DRAFT

REAL ESTATE PURCHASE OPTION AGREEMENT

THIS REAL ESTATE PURCHASE OPTION AGREEMENT (this Agreement) is
made and entered into as of the _____ day of _____, 2015 (the Effective Date) by and among
Daughters of Charity Health System, a California nonprofit religious corporation (Parent),
each of the affiliated entities of Parent named on Attachment I hereto (each an Affiliate and
collectively the Affiliates), ______________________ (PropCo), a Delaware limited
liability company that will elect to be treated for tax purposes as a real estate investment trust,
owned directly and indirectly by funds managed by BlueMountain Capital Management, LLC
(BlueMountain), and _______________________ (OpCo and together with PropCo, the
Option Holders), a Delaware limited liability company, owned directly or indirectly by funds
managed by BlueMountain. The members of PropCo, as the same may exist from time to time,
are referred to in this Agreement as the PropCo Members. Parent, the Option Holders and the
PropCo Members are each also referred to in this Agreement as a Party and, collectively as the
Parties.
RECITALS
WHEREAS, pursuant to that certain System Restructuring and Support Agreement,
entered into as of the Effective Date, by and among, inter alia, Parent, certain funds managed by
BlueMountain, and Integrity Healthcare, LLC (Integrity), a Delaware limited liability
company wholly-owned directly and indirectly by funds managed by BlueMountain (the
System Agreement), Parent agreed to grant options to the Option Holders to purchase
substantially all of the assets of Parent and the Affiliates subject to the terms and conditions set
forth in this Agreement and that certain Operating Asset Purchase Option Agreement entered
into contemporaneously herewith by the Parties (the Operating Asset Option Agreement);
WHEREAS, Parent and the Affiliates desire to grant an option to PropCo to purchase all
of their real property and related fixtures, and PropCo desires to obtain an option to purchase all
of the real property and related fixtures of Parent and the Affiliates, all upon the terms and
conditions set forth in this Agreement;
WHEREAS, Parent and the Affiliates desire to grant an option to OpCo to purchase all
of their assets other than their real property and related fixtures, whether tangible or intangible,
and OpCo desires to obtain an option to purchase all such assets of Parent and the Affiliates, all
upon the terms and conditions set forth in the Operating Asset Option Agreement (the
Operating Asset Option);
WHEREAS, an independent health care valuation expert has conducted an appraisal of
the Parent and the Affiliates (the Valuation) and determined that ______ % of the Valuation is
attributable to real property and related fixtures (such percentage, the Real Estate Allocation
Factor) and ______% of the Valuation is attributable to operating or other non-real estate
assets (such percentage, the Operating Asset Allocation Factor) 1; and

Percentages/Allocations to be determined by appraiser in connection with FMV opinion.

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NOW, THEREFORE, in consideration of the sum of [___________________Dollars

($________________)] 2 (the Option Payment) to be paid by PropCo in accordance with the
provisions of Section 1 below, and other good and valuable consideration, the sufficiency of
which is hereby acknowledged, each of Parent and the Affiliates does hereby grant and extend to
PropCo the exclusive right and option (the Real Estate Option) for PropCo or its assigns to
purchase the Transferred Assets (as more particularly described and defined in the form of Real
Estate Purchase Agreement attached hereto as Exhibit A, with such changes thereto that Parties
determine to be appropriate (the Purchase Agreement)) during the Option Term (as defined
below), for the purchase price set forth in Section 2, below (the Purchase Price), such Option
Payment having been determined by an independent appraiser to represent fair market value
consideration for the Option (such appraisal to include an examination of the Purchase Price),
and subject to and upon the following additional terms and conditions:
1.
Option Payment. Contemporaneously with the execution of this Agreement,
PropCo shall transfer, deliver and pay over to Parent the Option Payment in immediately
available funds, to be held by Parent as an addition to its working capital and used by Parent and
the Affiliates in support of their hospital and other health care related activities and, for so long
as that certain Health System Management Agreement by and among Parent, Integrity, and the
Affiliates is in effect, in accordance with the management of Integrity, subject to the ultimate
supervision and authority of the Parent Board of Directors.
2.
Purchase Price. The Purchase Price shall be the greater of: (i) $______________
the gross fair market value of the Transferred Assets as of the Effective Date on a debt-free basis,
less the amount of the Option Payment; or (ii) the product obtained by multiplying the total
amount of outstanding liabilities of Parent and the Affiliates as of the date of the closing under
the Real Estate Purchase Option by the Real Estate Allocation Factor.
3.

Option Term; Exercise of Option; Drag-Along Rights.

a.
PropCo may exercise the Real Estate Option, subject to the provisions
hereof, by providing Parent with a written notice of exercise (the Option Exercise
Notice) at any time after the third anniversary of the Effective Date and before the
fifteenth (15th) anniversary of the Effective Date (the Option Exercise Notice Period).
PropCo shall provide a copy of the Option Exercise Notice to OpCo at the same time that
it provides the Option Exercise Notice to the Parent. PropCos exercise of the Real
Estate Option shall, in and of itself, and regardless of the delivery of any notice to OpCo,
also constitute exercise of the Operating Asset Option.
b.
In the event OpCo exercises the Operating Asset Option pursuant to the
terms of the Operating Asset Purchase Option Agreement, the same shall, in and of itself,
and regardless of the delivery of any notice to PropCo, also constitute exercise of the
Real Estate Option.
c.
Upon exercise of either option, PropCo and OpCo shall, within 10 days of
such exercise, meet for the purpose of determining their respective assumption, pay-off or
2

Subject to FMV opinion to be provided and equal to that amount of the FMV allocated to real estate assets.

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other settlement of the outstanding liabilities of Parent and the Affiliates, provided, that
all such liabilities are, between PropCo and OpCo, expressly assumed, paid off or
otherwise settled. In making such allocation, PropCo and OpCo shall observe the
following principles: (i) liabilities shall be allocated consistent with the Real Estate
Allocation Factor and the Operating Asset Allocation Factor; and (ii) liabilities shall be
allocated, to the extent practicable, so that the liabilities, or portions thereof, allocated to
OpCo relate to the operating assets that are the subject of the Operating Asset Option and
the liabilities, or portions thereof, allocated to PropCo relate to the Transferred Assets.
Pursuant to the Purchase Agreements, PropCo and/or OpCo shall expressly assume in
writing any liabilities with respect to the Transferred Assets and operating assets that they
do not otherwise pay-off or settle at the closing under the Purchase Option.
d.
Within 30 days of receiving the Option Exercise Notice, or notice of
exercise of the Operating Asset Option, Parent may by notice to PropCo and OpCo elect
to purchase the Real Estate Option and the Operating Asset Option, provided, that so long
as the only material asset held by PropCo is the Real Estate Option, the PropCo Members
may, by notice to Parent, elect to cause Parent to purchase all the membership interests in
PropCo (including the membership interests in any special purpose vehicles that hold
membership interests in PropCo) rather than the Real Estate Option, provided further
that the PropCo Members can elect to cause Parent to purchase all the membership
interests in PropCo only if Propco indemnifies Parent (in commercially reasonable form,
but otherwise in form and substance reasonably acceptable to Parent) for any liabilities,
known or unknown, of any such entities. Pursuant to the Operating Asset Purchase
Agreement, the members of OpCo correspondingly may, by notice to Parent, cause
Parent to purchase all the membership interests in OpCo (including the membership
interests in any special purpose vehicles that hold membership interests in OpCo) rather
than the Operating Asset Option. The purchase price shall be the fair market value of the
Real Estate Option and of the Operating Asset Option (or membership interests, as
appropriate), as determined by an independent third party appraiser, whom the Option
Holders and Parent shall jointly engage. Such appraisal shall take no longer than sixty
(60) days to finalize, after which Parent shall have thirty (30) days to confirm or
withdraw its notice of election, by notice to such effect to Option Holders, and, if Parent
confirms its election, to post a deposit equal to fifteen percent (15%) of the fair market
value as so determined, which deposit shall be refundable only as expressly set forth
below. Parent and the Option Holders shall close the purchase and sale of the option
rights (or membership interests, if so elected) within one hundred twenty (120) days after
Parents notice confirming its initial election. Notwithstanding the foregoing, in the
event either Option Holder is not satisfied with the appraisers fair market value
determination, either Option Holder may elect, by notice to Parent delivered within ten
(10) days of Parent posting its nonrefundable deposit, to offer the Real Estate Option (or
membership interests in PropCo, if so elected) and Operating Asset Option (or
membership interests in OpCo, if so elected), for sale pursuant to the auction process set
out in Section 3.e, below. Should Parent not be the winning bidder in such auction,
Parents deposit will be refunded.

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e.
In the event that either Option Holder elects pursuant to Section 3.d to
offer the Real Estate Option (or membership interests in PropCo, if so elected) and
Operating Asset Option (or membership interests in OpCo, if so elected) for sale, the
Option Holders shall engage a qualified, independent, professional auctioneer to establish
reasonable auction procedures, consistent with the following requirements:

The bidding process shall be concluded within 6 months after selection of

the auctioneer;

Parent, either or both Option Holders and third parties may participate in
the bidding process;

The initial bid in such auction shall be placed by Parent in an amount

equal to the fair market value as determined by appraisal pursuant to
Section 3.d, and all subsequent bids shall increase in increments of One
Million Dollars ($1,000,000) or any multiple thereof; and

Any bid by either Option Holder will be subject to a minimum price (the
Minimum Reserve Price) (as defined below) and, if either Option
Holder is the winning bidder, it shall pay an amount equal to twenty
percent (20%) of the net proceeds of its bid to Parent.

For purposes of this Section 3.e, the Minimum Reserve Price shall be the aggregate of
the Option Payment paid by PropCo pursuant to Section 1 hereof and the option
payment paid by the OpCo under the Operating Asset Option Agreement, as follows:
If the aggregate Option Payment The Minimum Reserve Price is:
is:
$0-$10 million
$40 million
$10 million-$20 million
$80 million
$20 million-$30 million
$90 million
$30 million-$50 million
$100 million
More than $50 million
Twice the Option Payment
f.
Membership interests in PropCo shall be freely transferable, provided,
except as stated in the immediately subsequent sentence, that the Real Estate Option shall
remain subject to the Parents rights to purchase the Real Estate Option pursuant to
Section 3.d regardless of any such transfers of membership interests. Notwithstanding
the foregoing, a purchaser of the Real Estate Option (or all of the membership interests in
PropCo) at auction pursuant to Section 3.e, may exercise the Real Estate Option without
regard to Parents purchase rights pursuant Section 3.d, so long as the option is exercised
within thirty (30) days of acquisition.
g.
Pursuant to its terms, that certain Health System Management Agreement
dated___________, by and among Parent, and the Affiliates and Integrity Healthcare,
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LLC, a Delaware limited liability company, shall terminate upon exercise of the Real
Estate Option.
4.

Terms of Purchase and Sale of Transferred Assets.

a.
Upon delivery of an Option Exercise Notice pursuant to Section 3.a, if
Parent does not elect to purchase the Real Estate Option pursuant to Section 3.d, then
Parent, the Affiliates and PropCo shall, within forty (40) days of delivery of the Option
Exercise Notice or notice of exercise of the Operating Asset Option, enter into the
Purchase Agreement to provide for the purchase and sale of the Transferred Assets at the
Purchase Price based on the terms and conditions set forth in the Purchase Agreement.
b.
Each of Parent and the Affiliates agrees to cooperate reasonably and in
good faith with respect to the execution and delivery of the Purchase Agreement and all
related agreements and documents, and to provide for the consummation of the
transactions contemplated thereby within ninety (90) days after delivery of the Option
Exercise Notice or notice of exercise of the Operating Asset Option.
5.
Access to Information. During the Option Exercise Notice Period, each of Parent
and the Affiliates will provide PropCo or its assigns and their respective agents and
representatives with such access to their assets, books and records as PropCo may reasonably
request from time to time. PropCo will be entitled to inspect, examine, audit, and photocopy all
of such documents and to ask questions of Parents financial statement auditors and tax return
preparers.
6.
Operations of the Health Care System in Ordinary Course. Except as otherwise
consented to by PropCo (which PropCo shall not unreasonably withhold, condition, or delay) in
writing, from the Effective Date until the earlier of (a) the expiration of the Option Exercise
Notice Period without delivery of an Option Exercise Notice or (b) the date on which the
Purchase Agreement is fully executed by the parties thereto, each of Parent and the Affiliates
shall:
a.
maintain in effect commercially reasonable insurance and equipment
replacement coverage;
b.
not amend the articles of incorporation, bylaws, charters, operating
agreements, partnership agreements, governance agreements, voting agreements, proxies,
delegations of authority and other documents and instruments setting forth the corporate
(or company or partnership, as the case may be) and legal powers, rights, duties and
authorities relating to the governance and management of Parent or any Affiliate, or
consent to or approve any of the foregoing, in any ways which would change the
purposes of the organization to be inconsistent with the historical purposes and activities;
c.
affiliates;

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not dissolve, merge or consolidate with any other entity

other than

d.
remain in compliance with the requirements of any Bonds, or subsequent
financing requirements, including restrictions with respect to the ability to sell, lease,
license or otherwise dispose of, or grant any lien or encumbrance on, any of the material
Transferred Assets; and
e.
observe and satisfy the covenants found in Sections 3.02, 3.03, 3.04(c),
3.08 and 3.09 of that certain Master Indenture of Trust by and among Parent and the
Affiliates and U.S. Bank Trust National Association dated as of December 1, 2001,
including from and after such time, if any, that the Master Trust Indenture terminates or
expires by its terms.
7.
Permitted Changes. In the event that Parent or any Affiliate, with the consent of
PropCo pursuant to Section 6, dissolves, merges or consolidates, it shall cease to be subject to
the terms and condition of this Agreement, but the surviving or transferee entity shall be subject
to this Agreement to the extent required by PropCo as a condition of its consent, and any such
condition shall be deemed reasonable.
8.
Charitable Trust Restrictions. In the event that any Transferred Asset is subject to
charitable trust restrictions that would preclude transfer to and use by PropCo in accordance with
the terms and conditions of this Agreement, PropCo shall make satisfactory arrangements for the
transfer of such Transferred Asset to a charity or charities for use consistent such restriction.
9.
Assignment. PropCo and its assignees may assign this Agreement and all rights
of the optionee hereunder without limitation, provided that Parent is provided with notice of such
assignment.
10.
Compliance. Parent will cause each Affiliate to comply with its obligations under
this Agreement and the Purchase Agreement.
11.

Miscellaneous.

a.
Further Assurances. From time to time after the date of this Agreement,
upon request of any Party and without further consideration, the other parties will execute
and deliver to the requesting Party such documents and take such action as the requesting
Party reasonably requests to consummate more effectively the intent and purpose of the
Parties under this Agreement and the transactions contemplated by this Agreement.
b.
Filings and Other Actions. Each of Parent and the Affiliates authorizes
PropCo to file such notice filings and other documents as PropCo reasonably deems
necessary or advisable to protect its rights under this Agreement. Each Affiliate, as
applicable, will sign such documents, send such notices and take such other actions as
PropCo reasonably requests to protect, and to inform third parties of, its rights under this
Agreement.
c.
Entire Agreement. This Agreement, including any Appendices and
Exhibits hereto, together with the System Agreement and all other agreements
contemplated thereby, represents the entire agreement between the Parties on the subject
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matter hereof and supersedes all prior discussions, agreements and understandings of
every kind and nature between them. No modification of this Agreement will be
effective unless in writing and signed by both Parties.
d.
Notices. Any notice, demand or communication required, permitted or
desired to be given hereunder must be in writing and will be deemed effectively delivered
when personally delivered or when actually received by recognized overnight courier,
addressed as follows:
If to Parent (Parent or any Affiliate):
Daughters of Charity Health System
26000 Altamont Road
Los Altos Hills, California 94022-4317
Telephone number: 650-917-4528
Facsimile number: 650-917-4534
Attention: President and Chief Executive Officer
With a copy (which shall not constitute notice) to:
Ropes & Gray LLP
3 Embarcadero Center, Suite 300
San Francisco, California 94111
Telephone number: 415-315-6394
Facsimile number: 415-315-4801
Attention: John O. Chesley, Partner
If to PropCo:
____________________
c/o
BlueMountain
Capital
Management,
LLC
280
Park
Avenue,
12th
Floor
New
York,
NY
10017
Telephone
number:
212-905-3900
e-mail:
legalnotices@bmcm.com
Attention: Rick Horne, Associate General Counsel, Tax
With a copy (which shall not constitute notice) to:
Foley & Lardner LLP
111 Huntington Ave., Suite 2600
Boston, MA 02199-7610
Telephone number: (617) 342-4055
Facsimile number: 415-315-4801
Attention: J. Mark Waxman, Partner
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or to such other address, or to the attention of such other person, as any Party may
designate by notice delivered in like manner.
e.
Severability. In the event any provision contained in this Agreement is
deemed illegal or unenforceable, such provision (a) shall be construed in a manner to
enable it to be enforced to the extent permitted by applicable law, and (b) shall not affect
the validity and enforceability of any legal and enforceable provision of this Agreement.
f.
Nonassignment. Neither Parent, nor any Affiliate, may assign this
Agreement or any of its rights or obligations hereunder without the prior written consent
of PropCo, and any attempted assignment without such consent will be void and without
legal effect. PropCo may assign this Agreement to any person without limitation, and
any such assignee shall succeed to all the rights of PropCo hereunder.
g.
Applicable Law. THIS AGREEMENT SHALL BE INTERPRETED,
CONSTRUED, ENFORCED AND PERFORMED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO
PRINCIPLES OF CONFLICTS OF LAW.
h.
Resolution of Disputes. The provisions of the System Agreement relating
to the resolution of disputes, controversies, claims, or disagreements and remedies
therefor shall govern and control, and the Parties agree to be bound thereby, with respect
to any dispute, controversy, claim, or disagreement arising out of or relating to this
Agreement or the acts or omissions of the Parties with respect to this Agreement.
i.
Captions; Use of Defined Terms. Captions of sections of this Agreement
are included for reference only, shall not be construed as part of this Agreement and shall
not be used to define, limit, extend or interpret the terms hereof. Capitalized terms used
in this Agreement and not otherwise defined herein, shall have the meanings ascribed to
them under the System Agreement.
j.
Cumulative Remedies. Each and every right and remedy hereunder is
cumulative with each and every other right and remedy herein or in any other agreement
between the Parties or under applicable law
k.
Waiver or Amendment. No waiver or amendment of the provisions of this
Agreement will be effective unless expressly set forth in a written instrument executed by
all Parties.
l.
Signature Pages; Counterparts. This Agreement, and any document or
instrument required or permitted hereunder, may be executed in counterparts, each of
which will be deemed an original and all of which together will constitute but one and the
same instrument. Parent and the Option Holders agree that facsimile and electronically
scanned or pdf copies of signatures shall be deemed originals for all purposes hereof and
that a Party may produce such copies, without the need to produce original signatures, to
prove the existence of this Agreement in any proceeding brought hereunder.
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[Signature pages follow]

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DRAFT
IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement as
of the date first set forth above.
PROPCO:

PARENT:

[TBD]

DAUGHTERS OF CHARITY HEALTH

SYSTEM

By: _________________________________
Name: ______________________________
Title: ________________________________

By: _________________________________
Name: ______________________________
Title: ________________________________
AFFILIATES:
OCONNOR HOSPITAL

By: _________________________________
Name: ______________________________
Title: ________________________________
SAINT LOUISE REGIONAL HOSPITAL

By: _________________________________
Name: ______________________________
Title: ________________________________
ST. FRANCIS MEDICAL CENTER

By: _________________________________
Name: ______________________________
Title: ________________________________
ST. VINCENT MEDICAL CENTER

By: _________________________________
Name: ______________________________
Title: ________________________________

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SETON MEDICAL CENTER

By: _________________________________
Name: ______________________________
Title: ________________________________
ST. VINCENT
CORPORATION

DE

PAUL

ETHICS

By: _________________________________
Name: ______________________________
Title: ________________________________
ST. VINCENT DIALYSIS CENTER, INC.

By: _________________________________
Name: ______________________________
Title: ________________________________
MARILLAC
LTD.

INSURANCE

COMPANY,

By: _________________________________
Name: ______________________________
Title: ________________________________
DE PAUL VENTURES, LLC

By: _________________________________
Name: ______________________________
Title: ________________________________
DE PAUL VENTURES SAN JOSE ASC,
LLC

By: _________________________________
Name: ______________________________
Title: ________________________________
11
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DE PAUL VENTURES SAN JOSE

DIALYSIS, LLC

By: _________________________________
Name: ______________________________
Title: ________________________________
CARITAS BUSINESS SERVICES

By: _________________________________
Name: ______________________________
Title: ________________________________
DCHS MEDICAL FOUNDATION

By: _________________________________
Name: ______________________________
Title: ________________________________

OCONNOR HOSPITAL FOUNDATION

By: _________________________________
Name: ______________________________
Title: ________________________________
SAINT LOUISE REGIONAL HOSPITAL
FOUNDATION

By: _________________________________
Name: ______________________________
Title: ________________________________
ST. FRANCIS
FOUNDATION

MEDICAL

CENTER

By: _________________________________
Name: ______________________________
12
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Title: ________________________________

ST. VINCENT
FOUNDATION

MEDICAL

CENTER

By: _________________________________
Name: ______________________________
Title: ________________________________

SETON
MEDICAL
FOUNDATION

CENTER

By: _________________________________
Name: ______________________________
Title: ________________________________

Signature Page Purchase Option Agreement

13
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Attachment I
Affiliates
OConnor Hospital
Saint Louise Regional Hospital
St. Francis Medical Center
St. Vincent Medical Center
Seton Medical Center, and the skilled nursing home and emergency department
known as Seton Medical Center Coastside, a division of Seton Medical Center.
St. Vincent de Paul Ethics Corporation
St. Vincent Dialysis Center, Inc.
Marillac Insurance Company, Ltd.
De Paul Ventures, LLC
De Paul Ventures San Jose ASC, LLC
De Paul Ventures San Jose Dialysis, LLC
Caritas Business Services
DCHS Medical Foundation
OConnor Hospital Foundation
Saint Louise Regional Hospital Foundation
St. Francis Medical Center Foundation
St. Vincent Medical Center Foundation
Seton Medical Center Foundation

14
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EXHIBIT A
Purchase Agreement
(see attached)

15
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