, Attention: Corporate Trust Department, Re: Health and Retirement Properties Trust 6.70% Senior Notes due 2005. (e) Global Note Legend. The Global Note shall bear the following legend on the face thereof: UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. ARTICLE 3 ADDITIONAL COVENANTS Section 3.1 In addition to the covenants of the Company set forth in Article Ten of the Indenture, for the benefit of the holders of the Notes: (a) Limitations on Incurrence of Debt. (i) The Company will not, and will not permit any Subsidiary to, incur any Debt if, immediately after giving effect to the incurrence of such additional Debt and the application of the proceeds thereof, the aggregate principal amount of all outstanding Debt of the Company and its Subsidiaries on a consolidated basis determined in accordance with GAAP is greater than 60% of the sum ("Adjusted Total Assets") of (without duplication) (i) the Total Assets of the Company and its Subsidiaries as of the end of the calendar quarter covered in the Company's Annual Report on Form 10-K, or the Quarterly Report on Form 10-Q, as the case may be, most recently filed with the Securities and Exchange Commission (or, if such filing is not permitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with the Trustee) prior to the incurrence of such additional Debt and (ii) the purchase price of any real estate assets or mortgages receivable -5- acquired, and the amount of any securities offering proceeds received (to the extent that such proceeds were not used to acquire real estate assets or mortgages receivable or used to reduce Debt), by the Company or any Subsidiary since the end of such calendar quarter, including those proceeds obtained in connection with the incurrence of such additional Debt. (ii) In addition to the foregoing limitations on the incurrence of Debt, the Company will not, and will not permit any Subsidiary to, incur any Secured Debt if, immediately after giving effect to the incurrence of such additional Secured Debt and the application of the proceeds thereof, the aggregate principal amount of all outstanding Secured Debt of the Company and its Subsidiaries on a consolidated basis is greater than 40% of Adjusted Total Assets. (iii) In addition to the foregoing limitations on the Incurrence of Debt, the Company will not, and will not permit any Subsidiary to, incur any Debt if the ratio of Consolidated Income Available for Debt Service to the Annual Debt Service for the four consecutive fiscal quarters most recently ended prior to the date on which such additional Debt is to be incurred shall have been less than 1.5x, on a pro forma basis after giving effect thereto and to the application of the proceeds therefrom, and calculated on the assumption that (i) such Debt and any other Debt incurred by the Company and its Subsidiaries since the first day of such four-quarter period and the application of the proceeds therefrom, including to refinance other Debt, had occurred at the beginning of such period; (ii) the repayment or retirement of any other Debt by the Company and its Subsidiaries since the first date of such four-quarter period had been repaid or retired at the beginning of such period (except that, in making such computation, the amount of Debt under any revolving credit facility shall be computed based upon the average daily balance of such Debt during such period); (iii) in the case of Acquired Debt or Debt incurred in connection with any acquisition since the first day of such four-quarter period, the related acquisition had occurred as of the first day of such period with appropriate adjustments with respect to such acquisition being included in such pro forma calculation; and (iv) in the case of any acquisition or disposition by the Company or its Subsidiaries of any asset or group of assets since the first day of such four-quarter period, whether by merger, stock purchase or sale, or asset purchase or sale, such acquisition or disposition or any related repayment of Debt had occurred as of the first day of such period with the appropriate adjustments with respect to such acquisition or disposition being included in such pro forma calculation. (b) Maintenance of Total Unencumbered Assets. The Company and its Subsidiaries will maintain Total Unencumbered Assets of not less than 200% of the aggregate outstanding principal amount of the Unsecured Debt of the Company and its Subsidiaries on a consolidated basis. (c) Applicability of Discharge, Defeasance and Covenant Defeasance Provisions. The Discharge, Defeasance and Covenant Defeasance provisions in Article Fourteen of the Indenture will apply to the Notes. ARTICLE 4 ADDITIONAL EVENTS OF DEFAULT For purposes of this Supplemental Indenture and the Notes, in addition to the Events of Default set forth in Section 501 of the Indenture, it shall also constitute an "Event of Default" if an event of default under any bond, debenture, note or other evidence of indebtedness of the Company (including an event of default with respect to any other series of securities), or under any mortgage, indenture or other instrument of the Company under which there may be issued or by which there may be secured or evidenced any indebtedness of the Company (or by any Subsidiary, the repayment of which the Company has guaranteed or for which the Company is directly responsible or liable as obligor or guarantor), whether such indebtedness now exists -6- or shall hereafter be created, shall happen and shall result in an aggregate principal amount exceeding $20,000,000 becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been rescinded or annulled, within a period of ten days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25% in principal amount of the outstanding Notes, a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled and stating that such notice is a "Notice of Default" hereunder. ARTICLE 5 EFFECTIVENESS This Supplemental Indenture shall be effective for all purposes as of the date and time this Supplemental Indenture has been executed and delivered by the Company and the Trustee in accordance with Article Nine of the Indenture. As supplemented hereby, the Indenture is hereby confirmed as being in full force and effect. ARTICLE 6 MISCELLANEOUS Section 6.1 In the event any provision of this Supplemental Indenture shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof or any provision of the Indenture. Section 6.2 To the extent that any terms of the Notes are inconsistent with the terms of the Indenture, the terms of the Notes shall govern and supersede such inconsistent terms. Section 6.3 This Supplemental Indenture shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. Section 6.4 This Supplemental Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. -7- IN WITNESS WHEREOF, the Company and the Trustee have caused this Supplemental Indenture to be executed as an instrument under seal in their respective corporate names as of the date first above written. HEALTH AND RETIREMENT PROPERTIES TRUST By: /s/ Ajay Saini Ajay Saini Treasurer STATE STREET BANK AND TRUST COMPANY, as Trustee By: /s/ Robert L. Bice II Name: Robert L. Bice II Title: Vice President -8- EXHIBIT A (Face of Note) 6.70% Senior Notes due 2005 No. $__________ HEALTH AND RETIREMENT PROPERTIES TRUST promises to pay to _______________________________________ or registered assigns, the principal sum of _____________________________________ Dollars on February 23, 2005. Interest Payment Dates: February 23 and August 23. Record Dates: February 8 and August 8. CUSIP No.: 422169AM4 HEALTH AND RETIREMENT PROPERTIES TRUST By:____________________________________ Name: Title: [SEAL] Dated: This is one of the Notes referred to in the within-mentioned Indenture: STATE STREET BANK AND TRUST COMPANY, as Trustee By: Authorized Signatory A - 1 (Back of Note) HEALTH AND RETIREMENT PROPERTIES TRUST 6.70% Senior Notes due 2005 Capitalized terms used herein have the meanings assigned to them in the Indenture (as defined below) unless otherwise indicated. 1. Interest. Health and Retirement Properties Trust, a Maryland real estate investment trust (the "Company"), promises to pay interest on the principal amount of this Note at the rate and in the manner specified below. The Company shall pay in cash interest on the principal amount of this Note at the rate per annum of 6.70%. The Company will pay interest semi-annually in arrears on February 23 and August 23 of each year, commencing on August 23, 1998 or if any such day is not a Business Day (as defined in the Indenture), on the next succeeding Business Day (each an "Interest Payment Date"), to Holders of record on the immediately preceding February 8 and August 8. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of the Notes. 2. Method of Payment. The Company will pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the record date next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company, however, may pay principal, premium, if any, and interest by check payable in such money. It may mail an interest check to a Holder's registered address. 3. Indenture. The Company issued the Notes under an Indenture dated as of July 9, 1997, as supplemented by a Supplemental Indenture dated as of February 23, 1998 (the "Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture. The Notes are subject to all such terms, and Holders of the Notes are referred to the Indenture and such act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Notes. The Notes are unsecured general obligations of the Company limited to $100,000,000 in aggregate principal amount. 4. Optional Redemption. The Notes will be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at a redemption price equal to the sum of (i) the principal amount of the Notes being redeemed, plus accrued and unpaid interest to but excluding the applicable redemption date and (ii) the Make-Whole Amount. As used herein the term "Make-Whole Amount" means, in connection with any optional redemption or accelerated payment of any Note, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (as defined A - 2 herein) (determined on the third Business Day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made, over (ii) the aggregate principal amount of the Notes being redeemed or paid. As used herein the term "Reinvestment Rate" means a rate per annum equal to the sum of 0.25% (twenty-five one hundredths of one percent) plus the yield on treasury securities at constant maturity under the heading "Week Ending" published in the Statistical Release (as defined herein) under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. As used herein the term "Statistical Release" means the statistical release designated "H. 15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under the Supplemental Indenture, then such other reasonably comparable index which shall be designated by the Company. 5. Mandatory Redemption. The Company shall not be required to make sinking fund or redemption payments with respect to the Notes. 6. Notice of Redemption. Notice of redemption shall be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. Notes may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption. 7. Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples thereof. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Note or portion of a Note selected for redemption. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before the mailing of a notice of redemption of Notes, or during the period between a record date and the corresponding Interest Payment Date. 8. Defaults and Remedies. In case an Event of Default (as defined in the Indenture) with respect to the Notes shall have occurred and be continuing, the principal hereof may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the provisions provided in the Indenture. 9. Actions of Holders. The Indenture contains provisions permitting the holders of not less than a majority of the aggregate principal amount of the outstanding Notes, on behalf of the holders of all such Notes at a meeting duly called and held as provided in the Indenture, to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided in the Indenture to be made, given or taken by the holders of the Notes, including without limitation, waiving (a) compliance by the Company with certain provisions of the Indenture, and (b) certain past defaults under the Indenture and their A - 3 consequences. Any resolution passed or decision taken at any meeting of the holders of the Notes in accordance with the provisions of the Indenture shall be conclusive and binding upon such holders and upon all future holders of this Note and other Notes issued upon the registration of transfer hereof or in exchange heretofore or in lieu hereof 10. Persons Deemed Owners. The Company, the Trustee, and any agent of the Company or the Trustee may deem and treat the Person in whose name this Note is registered on the Security Register as its absolute owner for all purposes. 11. Authentication. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 12. Governing Law. THE INTERNAL LAW OF THE COMMONWEALTH OF MASSACHUSETTS SHALL GOVERN AND BE USED TO CONSTRUE THE INDENTURE AND THE NOTES. 13. No Personal Liability. THE AMENDED AND RESTATED DECLARATION OF TRUST OF THE COMPANY, DATED JULY 1, 1994, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HEALTH AND 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 THE COMPANY SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE COMPANY. ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: Health and Retirement Properties Trust 400 Centre Street Newton, MA 02158 Telecopier No.: (617) 332-2261 Attention: President A - 4 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to (Insert assignee's soc. sec. or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: Your Signature: (Sign exactly as your name appears on the face of this Note) Signature Guarantee: EX-8.1 6 Exhibit 8.1 SULLIVAN & WORCESTER LLP One Post Office Square Boston, Massachusetts 02109 March 11, 1998 Health and Retirement Properties Trust 400 Centre Street Newton, Massachusetts 02158 Ladies and Gentlemen: In connection with the filing by Health and Retirement Properties Trust, a Maryland real estate investment trust (the "Company"), of its Annual Report on Form 10-K for the year ended December 31, 1997 (the "Form 10-K"), under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the following opinion is furnished to you to be filed with the Securities and Exchange Commission (the "SEC") as Exhibit 8.1 to the Form 10-K. We have acted as counsel for the Company in connection with the preparation of its Form 10-K, and we have examined originals or copies, certified or otherwise identified to our satisfaction, of corporate records, certificates and statements of officers and accountants of the Company and of public officials, and such other documents as we have considered relevant and necessary in order to furnish the opinion hereinafter set forth. Specifically, and without limiting the generality of the foregoing, we have reviewed: (i) the declaration of trust, as amended and restated, and the by-laws of the Company; and (ii) the sections in the Company's Form 10-K captioned "Federal Income Tax Considerations" and "ERISA Plans, Keogh Plans and Individual Retirement Accounts." With respect to all questions of fact on which such opinions are based, we have assumed the accuracy and completeness of and have relied on the information set forth in the Form 10-K and in the documents incorporated therein by reference, and on representations made to us by the officers of the Company. We have not independently verified such information; nothing has come to our attention, however, which would lead us to believe that we are not entitled to rely on such information. The opinion set forth below is based upon the Internal Revenue Code of 1986, as amended, the Treasury Regulations issued thereunder, published administrative interpretations thereof, and judicial decisions with respect thereto, all as of the date hereof (collectively the "Tax Laws"), and upon the Employee Retirement Income Security Act of 1974, as amended, Health and Retirement Properties Trust March 11, 1998 Page 2 the Department of Labor regulations issued thereunder, published administrative interpretations thereof, and judicial decisions with respect thereto, all as of the date hereof (collectively, the "ERISA Laws"). No assurance can be given that the Tax Laws or the ERISA Laws will not change. In preparing the discussions with respect to the matters in the sections of the Form 10-K captioned "Federal Income Tax Considerations" and "ERISA Plans, Keogh Plans and Individual Retirement Accounts," we have made certain assumptions and expressed certain conditions and qualifications therein, all of which assumptions, conditions and qualifications are incorporated herein by reference. Based upon and subject to the foregoing, we are of the opinion that the discussions in the sections of the Form 10-K captioned "Federal Income Tax Considerations" and "ERISA Plans, Keogh Plans and Individual Retirement Accounts," in all material respects are accurate and fairly summarize the Tax Laws issues and ERISA Laws issues addressed therein, and hereby confirm that the opinions of counsel referred to in said sections represent our opinions on the subject matter thereof. We hereby consent to the incorporation of this opinion by reference as an exhibit to the Form 10-K and to the reference to our firm therein. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or under the rules and regulations of the SEC promulgated thereunder. Very truly yours, /s/ Sullivan & Worcester LLP SULLIVAN & WORCESTER LLP EX-10.33 7 EXHIBIT 10.33 EXECUTION COPY U.S. $450,000,000 FOURTH AMENDMENT TO THIRD AMENDED AND RESTATED REVOLVING LOAN AGREEMENT among HEALTH AND RETIREMENT PROPERTIES TRUST, as Borrower, THE LENDERS NAMED HEREIN, DRESDNER KLEINWORT BENSON NORTH AMERICA LLC, as Agent, FLEET NATIONAL BANK, as Administrative Agent Dated as of November 14, 1997 HEALTH AND RETIREMENT PROPERTIES TRUST FOURTH AMENDMENT TO THIRD AMENDED AND RESTATED REVOLVING LOAN AGREEMENT DATED AS OF NOVEMBER 14, 1997 This FOURTH AMENDMENT (this "Amendment") is dated as of November 14, 1997 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"), DRESDNER KLEINWORT BENSON NORTH AMERICA LLC (as successor to Kleinwort Benson Limited), a limited liability company organized under the laws of Delaware, 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"), and FLEET NATIONAL BANK (as successor to Fleet Bank of Massachusetts) 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 is made with reference to the Third Amended and Restated Revolving Loan Agreement dated as of March 15, 1996, as amended by a First Amendment dated as of December 15, 1996, a Second Amendment and Waiver dated as of March 19, 1997 and a Third Amendment dated as of July 30, 1997 (as amended to date and from time to time hereafter, the "Loan Agreement") among Borrower, the Lenders, Agent, Administrative Agent and Co-Agents referred to therein and, in connection with Section 9 of the Loan Agreement and the guaranties given therein, HEALTH AND RETIREMENT PROPERTIES INTERNATIONAL, INC., a Delaware corporation and a direct wholly-owned Subsidiary of Borrower ("Retirement Properties"), CAUSEWAY HOLDINGS INC., a Massachusetts corporation and a direct wholly-owned Subsidiary of Borrower ("Causeway"), SJO CORPORATION, a Massachusetts corporation and a direct wholly-owned Subsidiary of Borrower ("SJO"), HUB PROPERTIES TRUST, HUB ACQUISITION TRUST, and HUB LA PROPERTIES TRUST, each a Maryland real estate investment trust and each a direct wholly-owned Subsidiary of Borrower (the "Trust Subsidiaries"), HUB REALTY FUNDING, INC., HUB MANAGEMENT, INC., HUB REALTY COLLEGE PARK, INC., HUB REALTY I, INC., HUB REALTY IV., INC. and HUB REALTY GOLDEN, INC., each a Delaware corporation and a wholly-owned Subsidiary of Borrower (the "Delaware Subsidiaries"), and HUB REALTY COLLEGE PARK I, LLC, a Maryland limited liability company and a wholly-owned Subsidiary of Borrower (the "LLC"). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Loan Agreement. 1 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 the amendment and restatement of the definition of "Facility" as follows:- ""Facility" means each (i) operating facility offering health care or related services or rehabilitation or retirement services or other health care 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, and (ii) facility comprising office or similar administrative type space (including, without limitation, the Fee Interest and/or Leasehold Interests associated with such facility) in which Borrower or any of its Subsidiaries has acquired an interest as owner or lessee and which facility is leased or subleased by Borrower or any of its Subsidiaries to a Government Agency or, in the case of a Medical Office Asset, for medical research and development or, in the case of a Fee or Mortgage Interest described in Section 6.7(vi), for any business purpose, including, without limitation, in the case of both (i) and (ii), each Property and Mortgaged Property. (b) Section 6.7 of the Loan Agreement is hereby amended by deleting the word "and" immediately before (v) in the text thereof and replacing it with a comma, deleting the period at the end thereof and adding the following proviso at the end thereof:- ", and (vi) notwithstanding the preceding provisions of this Section 6.7, Borrower shall not be deemed to have made any material change in the nature of its business as presently conducted to the extent that the Borrower directly, or indirectly through a Subsidiary, acquires or operates, or acquires or funds a Mortgage Interest in, income producing real property interests and facilities not heretofore described in this Section 6.7 if such real property interests or Mortgage Interests (i) valued at cost as of 2 the date of their respective acquisitions, do not in the aggregate exceed 10% of the aggregate Allowed Value of the Properties and Mortgage Interests of the Borrower and its Subsidiaries on a consolidated basis determined (x) at the time of such acquisition or (y) if a facility is at the time of its acquisition of a type heretofore described in this Section 6.7 but is thereafter converted to a type not heretofore so described, on the date of such conversion, and (ii) are not treated by the Borrower as Eligible Properties or Eligible Mortgages, as the case may be, for any purpose of this Agreement." (c) Sections 7.1 (r) and (s) of the Loan Agreement are hereby amended and restated as follows: "(r) Medical Office Assets and Clinics. More than 55% of the aggregate Allowed Value of the Properties and Mortgage Interests shall be attributable to Medical Office Assets and/or Clinics; or" (d) Sections 7.1 (t), (u) and (v) are hereby renumbered as Sections 7.1 (s), (t) and (u), respectively. 2. Conditions to Effectiveness. Section 1 of this Amendment shall become effective immediately 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, the Trust Subsidiaries, the Delaware Subsidiaries and the LLC, Agent, Co-Agent(s) and the Majority Lenders. 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. 3 (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 (i) do not violate any Requirement of Law or Contractual Obligation of Borrower, (ii) 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 and (iii) do not require the consent of any third party. (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 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) After giving effect to this Amendment, no event has occurred and is continuing or will result from the consummation of 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 May 14, 1997, 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. Guarantors' Acknowledgement and Consent. Each of Retirement Properties, Causeway, SJO, the Trust Subsidiaries, the Delaware Subsidiaries and the LLC (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 payment 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 4 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. 5. 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. 6. Fees and Expenses. Borrower agrees to pay to Agent on demand 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. 7. 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. 8. 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. 9. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 10. 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. 5 11. Acknowledgment. Borrower acknowledges that there are no existing claims, defenses, personal or otherwise, or rights of set off whatsoever with respect to the Amended Agreement or any of the other Loan Documents. 12. NONLIABILITY OF TRUSTEES. (a) 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. (b) THE DECLARATIONS OF TRUST ESTABLISHING HUB PROPERTIES TRUST DATED SEPTEMBER 12, 1996, HUB ACQUISITION TRUST DATED MARCH 14, 1997 AND HUB LA PROPERTIES TRUST DATED MAY 12, 1997, A COPY OF EACH OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "TRUST SUBSIDIARIES DECLARATIONS"), IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAMES "HUB PROPERTIES TRUST", "HUB ACQUISITION TRUST" AND "HUB LA PROPERTIES TRUST" REFER TO THE RESPECTIVE TRUSTEES UNDER THE RESPECTIVE TRUST SUBSIDIARIES DECLARATIONS COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF ANY OF THE TRUST SUBSIDIARIES SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, SUCH TRUST SUBSIDIARY. ALL PERSONS DEALING WITH EACH TRUST SUBSIDIARY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF SUCH TRUST SUBSIDIARY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. [Remainder of page intentionally left blank] 6 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 DRESDNER KLEINWORT BENSON NORTH AMERICA LLC, as Agent By: /s/ Name: Title Executive Vice President By: /s/ Name: Title DRESDNER BANK AG, New York Branch, as a Lender By: /s/ Felix K. Camacho Name: Felix K. Camacho Title Assistant Treasurer By: /s/ Robert Grella Name: Robert Grella Title Vice President S - 1 FLEET NATIONAL BANK, as Administrative Agent and as a Lender By: /s/ Ginger Stolzenthaler Name: G. Stolzenthaler Title Senior Vice President BANK OF MONTREAL, as a Co-Agent and as a Lender By: /s/ Jeff Forsythe Name: Jeff Forsythe Title Director CIBC INC., as a Co-Agent and as a Lender By: /s/ Timothy E. Doyle Name: Timothy E. Doyle Title Managing Director CIBC Oppenheimer Corp as Agent CITICORP REAL ESTATE, INC., as a Co- Agent and as a Lender By: /s/ Susan McManigal Name: Susan McManigal Title Attorney-In-Fact CREDIT LYONNAIS, Cayman Island Branch, as a Co-Agent and as a Lender By: /s/ Farboud Tavangar Name: Farboud Tavangar Title First Vice President S - 2 FIRST UNION NATIONAL BANK, as a Co-Agent and as a Lender By: /s/ Joseph H. Towell Name: Joseph H. Towell Title Senior Vice President KEY CORPORATE CAPITAL INC., as a Co-Agent and as a Lender By: /s/ Angela G. Mago Name: Angela G. Mago Title Vice President SOCIETE GENERALE, as a Co-Agent and as a Lender By: /s/ Sedare Coradin Name: Sedare Coradin Title Vice President THE SUMITOMO BANK, LIMITED, as a Lender By: /s/D.G. Eastman Name: D.G. Eastman Title Vice President and manager By: /s/ Alfred DoGermanis Name: Alfred DoGermanis Title Vice President S - 3 ABBEY NATIONAL TREASURY SERVICES PLC, as a Lender By: /s/ R. Gambel Name: R. Gambel Title Asset Backed Securities VIA BANQUE, as a Lender By: /s/ C. Prot Name: C. Prot Title Senior Directory By: /s/ P. Arnout Name: P. Arnout Title Director RIGGS BANK N.A., as a Lender By: /s/ Name: Title THE BANK OF NEW YORK, as a Lender By: /s/ David C. Judge Name: David C. Judge Title Vice President S - 4 THE LONG-TERM CREDIT BANK OF JAPAN, LTD., New York Branch, as a Lender By: /s/ Hiroshi Kitada Name: Hiroshi Kitada Title Deputy General Manager THE BANK OF NOVA SCOTIA, New York Agency, as a Lender By: /s/ Chistopher I. Grant Name: Chistopher I. Grant Title Senior Relationship Manager BANQUE NATIONAL DE PARIS, as a Lender By: /s/ Katherine Wolfe Name: Katherine Wolfe Title Vice President By: /s/ Charles H. Day Name: Charles H. Day Title Assistant Vice President DG BANK, DEUTSCHE GENOSSENSCHAFTSBANK, Cayman Island Branch, as a Lender By: /s/ Linda J. O'Connell Name: Linda J. O'Connell Title Vice President By: /s/ Karen A. Brinkman Name: Karen A. Brinkman Title Vice President S - 5 SIGNET BANK, as a Lender By: /s/ Frieda M.A. McWilliams Name: Frieda M.A. McWilliams Title Vice President MITSUI LEASING (U.S.A.) INC., as a Lender By: /s/ Yuichi Kamizawa Name: Yuichi Kamizawa Title Vice President ARAB AMERICAN BANK, as a Lender By: /s/ Peter Rivera Name: Peter Rivera Title Assistant Vice President By: /s/ William G. Reynolds Name: William G. Reynolds 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 S - 6 SJO CORPORATION By: /s/ Ajay Saini Name: Ajay Saini Title Treasurer HUB PROPERTIES TRUST By: /s/ Ajay Saini Name: Ajay Saini Title Treasurer HUB ACQUISITION TRUST By: /s/ Ajay Saini Name: Ajay Saini Title Treasurer HUB LA PROPERTIES TRUST By: /s/ Ajay Saini Name: Ajay Saini Title Treasurer HUB REALTY FUNDING, INC. By: /s/ Ajay Saini Name: Ajay Saini Title Treasurer HUB MANAGEMENT, INC. By: /s/ Ajay Saini Name: Ajay Saini Title Treasurer S - 7 HUB REALTY COLLEGE PARK, INC. By: /s/ Ajay Saini Name: Ajay Saini Title Treasurer HUB REALTY I, INC. By: /s/ Ajay Saini Name: Ajay Saini Title Treasurer HUB REALTY IV, INC. By: /s/ Ajay Saini Name: Ajay Saini Title Treasurer HUB REALTY GOLDEN, INC. By: /s/ Ajay Saini Name: Ajay Saini Title Treasurer HUB REALTY COLLEGE PARK I, LLC By: /s/ Ajay Saini Name: Ajay Saini Title Treasurer S - 8 EX-12.1 8
Exhibit 12.1 HEALTH AND RETIREMENT PROPERTIES TRUST COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in thousands, except ratio amounts) For the Years Ended December 31, ---------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------------------------------------------------------------------------------- Income before gain on sale of properties and extraordinary items $112,204 $77,164 $61,760 $57,878 $37,738 Fixed charges 38,564 23,279 26,218 10,096 6,529 Adjusted Earnings $150,768 $100,443 $87,978 $67,974 $44,267 ================ ================= ================ =============== ============= Fixed Charges: Interest expense $36,766 $22,545 $24,274 $8,965 $6,217 Amortization of deferred financing costs 1,798 734 1,944 1,131 312 Total Fixed Charges $38,564 $23,279 $26,218 $10,096 $6,529 ================ ================= ================ =============== ============= Ratio of Earnings to Fixed Charges 3.9x 4.3x 3.4x 6.7x 6.8x ================ ================= ================ =============== =============
EX-21.1 9 Exhibit 21.1 HEALTH AND RETIREMENT PROPERTIES TRUST SUBSIDIARIES OF THE REGISTRANT Causeway Holdings, Inc. SJO Corporation Health & Retirement Properties International, Inc. Church Creek Corporation Idemnity Collection Corporation HUB Properties Trust HUB LA Properties Trust HUB Acquisition Trust HUB Realty Funding, Inc. (formerly Rosecliff Realty Funding, Inc.) HUB Management, Inc. (formerly Government Property Investors Management, Inc.) HUB Realty College Park, Inc. (formerly Rosecliff Realty College Park, Inc.) HUB Realty Richland, Inc. (formerly Rosecliff Realty Richland, Inc.) HUB Realty Buffalo, Inc. (formerly Rosecliff Realty Buffalo, Inc.) HUB Realty Golden, Inc. (formerly Rosecliff Realty Golden, Inc.) HUB Realty Kansas City, Inc. (formerly Rosecliff Kansas City, Inc.) HUB Realty III, Inc. (formerly Rosecliff Realty III, Inc. merged into HUB Acquisition Trust 1/98) HUB RI Properties Trust HUB Woodmont Investment Trust HUB Woodmont LLC EPA Golden, L.P. HUB LA Limited Partnership HUB Realty College Park I, LLC EX-23.1 10 EXHIBIT 23.1 Consent of Independent Auditors We consent to the incorporation by reference in Post-Effective Amendment No. 1 to the Registration Statement (Form S-3 No. 33-62135) of Health and Retirement Properties Trust and in the related Prospectus, in the Registration Statement (Form S-3 No. 333- 26887) of Health and Retirement Properties Trust and in the related prospectus; and in the Registration Statement (Form S-3 No. 333-34823) of Health and Retirement Properties Trust and in the related Prospectus of our report dated February 9, 1998, with respect to the consolidated financial statements of Health and Retirement Properties Trust incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 1997. Our audits also included the financial statement schedules of Health and Retirement Properties Trust listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP ERNST & YOUNG LLP Boston, Massachusetts March 9, 1998 EX-23.2 11 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated February 3, 1998 included in Marriott International, Inc.'s annual report on Form 10-K for the year ended January 2, 1998 (File No. 1-12188) into Health and Retirement Properties Trust's Form 10-K, and into the Health and Retirement Properties Trust's previously filed Registration Statements File Nos. 33-62135, 333-26887 and 333-34823. /s/ ARTHUR ANDERSEN LLP Washington, D.C. March 5, 1998 EX-99.1 12 EXHIBIT 99.1 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 27, 1998 HEALTH AND RETIREMENT PROPERTIES TRUST (Exact name of registrant as specified in its charter) Maryland 1-9317 04-6558834 (State or other (Commission (IRS Employer jurisdiction of File Number) Identification No.) incorporation) 400 Centre Street, Newton, MA 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 Management's Discussion and Analysis of Financial Condition and Results of Operations The following information is provided in connection with the financial statements filed as Item 7 to this Current Report and should be read in conjunction with the financial statements and notes thereto included elsewhere herein. Results of Operations Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 Total revenues for the year ended December 31, 1997 increased to $208.9 million from $120.2 million for the year ended December 31, 1996. Rental income increased by $90.0 million and interest and other income decreased by $1.3 million. Rental income increased because of new real estate investments in 1997, and partly as a result of the Company's increased investments in "gross leased" real estate assets as compared to "net leased" assets during the 1997 period as compared to the 1996 period. As the Company's investment in such "gross leased" assets increases, the Company anticipates rental income and the corresponding operating expenses from such leases to increase during subsequent periods. Interest and other income decreased primarily as a result of prepayments and repayments of mortgage investments, which was offset, in part, by an increase in earnings on the Company's short-term investments in the 1997 period compared to the 1996 period. Total expenses for the year ended December 31, 1997 increased to $114.5 million from $55.5 million for the year ended December 31, 1996. Operating expenses increased by $23.0 million as a result of the Company's increased investment in "gross leased" real estate assets during the 1997 period as compared to the 1996 period. Interest expense increased by $14.2 million due to higher borrowings during the 1997 period. Depreciation and amortization, and general and administrative expenses increased by $17.2 million and $4.6 million, respectively, primarily as a result of new real estate investments in 1997 and 1996. Net income increased to $114.0 million, or $1.24 per basic share for the 1997 period, from $73.3 million, or $1.11 per basic share for the 1996 period. Net income increased primarily as a result of new investments in 1997 and 1996. In addition, net income increased as a result of a $2.9 million gain on sale of properties, the recognition of a $9.3 million gain on equity transaction of the Company's formerly wholly owned subsidiary Hospitality Properties Trust ("HPT") during the 1997 period compared to a $3.6 million gain in the 1996 period, and by an extraordinary loss of $1.1 million during the 1997 period compared to a $3.9 million extraordinary loss during the 1996 period, both resulting from the early extinguishment of debt. 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. 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 HPT's equity transaction, 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, 1997, were $146.3 million, or $1.59 per basic share, versus $99.1 million, or $1.50 per basic share, in 1996. Funds from operations for 1997 increased $47.2 million, or 47.6%, over the prior year. The increase is the result of new investments in 1997 and 1996. Dividends declared for the years ended December 31, 1997 and 1996 were $144.3 million, or $1.46 per basic share, and $94.3 million, or $1.42 per basic share, respectively. Dividends in excess of net income constitute a return of capital. For 1997, the return of capital portion reported was 17.4% of dividends and the long-term capital gain portion was 1.7% 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. 1 HEALTH AND RETIREMENT PROPERTIES TRUST Management's Discussion and Analysis of Financial Condition and Results of Operations Cash flows provided by (used for) operating, investing and financing activities were $185.7 million, ($815.2) million and $630.0 million, respectively, for the year ended December 31, 1997 and $98.3 million, ($235.3) million and $140.2 million, respectively, for the year ended December 31, 1996. The increases in all three categories are primarily the result of new real estate investments in 1997. 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 HPT. During 1995, HPT completed its initial public offering and 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 which 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. Net income for 1996 increased to $73.3 million, or $1.11 per basic share, from $64.2 million, or $1.08 per basic 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. Cash flows 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. Liquidity and Capital Resources Total assets of the Company increased to $2.1 billion at December 31, 1997 from $1.2 billion as of December 31, 1996. The increase is primarily attributable to the Company's new real estate investments during 1997. During 1997, the Company acquired three nursing properties, one retirement community, 22 medical and other office buildings and 20 medical clinics for an aggregated amount of $554.8 million and provided debt financing and improvement funding totaling $4.8 million to its existing properties. These transactions were funded by borrowing on the Company's revolving credit facility and available cash. In addition, the Company sold 14 nursing properties for $33.5 million, which resulted in a gain of $2.9 million. During 1997, the Company received regularly scheduled principal payments and prepayment on real estate mortgages of approximately $49.5 million. In February 1997, the Company agreed to acquire 30 office buildings (the "Government Properties") leased to various agencies of the United States Government. As of December 31, 1997, the Company had completed the purchase of 29 of the Government Properties for $439.5 million and elected not to acquire one of the Government Properties under development. The acquisition of the Government Properties was funded, in part, with the proceeds from the issuance of the Company's common shares pursuant to a public offering, the issuance of 4,019,429 common shares of the Company in a private placement and the assumption of $27.6 million of debt. Subsequently, in January 1998, the Company sold one of the Government Properties for $5.7 million; no gain or loss was recognized on the sale of this property. 2 HEALTH AND RETIREMENT PROPERTIES TRUST Management's Discussion and Analysis of Financial Condition and Results of Operations At December 31, 1997, the Company owned 4.0 million, or 10.3%, of the common shares of beneficial interest of HPT with a carrying value of $111.1 million and a market value of $131.5 million. During December 1997, HPT completed a public stock offering of 12.0 million common shares of beneficial interest at a per share price of $33.0625 for total consideration of approximately $396.8 million. As a result of this transaction, the Company's ownership percentage in HPT was reduced from 14.9% to 10.3% and the Company realized a gain of $9.3 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. These amounts are not included in the Company's calculation of FFO. In March 1997, the Company issued 27,025,000 common shares and received net proceeds of $483.2 million. The proceeds were used to acquire the Government Properties. In March 1997, the Company extended and modified its $250.0 million unsecured revolving bank credit facility. Subsequently, in July 1997, the Company expanded the credit facility to $450.0 million. The revolving bank credit facility matures in 2001 and bears interest at LIBOR plus a premium. During July 1997, the Company issued senior unsecured Remarketed Reset Notes (the "Notes") totaling $200.0 million. The Notes are due in 2007 and the initial interest rate is LIBOR plus a premium, reset quarterly. In July 1998, these Notes may be prepaid without a premium, or the interest rate and interest period on these Notes may be fixed for the balance of the term or a lesser period at the Company's option and the Notes will be remarketed. Proceeds from the issuance of the Notes were used to prepay $125.0 million of the Company's Floating Rate Senior Notes, Series B, due 1999 and $75.0 million outstanding under the Company's revolving bank credit facility. In connection with this refinancing, the Company recognized an extraordinary loss of $1.1 million from the write-off of unamortized deferred financing costs. In December 1997, the Company issued unsecured Senior Notes totaling $150.0 million. The notes bear interest at 6.75% and mature in 2002. Net proceeds from the notes were used for general business purposes and to repay $140.0 million then outstanding under the Company's revolving bank credit facility. At December 31, 1997, the Company had $22.4 million of cash and cash equivalents and had drawn $200.0 million of the $450.0 million revolving bank credit facility. In addition, in May 1997, the Company filed a $1.0 billion Shelf Registration Statement (the "Shelf") that has been declared effective by the Securities and Exchange Commission. At December 31, 1997, $800.0 million was available to be drawn on the Shelf. As of December 31, 1997, the Company had commitments to provide improvement financing to existing properties and to purchase ten medical and other office buildings totaling approximately $92.1 million. The Company intends to fund these commitments with a combination of cash on hand, amounts available under its existing credit facility, proceeds of mortgage prepayments, if any, and/or proceeds of other financings such as the possible issuance of additional securities. In January and February 1998, the Company acquired ten medical and other office buildings for $81.6 million with available cash and by borrowing on the Company's revolving bank credit facility. During February 1998, the Company issued 5,495,776 common shares, issued additional Notes totaling $50.0 million and issued 6.7% unsecured Senior Notes due 2005 totaling $100.0 million. Net proceeds of $253.3 million were used to repay amounts outstanding under the Company's revolving credit facility and for general business purposes. The Company continues to seek new investments to expand and diversify its portfolio of 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. As of December 31, 1997, the Company's debt as a percentage of total book capitalization was approximately 38%. 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. 3 HEALTH AND RETIREMENT PROPERTIES TRUST Management's Discussion and Analysis of Financial Condition and Results of Operations Impact of Inflation Management believes that the Company may not be adversely affected by modest 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 fixed rent terms. In the health care and hotel industries, inflation usually increases the lessees' revenues, thereby increasing the Company's additional rent or interest. 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" and the ability to access capital markets depends upon various factors over which the Company and/or the Company's lessees 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 in 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. The Company's Year 2000 initiative is being managed by the Company to minimize any adverse effect on the Company's business operations and is scheduled to be completed in 1999. While the Company believes its planning efforts are adequate to address its Year 2000 concerns, there can be no guarantee that the systems of other companies on which the Company's systems and operations rely will be converted on a timely basis and will not have a material effect on the Company. The cost of the Year 2000 initiatives is not expected to be material to the Company's results of operations or financial position. 4 HEALTH AND RETIREMENT PROPERTIES TRUST
Item 7. Financial Statements and Exhibits (a) Financial Statements Report of Ernst & Young LLP, Independent Auditors...............................................F-1 Report of Arthur Andersen LLP, Independent Public Accountants...................................F-2 Consolidated Balance Sheets for the years ended December 31, 1997 and 1996......................F-3 Consolidated Statements of Income for each of the three years in the period ended December 31, 1997..............................................................F-4 Consolidated Statements of Shareholders_ Equity for each of the three years in the period ended December 31, 1997..............................................................F-5 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1997.....................................................................F-6 Notes to Consolidated Financial Statements......................................................F-8
(c) Exhibits 10.1 Master Management Agreement by and between Health and Retirement Properties Trust and REIT Management and Research, Inc., dated as of January 1, 1998 10.2 Parking Operation Management Agreement by and between HUB Properties Trust, a subsidiary of Health and Retirement Properties Trust, and REIT Management and Research, Inc., dated as of January 1, 1998 23. Consent of Ernst & Young LLP 27. Financial Data Schedule 5 REPORT OF INDEPENDENT AUDITORS To the Trustees and Shareholders of Health and Retirement Properties Trust We have audited the accompanying consolidated balance sheets of Health and Retirement Properties Trust as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. 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 10.3% and 14.9% interest as of December 31, 1997 and 1996, respectively) 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, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP ERNST & YOUNG LLP Boston, Massachusetts February 9, 1998 F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Trustees and Shareholders of Hospitality Properties Trust We have audited the consolidated balance sheet of Hospitality Properties Trust (the "Company") as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity and cash flows (not separately presented herein) for the years ended December 31, 1997, 1996 and the period from February 7, 1995 (inception) to December 31, 1995. 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, 1997 and 1996 and the results of its operations and its cash flows for the years ended December 31, 1997 and 1996, and for the period from February 7, 1995 (inception) to December 31, 1995, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Washington, D.C. January 16, 1998 F-2
HEALTH AND RETIREMENT PROPERTIES TRUST CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) December 31, ------------------------------------- 1997 1996 ------------------------------------- ASSETS Real estate properties, at cost (including properties leased to affiliates with a cost of $112,075 and $109,843, respectively): Land $ 256,582 $ 93,522 Buildings and improvements 1,712,441 912,217 ----------- ----------- 1,969,023 1,005,739 Less accumulated depreciation 111,669 76,921 ----------- ----------- 1,857,354 928,818 Real estate mortgages and notes, net (including note from an affiliate of $2,365) 104,288 150,205 Investment in Hospitality Properties Trust 111,134 103,062 Cash and cash equivalents 22,355 21,853 Interest and rents receivable 20,455 11,612 Deferred interest and finance costs, net, and other assets 20,377 13,972 ----------- ----------- $ 2,135,963 $ 1,229,522 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Bank notes payable $ 200,000 $ 140,000 Senior notes payable, net 349,900 124,385 Mortgage notes payable 26,329 -- Convertible subordinated debentures 211,650 227,790 Accounts payable and accrued expenses 27,865 10,711 Deferred rents 30,089 7,608 Security deposits 18,767 8,387 Due to affiliates 5,103 2,593 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: 125,000,000 shares and 100,000,000 shares authorized, respectively, 98,853,170 shares and 66,888,917 shares issued and outstanding, respectively 988 669 Additional paidin capital 1,371,236 795,263 Cumulative net income 420,298 306,298 Dividends (526,262) (394,182) ----------- ----------- Total shareholders' equity 1,266,260 708,048 ----------- ----------- $ 2,135,963 $ 1,229,522 =========== ===========
See accompanying notes F-3
HEALTH AND RETIREMENT PROPERTIES TRUST CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Year Ended December 31, ----------------------------------- 1997 1996 1995 --------- ---------- --------- Revenues: Rental income $ 188,000 $ 98,039 $ 90,246 Interest and other income 20,863 22,144 23,076 --------- --------- --------- Total revenues 208,863 120,183 113,322 --------- --------- --------- Expenses: Operating expenses 26,765 3,776 644 Interest 36,766 22,545 24,274 Depreciation and amortization 39,330 22,106 22,849 General and administrative 11,670 7,055 6,914 --------- --------- --------- Total expenses 114,531 55,482 54,681 --------- --------- --------- Income before equity in earnings of Hospitality Properties Trust, gain on sale of properties and extraordinary items 94,332 64,701 58,641 Equity in earnings of Hospitality Properties Trust 8,590 8,860 3,119 Gain on equity transaction of Hospitality Properties Trust 9,282 3,603 -- --------- --------- --------- Income before gain on sale of properties and extraordinary items 112,204 77,164 61,760 Gain on sale of properties, net 2,898 -- 2,476 --------- --------- --------- Income before extraordinary items 115,102 77,164 64,236 Extraordinary items - early extinguishment of debt (1,102) (3,910) -- --------- --------- --------- Net income $ 114,000 $ 73,254 $ 64,236 ========= ========= ========= Weighted average shares outstanding 92,168 66,255 59,227 ========= ========= ========= Basic and diluted earnings per common share: Income before gain on sale of properties and extraordinary items $1.22 $1.16 $1.04 ===== ===== ===== Income before extraordinary items $1.25 $1.16 $1.08 ===== ===== ===== Net income $1.24 $1.11 $1.08 ===== ===== =====
See accompanying notes F-4
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, 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 Issuance of shares to acquire real estate 3,985,028 40 76,521 -- -- 76,561 Issuance of shares 27,025,000 270 482,883 -- -- 483,153 Conversion of convertible subordinated debentures 910,379 9 15,756 -- -- 15,765 Stock grants 43,846 -- 813 -- -- 813 Net income -- -- -- 114,000 -- 114,000 Dividends -- -- -- -- (132,080) (132,080) ----------- ----------- ----------- ----------- ----------- ----------- Balance at December 31, 1997 98,853,170 $ 988 $ 1,371,236 $ 420,298 $ (526,262) $ 1,266,260 =========== =========== =========== =========== =========== ===========
See accompanying notes F-5
HEALTH AND RETIREMENT PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) Year Ended December 31, ----------------------------------- 1997 1996 1995 ----------------------------------- Cash flows from operating activities: Net income $ 114,000 $ 73,254 $ 64,236 Adjustments to reconcile net income to cash provided by operating activities: Gain on sale of properties (2,898) -- (2,476) Equity in earnings of Hospitality Properties Trust (8,590) (8,860) (3,119) Gain on equity transaction of Hospitality Properties Trust (9,282) (3,603) -- Dividends from Hospitality Properties Trust 9,800 9,360 960 Extraordinary items 1,102 3,910 -- Depreciation 37,619 21,265 21,048 Amortization 1,711 841 1,801 Amortization of deferred interest costs 699 1,444 1,529 Change in assets and liabilities: Increase in interest and rents receivable and other assets (5,273) (7,839) (1,639) Increase (decrease) in accounts payable and accrued expenses 10,832 6,033 (11,427) Increase in deferred rents 22,481 689 6,919 Increase in security deposits 10,380 1,001 3,586 Increase in due to affiliates 3,119 823 843 --------- --------- --------- Cash provided by operating activities 185,700 98,318 82,261 --------- --------- --------- Cash flows from investing activities: Real estate acquisitions and improvements (548,465) (225,428) (267,470) Acquisition of business, less cash acquired (337,400) -- -- Investments in mortgage loans (520) (17,191) (24,375) Proceeds from repayment of notes and mortgage loans, net of discounts 48,245 8,091 38,107 Proceeds from sale of real estate 22,898 -- 5,000 Proceeds from Hospitality Properties Trust initial public offering -- -- 60,000 Loans to affiliate -- (800) (1,565) --------- --------- --------- Cash used for investing activities (815,242) (235,328) (190,303) --------- --------- --------- Cash flows from financing activities: Proceeds from issuance of common shares 483,153 6,990 97,944 Proceeds from borrowings 784,900 481,000 219,000 Payments on borrowings (501,261) (247,070) (166,000) Deferred finance costs incurred (4,668) (7,320) (1,666) Dividends paid (132,080) (93,377) (80,473) --------- --------- --------- Cash provided by financing activities 630,044 140,223 68,805 --------- --------- --------- Increase (decrease) in cash and cash equivalents 502 3,213 (39,237) Cash and cash equivalents at beginning of period 21,853 18,640 57,877 --------- --------- --------- Cash and cash equivalents at end of period $ 22,355 $ 21,853 $ 18,640 ========= ========= ========= Supplemental cash flow information: Interest paid $ 34,425 $ 19,662 $ 22,783 ========= ========= =========
See accompanying notes F-6
HEALTH AND RETIREMENT PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) Year Ended December 31, ---------------------------------------------------- 1997 1996 1995 ---------------------------------------------------- Non-cash investing activities: Real estate acquisitions $ (11,616) $ -- $ (24,444) Exchange of real estate 11,616 -- -- Acquisition of business, less cash acquired: Real estate acquisitions $ 439,498 $ -- $ -- Working capital, other than cash 2,051 -- -- Liabilities assumed (27,588) -- -- Net cash used to acquire business (337,400) -- -- ---------------------------------------------------- Issuance of shares $ 76,561 $ -- $ -- ==================================================== Sale of real estate -- -- 19,500 Investment in real estate mortgages -- -- (19,500) Investment in Hospitality Properties Trust -- -- (100,000) Non-cash financing activities: Issuance of common shares $ 16,578 $ 12,597 $ 24,838 Conversion of convertible subordinated debentures, net (15,765) (11,867) --
See accompanying notes F-7 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Organization Health and Retirement Properties Trust, a Maryland real estate investment trust (the "Company"), was organized on October 9, 1986. As of December 31, 1997, the Company had investments in 217 properties located in 33 states and the District of Columbia. The properties include 92 long-term care facilities, 58 medical office and other office buildings and clinics, 29 government office buildings, 26 retirement and assisted living communities and 12 nursing homes with subacute services. In addition, at December 31, 1997, the Company had a 10.3% equity investment in Hospitality Properties Trust ("HPT"). At December 31, 1997, HPT owned 119 hotels in 30 states. 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 reflecting changes in the value of the Company's ownership stake 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 and market 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, 1997 and 1996 was $1.8 million and $1.2 million, respectively. 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. Earnings Per Common Share. Basic earnings per common share is computed using the weighted average number of shares outstanding during the period. At December 31, 1997 and 1996, $211.7 million and $227.8 million of convertible securities were convertible into 11.8 million and 12.7 million shares of the Company, respectively. Basic earnings per share equals diluted earnings per share as the effect of these convertible securities is anti-dilutive to diluted earnings per share. Supplemental income per share for the years ended December 31, 1997, and 1995 was $1.25 and $1.11, respectively, based on the assumption that the issuance of shares in the Company's public offerings during 1997 and 1995, 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 New Accounting Pronouncements. The Financial Accounting Standards Board has issued Financial Accounting Standards Board Statement No. 128, "Earnings Per Share" ("FAS 128"), Statement No. 129 "Disclosure of Information about Capital Structure" ("FAS 129"), Statement No. 130, "Reporting Comprehensive Income" ("FAS 130") and Statement No. 131 "Disclosures About Segments of an Enterprise and Related Information" ("FAS 131"). FAS 128 and FAS 129 were adopted for the Company's 1997 financial statements. The adoption of each of these statements had no impact on the Company's financial statements. FAS 130 and FAS 131 must be adopted for the Company's 1998 financial statements. The Company anticipates that FAS 130 and FAS 131 will have no impact on the Company's financial condition or results of operations. Note 3. Real Estate Properties In February 1997, the Company agreed to acquire 30 office buildings (the "Government Properties") leased to various agencies of the United States Government through the acquisition of Government Properties Investors, Inc. ("GPI"). The acquisition was accounted for as a purchase and the net assets and results of operations have been included in the consolidated financial statements since the date of acquisition. As of December 31, 1997, the Company completed the purchase of 29 of the Government Properties for approximately $439.5 million and elected not to acquire one of the Government Properties. The acquisition of the Government Properties was funded, in part, with the proceeds from the issuance of the Company's common shares pursuant to a public offering, the issuance of 4,019,429 common shares of the Company in a private placement and the assumption of $27.6 million of debt. In September 1997, the Company sold 14 nursing properties for $33.5 million and purchased three nursing properties which were mortgage financed by the Company for $15.7 million. In connection with the sale of the nursing properties, the company recognized a gain of $2.9 million. Also during the year ended December 31, 1997, the Company acquired one retirement community, 22 medical and other office buildings and 20 medical clinics for an aggregate amount of approximately $539.1 million in 13 separate transactions. In addition, the Company funded improvements to its existing properties of approximately $4.3 million. In January and February 1998, the Company acquired seven medical and other office buildings for $71.6 million. In addition, the Company sold one of the Government Properties for $5.7 million. No gain or loss was recognized on the sale of this property. The Company's real estate properties are leased on a gross lease, modified gross lease or triple net lease basis, pursuant to noncancellable, fixed term operating leases expiring from 1998 to 2022. Generally, the Company's triple net leases to a single tenant are cross-collateralized, cross-defaulted and cross-guaranteed and generally provide for renewal terms at existing rates followed by several market rate renewal terms. The triple net leases generally require the lessee to provide all property management services. The Company's gross leases and modified gross leases require the Company to provide certain property management services. The Government Properties and certain medical and other office properties owned by the Company are managed by M&P Partners Limited Partnership ("M&P"), an affiliate of the Company. The future minimum lease payments to be received by the Company during the current terms of the leases as of December 31, 1997, are approximately $223.6 million in 1998, $216.5 million in 1999, $208.8 million in 2000, $199.1 million in 2001, $185.4 million in 2002 and $1.4 billion thereafter. Note 4. Investment in Hospitality Properties Trust At December 31, 1997, the Company owned 4,000,000 common shares of beneficial interest of HPT with a carrying value of $111.1 million and a market value, based on quoted market prices, of $131.5 million. HPT is a real estate investment trust which invests principally in income producing hotel real estate. The Company's percentage of ownership of HPT as of December 31, 1997 was 10.3%. During December 1997, HPT completed a public stock offering of common F-9 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS shares. As a result of this transaction, the Company's ownership percentage in HPT was reduced from 14.9% to 10.3% in 1997 and the Company realized a gain of $9.3 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. Summarized financial data of HPT is as follow (dollars in thousands, except per share amounts):
February 7, 1995 (inception) to December 31, Year Ended December 31, December 31, ----------------------------- -------------------------- 1997 1996 1997 1996 1995 ----------------------------- ------------------------------------------- Real estate properties, net $1,207,868 $816,469 Revenues $114,132 $ 82,629 $ 23,642 Other assets, net 105,388 55,134 Expenses 54,979 30,965 12,293 -------------------------- ---------------------------------------- $1,313,256 $871,603 Net income $ 59,153 $ 51,664 $ 11,349 ========================== ======================================== Security deposits $ 146,662 $ 81,360 Average shares 27,530 23,170 4,515 ======================================== Other liabilities 158,701 145,035 Net income per share $2.15 $2.23 $2.51 ======================================== Shareholders' equity 1,007,893 645,208 -------------------------- $1,313,256 $871,603 ==========================
Note 5. Real Estate Mortgages and Notes Receivable, Net
December 31, ---------------------------- 1997 1996 (dollars in thousands) ---------------------------- Mortgage notes receivable, net of discounts of $209 and $1,574, respectively, and net of reserves of $927 and $1,743, respectively, due February 1998 through December 2016 $ 40,301 $ 58,750 Mortgage notes receivable due December 2010 19,185 19,358 Mortgage notes receivable, repaid in 1997 -- 15,444 Mortgage notes receivable due December 2002 12,240 12,309 Mortgage notes receivable due January 2013 11,466 11,500 Mortgage notes receivable, repaid in January 1998 11,472 11,500 Mortgage note receivable, repaid in 1997 -- 10,000 Mortgage notes receivable due December 2016 7,063 8,634 Other collateralized notes receivable due January 1999 196 345 Loan to an affiliate due June 1998 2,365 2,365 -------- -------- $104,288 $150,205 ======== ========
During 1997, the Company received regularly scheduled principal payments of $1.2 million and prepayments of mortgages secured by 19 nursing facilities of $48.3 million. The Company also provided improvement financing for existing mortgaged properties of $0.5 million. At December 31, 1997, the interest rates on the mortgages and notes receivable ranged from 8.02% to 13.75% per annum. In January and February 1998, the Company received $20.1 million from the repayment of mortgage loans secured by three retirement facilities and two nursing facilities. F-10 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6. Shareholders' Equity During 1997, the Company issued 27,025,000 common shares in a public offering, raising net proceeds of approximately $483.2 million, issued 3,985,028 common shares in a private placement for the purchase of real estate, issued 910,379 common shares in exchange for the conversion of $16.1 million of its convertible subordinated debentures due 2003 and issued 32,846 common shares to HRPT Advisors, Inc., (the "Advisor") an affiliate, as the incentive fee earned for the year ended December 31, 1996. In January 1998, the Company issued 34,401 common shares in connection with the purchase of real estate. In January 1998, the Company declared a dividend of $.37 to be distributed on February 20, 1998. Dividends per share paid by the Company for 1997, 1996 and 1995 were $1.45, $1.41 and $1.37, respectively. The Company adopted a Shareholders Rights Plan ("Rights"). Each Right entitles the holder to purchase or to receive securities or other assets of the Company, upon the occurrence of certain events. The Rights expire on October 17, 2004 and are redeemable at the Company's option at any time. 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 1997, 1996 and 1995, 9,500, 7,250 and 8,500 shares, respectively, were granted to officers of the Company and certain employees of the Advisor. In addition, 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, 1997, 856,944 shares of the Company's common shares remain reserved for issuance under the Award Plan. Note 7. Commitments and Contingencies At December 31, 1997, the Company had total commitments aggregating $92.1 million to fund or finance improvements to certain properties leased or mortgaged by the Company and to purchase ten medical and other office buildings. The medical and other office buildings were purchased for $71.6 million in January and February 1998. 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. Lessee's and mortgagors' of the Company's long-term care facilities and nursing facilities are dependent upon 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 8. Transactions with Affiliates As of January 1, 1998, the Company entered into an agreement with REIT Management and Research, Inc. ("RMR"), an affiliate of the Company, and the Advisor. RMR provides investment, management, property management services for some of the recently acquired Government Properties and medical and other office buildings and administrative services to the Company. During the three years ended December 31, 1997, such services were provided by the Advisor and M&P on similar terms. RMR is owned by Gerard M. Martin and Barry M. Portnoy, who also serve as Managing Trustees of the Company. RMR is compensated at an annual rate equal to .7% of the Company's real estate investments up to $250.0 million and .5% of such investments thereafter plus property management fees equal to three percent of gross rents from the managed properties. RMR is also entitled to an incentive fee comprised of restricted shares of the Company's common stock based on a formula. Incentive fees paid to the Advisor for the years ended December 31, 1997, 1996 and 1995 were $1.0 million, $0.6 million and $0.6 million, which represent approximately 52,316, 32,846 and 35,560 common shares, respectively. At December 31, 1997, the Advisor owned 1,082,056 common shares. F-11 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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"). The Subacute Entities are lessees of the Company. The Company has extended a $4.0 million line of credit to CSC. At December 31, 1997 and 1996, there was $2.4 million outstanding under this agreement. The lease and mortgage transactions with the Subacute Entities 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. 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, ------------------------------- 1997 1996 1995 (dollars in thousands) ------------------------------- Investment advisory fees earned by the Advisor $ 8,620 $ 5,349 $ 5,763 Dividends paid to the Advisor 1,557 1,467 1,383 Rent and interest income from Subacute Entities 13,616 12,981 12,015 Management fees earned by M&P 2,382 371 56 Note 9. Indebtedness
December 31, --------------------------- 1997 1996 (dollars in thousands) --------------------------- $450,000 unsecured revolving bank credit facility, due March 2001, at LIBOR plus a premium $200,000 $140,000 Senior Notes, Series B, repaid in 1997 -- 125,000 Senior Notes, due 2002 at 6.75% 150,000 -- Remarketed Reset Notes, due 2007 at LIBOR plus 0.45% 200,000 -- Mortgage Notes Payable, due 2008 at 8.00% 13,958 -- Mortgage Notes Payable, due 2009 at 7.66% 12,371 -- Convertible Subordinated Debentures, due 2003 at 7.50% 171,650 187,790 Convertible Subordinated Debentures, due 2001 at 7.25% 40,000 40,000 --------------------------- 787,979 492,790 Less unamortized discounts (100) (615) --------------------------- $787,879 $492,175 ===========================
In March 1997, the Company extended and modified its $250.0 million unsecured revolving bank credit facility. Subsequently, in July 1997, the Company expanded the credit facility to $450.0 million. The credit facility matures in 2001 and bears interest at LIBOR plus a premium. The rate was 6.8% at December 31, 1997. During July 1997, the Company issued senior unsecured Remarketed Reset Notes totaling $200.0 million. The notes are due in 2007 and the initial interest rate is LIBOR plus a premium. The rate was 6.2% at December 31, 1997. Proceeds from F-12 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS the issuance of the notes were used to prepay $125.0 million of the Company's Floating Rate Senior Notes, Series B, due 1999 and approximately $75.0 million outstanding under the Company's bank credit facility. In connection with this refinancing, the Company recognized an extraordinary loss of $1.1 million from the early extinguishment of debt as a result of the write-off of unamortized issuance costs associated with the prepaid debt. In December 1997, the Company issued unsecured Senior Notes totaling $150.0 million, at a discount (.067%). The notes bear interest at 6.75% and mature in 2002. Net proceeds from the notes were used to repay $140.0 million then outstanding under the Company's bank credit facility and for general business purposes. During 1997, approximately $16.1 million of the Convertible Subordinated Debentures (the "Debentures") due 2003 had been converted into 910,379 common shares of the Company. The Debentures are callable in October 1999 and are convertible at any time into common shares of the Company at $18 per share. During January 1998, approximately $.8 million of the Debentures due 2003 were converted into 31,387 common shares of the Company. At December 31, 1997, three properties with an aggregate net book value of $41.5 million were secured by mortgages due in 2008 and 2009. The required principal payments due during the next five years are $1.5 million in 1998, $1.7 million in 1999, $1.8 million in 2000, $241.9 million in 2001, $152.1 million in 2002 and $389.0 million thereafter. 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, senior notes, mortgage notes payable, convertible debentures, accounts payable and other accrued expenses, letter of credit and security deposits. Except as follows, the fair values of the financial instruments were not materially different from their carrying values at December 31, 1997: Carrying Amount Fair Value (dollars in thousands) -------------------------------- Real estate mortgages and notes $104,288 $110,140 Investment in HPT 111,134 131,500 Senior notes, mortgage notes payable and convertible debentures 587,879 591,190 Commitments -- 92,096 Letter of credit -- 1,653 The fair values of the real estate mortgages, senior notes, mortgage notes payable and 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 quoted per share price of $32.875 at December 31, 1997. The fair value of the commitments and letter of credit represents the actual amounts committed. F-13 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 11. Concentration of Credit Risk The Company's assets are primarily invested in income producing real estate located throughout the United States. The Company's significant lessees, mortgagees and equity investment are as follows:
Equity Investment, Notes, Mortgages and Real Estate Equity Earnings, Rent and Properties, Net Mortgage Interest Revenue ----------------------------- ----------------------------- December 31, 1997 Year Ended December 31, 1997 (dollars in thousands) (dollars in thousands) ----------------------------- ----------------------------- Amount % of Total Amount % of Total ----------------------------- ----------------------------- United States Government $ 433,223 21% $ 43,388 20% Marriott International, Inc. 299,893 15 30,365 14 Integrated Health Services, Inc. 172,834 8 27,041 13 Other 1,166,826 56 112,281 53 ----------------------------- ----------------------------- $2,072,776 100% $213,075 100% ============================= ============================= Equity Investment, Notes, Mortgages and Real Estate Equity Earnings, Rent and Properties, Net Mortgage Interest Revenue ----------------------------- ----------------------------- December 31, 1997 Year Ended December 31, 1997 (dollars in thousands) (dollars in thousands) ----------------------------- ----------------------------- 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 GranCare, Inc. 87,184 7 15,491 13 Other 673,674 57 63,047 50 ----------------------------- ----------------------------- $1,182,085 100% $125,242 100% ============================= =============================
F-14 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 12. Selected Quarterly Financial Data (Unaudited) The following is a summary of the unaudited quarterly results of operations of the Company for 1997 and 1996. The amounts are in thousands except for per share amounts.
1997 ----------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter ------------------------------------------------------ Revenues $ 35,884 $ 52,507 $ 57,304 $ 63,168 Income before equity in earnings of HPT, gain on equity transaction of HPT, gain on sale of properties and extraordinary items 17,143 25,669 26,186 25,334 Equity in earnings and gain on equity transaction of HPT 2,256 2,189 2,238 11,189 Income before gain on sale of properties and extraordinary items 19,399 27,858 28,424 36,523 Gain on sale of properties -- -- 2,898 -- Income before extraordinary items 19,399 27,858 31,322 36,523 Extraordinary items - early extinguishment of debt -- -- (1,102) -- Net income 19,399 27,858 30,220 36,523 Per share data: Income before equity in earnings of HPT, gain on equity transaction of HPT, gain on sale of properties and extraordinary items .24 .26 .26 .26 Income before gain on sale of properties and extraordinary items .27 .28 .29 .37 Income before extraordinary items .27 .28 .32 .37 Net income .27 .28 .31 .37 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 transaction of HPT 2,092 5,839 2,301 2,231 Income before extraordinary items 18,212 22,462 18,458 18,032 Extraordinary items - early extinguishment of debt (2,443) -- -- (1,467) 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
F-15 HEALTH AND RETIREMENT PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 13. Pro Forma Information (Unaudited) The following unaudited condensed Pro Forma Statements of Income assumes the acquisition of GPI described in Note 3 had occurred on January 1, 1996. 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, ------------------------------------------------ 1997 1996 ---- ---- (dollars in thousands, except per share amounts) ------------------------------------------------ Total revenues $221,051 $176,125 Income before extraordinary items $119,988 $102,711 Net income $118,886 $ 98,801 Income before extraordinary items per basic share $1.29 $1.46 Net income per basic share $1.28 $1.41
F-16 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/ Ajay Saini Ajay Saini, Treasurer and Chief Financial Officer Date: February 27, 1998 -----END PRIVACY-ENHANCED MESSAGE-----