EXHIBIT 10.6
December 11, 1996
Talbert Medical Management Corporation
0000 Xxxxxx Xxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxxxxx
Re: Letter Agreement
Dear Xxxx:
As you know, FHP, Inc., FHP of Utah, Inc., FHP of New Mexico, Inc.
(collectively, "FHP", or each an "FHP Company"), and Xxxxxxx Medical
Management Corporation ("TMMC") are parties to an Amended and Restated Real
Estate and Equipment Master Transfer Agreement dated December 6, 1996, for
reference purposes and effective as of January 1, 1996 (the "Transfer
Agreement"), which Transfer Agreement provides for, among other things, (i)
the execution and delivery of separate Amended and Restated Leases effective
as of January 1, 1996, in the form attached as Exhibit D to the Transfer
Agreement (the "Leases"), for each of the FHP-owned properties set forth on
Schedule 1 hereto (each a "Premises"), and (ii) the assumption or sublease by
TMMC of certain leases covering the "Leased Facilities" and "HMO Funding
Facilities" defined in such Transfer Agreement.
FHP and TMMC hereby amend the Transfer Agreement and Leases to provide
as follows:
(i) The monthly base rent currently payable pursuant to Section 1.5
of each Lease (the "Old Base Rent") shall be revised to provide for
a new monthly base rent (the "New Base Rent") to be paid thereunder
solely for the rental of the land and buildings at each Premises (the
"Real Property"). The New Base Rent for each Lease shall be equal to
the rental charge per square foot for each such Real Property as set
forth in Schedule 1 hereto multiplied by the square footage for each
such Real Property as set forth in Schedule 1 hereto.
(ii) FHP and TMMC agree to execute a separate master agreement
(collectively, the "FF&E Agreement") for the lease to TMMC of the
"FF&E" as defined in the Transfer Agreement (the "FF&E"), at each
Premises, Leased Facility and HMO Funding Facility. The FF&E Agreement
shall contain the terms of the Leases applicable to FF&E, as amended by
this letter agreement. Upon the execution of the FF&E Agreement, FHP
and TMMC shall execute amended and restated Leases (the "Real Property
Leases") which exclude FF&E from the terms, including New Base Rent,
of the Real Property Leases.
Xxxx X. Xxxxxxxxx
December 10, 1996
Page 2
(iii) The sum of (a) the New Base Rent plus (b) the monthly base
rent payable under the FF&E Agreement for the FF&E at the Premises (the
"FF&E Base Rent") shall not exceed the Old Base Rent for the Premises
(and the FF&E Base Rent shall be calculated to equal the Old Base Rent
less the New Base Rent). Estimated FF&E Base Rent is set forth on
Schedule 2.
(iv) The term of each Real Property Lease shall be extended from
the initial term currently reflected in the Leases (the "Initial Term")
to December 31, 2005 (the "First Extension Term"). Notwithstanding the
foregoing sentence, the lessee shall have the unilateral right to
terminate one or more of the Real Property Leases as of the expiration
of the Initial Term by delivering written notice to the lessors
thereunder prior to the effective date of the Registration Statement on
From S-1 filed by TMMC's parent corporation with the Securities and
Exchange Commission, or April 1, 1997, provided that in no event shall
(a) lessee terminate a Real Property Lease for any Premise that is vacant
or undeveloped land or a parking lot or parking structure, and (b) the
total square footage, as set forth on Schedule I hereto, of all Real
Property Leases which are terminated pursuant to lessee's unilateral
right hereunder exceed 90,000 square feet.
(v) Each of the Real Property Leases shall provide for two
extension options which may be exercised by the lessee by written
notice to the lessor at least one year prior to the end of the First
Extension Term or the "Second Extension Term" (as hereinafter defined),
as the case may be, to extend the Lease in each case for an additional
five (5) years (the first such five year period commencing on January 1,
2006, being the "Second Extension Term" and the second such five year
period commencing on January 1, 2011, being the "Third Extension
Term"). The First Extension Term, Second Extension Term and Third
Extension Term are referred to herein as an "Extension Term."
(vi) As of the commencement of an Extension Term for each Real
Property Lease, the Base Rent for each Extension Term shall be adjusted
to reflect prevailing market rent (including a CPI, or similar cost of
living adjustment, if such adjustments are at such time customary
market terms for similar properties in the relevant market) ("Fair
Market Rent"). If the lessor and lessee are unable to agree upon Fair
Market Rent within 150 days prior to the commencement of the relevant
Extension Term, lessor and lessee each shall appoint, at its own
expense, one arbitrator with expertise in commercial real estate
leasing transactions to determine the Fair Market Rent. Fair Market Rent
shall be the mean of the fair market rents determined by the
arbitrators if the determination of the arbitrator appointed by lessor
is no more than five percentage points greater than the other
arbitrator's determination. If the determination of the arbitrator
appointed by lessor is more than five percentage points greater than
the other arbitrator's determination, the arbitrators jointly shall
appoint a third arbitrator and, after the third arbitrator's
determination, Fair Market Rent shall be the mean of (a) the third
arbitrator's determination and (b) the determination of one of the
other arbitrators whose determination is nearer in amounts to the
determination of the third arbitrator. The fees and expenses of the
third arbitrator shall be divided equally between the lessor and lessee.
(vii) The FF&E Agreement shall provide that, during the term of
each Real Property Lease, and for the period of one year after the
termination of such Real Property
Xxxx X. Xxxxxxxxx
December 10, 1996
Page 3
Lease, TMMC shall have the right of first offer to purchase the FF&E
located upon the Real Property which is the subject of such Real
Property Lease within 30 days of TMMC's receipt of notice (a "Notice")
that the lessor proposes to sell its interest in such FF&E. If the
lessor proposes to sell any such FF&E, it shall deliver to TMMC the
material terms upon which the lessor proposes to sell the same, and
TMMC shall have 10 days thereafter to elect to purchase such FF&E upon
such terms or to elect not to purchase such FF&E (with a failure to
respond being deemed an election not to purchase) by delivering written
notice to the lessor. If TMMC elects to purchase the FF&E, it shall
close such purchase upon the terms so proposed by the lessor within 20
days thereafter. If TMMC elects not to purchase such FF&E, then the
lessee may sell such FF&E at any time during the six month period
thereafter upon terms that are no less favorable to the lessor than
were the material terms reflected in its proposal to TMMC.
Although all of the foregoing provisions are effective and binding as
of the date of this letter agreement, the parties agree to revise the Transfer
Agreement and the Leases to reflect the provisions of this letter and to take
such other actions as are necessary or appropriate to carry out the provisions
of this letter. The parties agree to use good faith efforts and all due
diligence to enter into the Real Property Leases and the FF&E Agreement on or
before January 10, 1997; provided, however, that this letter agreement shall
remain effective and binding in the event the parties do not execute the Real
Property Leases and the FF&E Agreement on or before January 10, 1997.
Should the terms of this letter agreement conflict in any way with the
terms of the Transfer Agreement or the Leases, the terms of this letter
agreement shall prevail. In all other respects, the Transfer Agreement and
the Leases shall remain in full force and effect, as modified by this letter
agreement.
This letter agreement may be executed in counterparts, each of which
hall be deemed to be an original, but all of which together shall constitute
one and the same instrument.
FHP, Inc.
By: _____________________________________
Title:___________________________________
FHP of Utah, Inc.
By: _____________________________________
Title:___________________________________
FHP of New Mexico, Inc.
By: _____________________________________
Title:___________________________________
ACCEPTED AND AGREED TO:
Xxxxxxx Medical Management Corporation
By: __________________________________
Title:________________________________
