<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
Commission File Number 1-8895
HEALTH CARE PROPERTY INVESTORS, INC.
(Exact name of registrant as specified in its charter)
Maryland 33-0091377
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
4675 MacArthur Court, Suite 900
Newport Beach, California 92660
(Address of principal executive offices)
Registrant's telephone number: (949) 221-0600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -----------------------
Common Stock* New York Stock Exchange
7-7/8% Series A Cumulative
Redeemable Preferred Stock New York Stock Exchange
8.70% Series B Cumulative
Redeemable Preferred Stock New York Stock Exchange
*The common stock has stock purchase rights attached which are registered
pursuant to Section 12(b) of the Securities Act of 1933, as amended, and listed
on the New York Stock Exchange.
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.
As of March 26, 1999 there were 31,040,276 shares of common stock
outstanding. The aggregate market value of the shares of common stock held by
non-affiliates of the registrant, based on the closing price of these shares on
March 26, 1999 on the New York Stock Exchange, was approximately $890,715,000.
Portions of the definitive Proxy Statement for the registrant's 1999 Annual
Meeting of Stockholders have been incorporated by reference into Part III of
this Report.
PART I
Item 1. BUSINESS
Health Care Property Investors, Inc. (HCPI), a Maryland corporation, was
organized in March 1985 to qualify as a real estate investment trust (REIT).
HCPI invests in health care related real estate located throughout the United
States, including long-term care facilities, congregate care and assisted living
facilities, acute care and rehabilitation hospitals, medical office buildings,
physician group practice clinics and a psychiatric facility. HCPI commenced
business nearly 14 years ago, making it the second oldest REIT specializing in
health care real estate.
In 1986, Moody's rated HCPI's initial senior debt Baal and Standard &
Poor's rated it BBB. Standard & Poor's upgraded its rating in 1987 to BBB+.
HCPI has historically maintained these ratings and currently Moody's, Standard &
Poor's and Duff & Phelps rate its senior debt at Baal/BBB+/A-, respectively.
HCPI believes that it has had an excellent track record in attracting and
retaining key employees. HCPI's five executive officers have worked with HCPI
on average for 13 years. HCPI's annualized return to its stockholders, assuming
reinvestment of dividends and before stockholders' income taxes, is
approximately 18% over the period from its initial public offering in May 1985
through December 31, 1998.
As of December 31, 1998, HCPI's gross investment in its properties,
including partnership interests and mortgage loans, was approximately $1.5
billion. HCPI's portfolio of 332 properties consisted of:
- - 157 long-term care facilities
- - 84 congregate care and assisted living facilities
- - Eight acute care hospitals
- - Six rehabilitation hospitals
- - 35 medical office buildings
- - 41 physician group practice clinics
- - One psychiatric care facility
The average age of the properties is 17 years. As of December 31, 1998,
approximately 60% of HCPI's revenue was derived from properties operated by
publicly traded health care providers.
References herein to HCPI include Health Care Property Investors, Inc. and
its wholly-owned subsidiaries and consolidated joint ventures and partnerships,
unless the context otherwise requires.
THE PROPERTIES
As of December 31, 1998, HCPI had an ownership interest in 307 properties
located in 40 states. HCPI leased or subleased 269 of its owned properties
pursuant to long-term triple net leases to 84 health care providers. Under a
triple net lease, in addition to the rent obligation, the lessee is responsible
for all operating expenses of the property such as utilities, property taxes,
insurance and repairs and maintenance. The lessees include the following or
their affiliates:
- - HealthSouth Corporation ("HealthSouth")
- - Vencor, Inc. ("Vencor")
- - Emeritus Corporation ("Emeritus")
- - Beverly Enterprises, Inc. ("Beverly")
- - Columbia/HCA Healthcare Corp. ("Columbia")
- - Centennial Healthcare Corp. ("Centennial")
- - Tenet Healthcare Corporation ("Tenet")
The remaining 38 owned properties are medical office buildings and clinics
with gross or modified gross leases with multiple tenants. Under gross or
modified gross leases, HCPI may be responsible for property taxes, repairs and
maintenance and/or insurance on those properties.
HCPI also holds mortgage loans on 25 properties that are owned and operated
by 12 health care providers including Beverly, Columbia and Centennial.
No single lessee or operator accounts for more than 7% of HCPI's revenue for
the year ended December 31, 1998.
Of the 332 health care facilities in which HCPI had an investment as of
December 31, 1998, HCPI directly owns 248 facilities including:
- - 108 long-term care facilities
- - 74 congregate care and assisted living centers
- - 41 physician group practice clinics
- - 20 medical office buildings
- - Three acute care hospitals
- - Two rehabilitation hospitals
HCPI has provided mortgage loans in the amount of $155,918,000 on 25
properties, including 15 long-term care facilities, four congregate care and
assisted living centers, three acute care hospitals and three medical office
buildings. At December 31, 1998, the remaining balance on these loans totaled
$139,432,000.
At December 31, 1998, HCPI also had varying percentage interests in several
limited liability companies and partnerships which together own 59 facilities,
as further discussed below under "Investments in Consolidated and Non-
Consolidated Joint Ventures."
The following is a summary of HCPI's properties grouped by type of facility
and equity interest as of December 31, 1998:
<TABLE>
<CAPTION>
Equity Number Number Total
Interest of of Beds/ Investments Annualized
Facility Type Percentage Facilities Units (1) (2) Rents/Interest
- --------------------------- ---------- ---------- ---------- ----------- --------------
(Dollar
Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Long-Term Care Facilities 100% 123 15,416 $ 438,650 $ 58,902
Long-Term Care Facilities 77-80 34 3,888 98,781 13,347
-----------------------------------------------------
157 19,304 537,431 72,249
-----------------------------------------------------
Acute Care Hospitals 100 6 427 72,868 7,189
Acute Care Hospitals 77 2 356 42,807 7,744
-----------------------------------------------------
8 783 115,675 14,933
-----------------------------------------------------
Rehabilitation Hospitals 100 2 168 27,385 4,014
Rehabilitation Hospitals 90-97 4 307 47,493 8,029
-----------------------------------------------------
6 475 74,878 12,043
-----------------------------------------------------
Congregate Care & Assisted Living Centers 100 78 6,234 365,438 32,664
Congregate Care & Assisted Living Centers 50 4 511 29,485 4,380
Congregate Care & Assisted Living Centers 45 2 200 1,033 (5) 50
-----------------------------------------------------
84 6,945 395,956 37,094
-----------------------------------------------------
Medical Office Buildings (3) 100 23 --- 154,637 16,052
Medical Office Buildings (3) 90 12 --- 87,650 8,082
Physician Group Practice Clinics (4) 100 41 --- 171,427 17,455
Psychiatric Facility 77 1 108 3,461 288
-----------------------------------------------------
Totals 332 27,615 $1,541,115 $ 178,196
=====================================================
</TABLE>
(1) In order to indicate facility size, congregate care and assisted
living centers are stated in units (studio or one room apartments);
all other facilities are stated in beds, except the medical office
buildings and the physician group practice clinics for which square
footage is provided in footnotes 3 and 4.
(2) Includes partnership investments, and incorporates all partners'
assets and construction commitments.
(3) The medical office buildings encompass approximately 2,038,000 square
feet.
(4) The physician group practice clinics encompass approximately 1,325,000
square feet.
(5) Represents HCPI's investment, net of partners' interests.
The following paragraphs describe each type of property. The amount
of Medicare reimbursement allowed for services received at long-term facilities,
long-term acute care hospitals and rehabilitation hospitals has been limited by
the Prospective Payment System, as further described below under "Government
Regulation."
Long-Term Care Facilities. HCPI has invested in 157 long-term care
facilities. Various health care providers operate these facilities. Long-term
care facilities offer restorative, rehabilitative and custodial nursing care for
people not requiring the more extensive and sophisticated treatment available at
acute care hospitals. Many long-term care facilities have experienced
significant growth in ancillary revenues and demand for subacute care services
over the past several years. Ancillary revenues and revenue from subacute care
services are derived from providing services to residents beyond room and board
and include occupational, physical, speech, respiratory and IV therapy, wound
care, oncology treatment, brain injury care and orthopedic therapy as well as
sales of pharmaceutical products and other services. Certain long-term care
facilities provide some of the foregoing services on an out-patient basis. Long-
term care facilities are designed to supplement hospital care and many have
transfer agreements with one or more acute care hospitals. These facilities
depend to some degree upon referrals from practicing physicians and hospitals.
Long-term care services are paid for either by private sources, or through the
federal Medicare and state Medicaid programs.
Long-term care facilities generally provide patients with accommodations,
complete medical and nursing care, and rehabilitation services including speech,
physical and occupational therapy. As a part of the Omnibus Budget
Reconciliation Act ("OBRA") of 1981, Congress established a waiver program under
Medicaid to offer an alternative to institutional long-term care services. The
provisions of OBRA and the subsequent OBRA Acts of 1987 and 1990 allow states,
with federal approval, greater flexibility in program design as a means of
developing cost-effective alternatives to delivering services traditionally
provided in the long-term care setting. This is a contributing factor to
the recent increase in the number of assisted living facilities, which may
adversely affect some long-term care facilities as some individuals
choose the residential environment and lower cost delivery system
provided in the assisted living setting.
Congregate Care and Assisted Living Centers. HCPI has investments in 84
congregate care and assisted living centers. Congregate care centers typically
offer studio, one bedroom and two bedroom apartments on a month-to-month basis
primarily to individuals who are over 75 years of age. Residents, who must be
ambulatory, are provided meals and eat in a central dining area; they may also
be assisted with some daily living activities. These centers offer programs and
services that allow residents certain conveniences and make it possible for them
to live independently; staff is also available when residents need assistance
and for group activities.
Assisted living centers serve elderly persons who require more assistance
with daily living activities than congregate care residents, but who do not
require the constant supervision nursing homes provide. Services include
personal supervision and assistance with eating, bathing, grooming and
administering medication. Assisted living centers typically contain larger
common areas for dining, group activities and relaxation to encourage social
interaction. Residents typically rent studio and one bedroom units on a
month-to-month basis.
Charges for room and board and other services in both congregate care and
assisted living centers are generally paid from private sources.
Acute Care Hospitals. HCPI has an interest in six general acute care
hospitals and two long-term acute care hospitals. Acute care hospitals
generally offer a wide range of services such as general and specialty surgery,
intensive care units, clinical laboratories, physical and respiratory therapy,
nuclear medicine, magnetic resonance imaging, neonatal and pediatric care units,
outpatient units and emergency departments, among others. Long-term acute care
hospitals provide for patients who require a stay of at least 25 days.
Services are paid for by private sources, third party payors (e.g. insurance,
HMOs), or through the federal Medicare and state Medicaid programs. Medicare
provides reimbursement incentives to traditional general acute care hospitals to
minimize inpatient length of stay.
Rehabilitation Hospitals. HCPI has investments in six rehabilitation
hospitals. These hospitals provide inpatient and outpatient care for patients
who have sustained traumatic injuries or illnesses, such as spinal cord
injuries, strokes, head injuries, orthopedic problems, work related disabilities
and neurological diseases, as well as treatment for amputees and patients with
severe arthritis. Rehabilitation programs encompass physical, occupational,
speech and inhalation therapies, rehabilitative nursing and other specialties.
Services are paid for by the patient or the patient's family, third party payors
(e.g. insurance, HMOs), or through the federal Medicare program.
Medical Office Buildings. HCPI has investments in 35 medical office
buildings. These buildings are generally located adjacent to, or a short
distance from, acute care hospitals. Medical office buildings contain
physicians' offices and examination rooms, and may also include pharmacies,
hospital ancillary service space and day-surgery operating rooms. Medical office
buildings require more extensive plumbing, electrical, heating and cooling
capabilities than commercial office buildings for sinks, brighter lights and
special equipment physicians typically use. Twelve of HCPI's owned medical
office buildings are master leased on a triple net basis to lessees which then
sublease office space to physicians or other medical practitioners. During 1997
and 1998, HCPI purchased 23 multi-tenant medical office buildings which are
leased under gross or modified gross leases under which HCPI is responsible for
certain operating expenses. Third party property management companies manage
the multi-tenant facilities on behalf of HCPI.
Physician Group Practice Clinics. HCPI has investments in 41 physician
group practice clinic facilities, which are leased to 15 different operators.
These clinics generally provide a broad range of medical services through
organized physician groups representing various medical specialties. The clinic
facilities are generally leased to a single lessee under a triple net or
modified gross lease.
Psychiatric Facility. HCPI has an investment in one psychiatric facility
which offers comprehensive, multidisciplinary adult and adolescent care.
COMPETITION
HCPI competes for real estate acquisitions and financings with health care
providers, other health care related real estate investment trusts, real estate
partnerships, real estate lenders, and other investors.
HCPI's properties are subject to competition from the properties of other
health care providers. Certain of these other operators have capital resources
substantially in excess of some of the operators of HCPI's facilities. In
addition, the extent to which the properties are utilized depends upon several
factors, including the number of physicians using the health care facilities or
referring patients there, competitive systems of health care delivery and the
size and composition of the population in the surrounding area. Private,
federal and state payment programs and the effect of other laws and regulations
may also have a significant effect on the utilization of the properties.
Virtually all of the properties operate in a competitive environment and
patients and referral sources, including physicians, may change their
preferences for a health care facility from time to time.
The following table shows, with respect to each property, the location by
state, the number of beds/units, recent occupancy levels, patient revenue mix,
annualized rents and interest and information regarding remaining lease terms,
by property type.
<TABLE>
<CAPTION>
Average
Number Private
Number of Beds/ Average Patient Annualized Average
of Units Occupancy Revenue Rents/ Remaining
Facility Location Facilities (1) (5) (2),(5) Interest Term
- --------------------------- ---------- -------- ---------- -------- --------- ----------
(Thousands) (Years)
<S> <C> <C> <C> <C> <C> <C>
Long-Term Care Facilities
Alabama 1 174 91% 37% $ 879 4
Arkansas 9 866 75 47 2,444 10
Arizona 1 112 83 100 427 15
California 18 1,816 86 51 6,021 13
Colorado 5 782 83 53 4,286 14
Connecticut 1 121 97 38 632 1
Florida (3) 11 1,267 90 49 6,835 7
Georgia 1 60 91 26 182 22
Idaho 1 119 66 53 508 15
Illinois 1 128 85 59 421 7
Indiana 22 3,074 78 50 10,898 10
Iowa 1 201 90 38 859 15
Kansas 3 323 82 62 1,588 11
Kentucky 1 100 96 49 410 3
Louisiana 3 355 82 31 1,312 15
Maryland 3 438 87 37 1,825 19
Massachusetts 5 615 93 39 2,606 4
Michigan 4 406 84 56 1,420 5
Minnesota 1 94 71 58 116 11
Mississippi 1 120 100 26 361 3
Missouri 1 153 96 42 731 3
Montana 1 80 76 38 322 --
New Mexico 1 102 89 31 307 4
North Carolina 9 1,056 83 56 4,310 9
Ohio 6 876 88 52 3,827 2
Oklahoma 12 1,395 70 68 4,901 16
Oregon 1 110 81 42 277 9
Pennsylvania 1 89 88 36 353 4
South Carolina 2 68 90 100 484 12
Tennessee 10 1,754 95 41 5,220 3
Texas 10 1,113 56 35 2,676 9
Utah 1 120 76 53 455 15
Washington 1 84 66 58 284 --
Wisconsin 8 1,133 82 47 4,072 7
- ------------------------------------------------------------------------------------------------------------
Sub-Total 157 19,304 82 49 72,249 9
- ------------------------------------------------------------------------------------------------------------
Acute Care Hospitals
Arizona 1 21 43 100 388 14
California 1 182 53 92 3,868 5
Louisiana 2 325 33 94 5,166 4
New Mexico(3) 1 56 -- -- -- 26
Texas(3) 3 199 48 69 5,511 19
- ------------------------------------------------------------------------------------------------------------
Sub-Total 8 783 39 81 14,933 14
- ------------------------------------------------------------------------------------------------------------
Rehabilitation Facilities
Arizona 1 60 59 100 1,764 --
Arkansas 1 60 78 100 1,880 2
Colorado 1 64 40 100 1,575 2
Florida 1 108 98 100 2,250 13
Kansas 1 75 70 100 2,638 --
Texas 1 108 68 100 1,936 4
- ------------------------------------------------------------------------------------------------------------
Sub-Total 6 475 72 100 12,043 5
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Average
Number Private
Number of Beds/ Average Patient Annualized Average
of Units Occupancy Revenue Rents/ Remaining
Facility Location Facilities (1) (5) (2),(5) Interest Term
- --------------------------- ---------- -------- ---------- -------- --------- ----------
(Thousands) (Years)
<S> <C> <C> <C> <C> <C> <C>
Physician Group Practice Clinics (4)
Arkansas 1 --- --- 100 $ 2,560 11
California 2 --- --- 100 4,229 11
Colorado 1 --- --- 100 316 9
Florida 11 --- --- 100 2,624 7
Georgia 3 --- --- 100 970 9
North Carolina 4 --- --- 100 1,140 6
Ohio 1 --- --- 100 --- ---
Oklahoma 4 --- --- 100 529 7
Tennessee 4 --- --- 100 1,607 11
Texas 9 --- --- 100 3,229 7
Virginia 1 --- --- 100 251 10
- ------------------------------------------------------------------------------------------------------------
Sub-Total 41 --- --- 100 17,455 9
- ------------------------------------------------------------------------------------------------------------
Psychiatric Facility - Georgia 1 108 14 100 288 9
- ------------------------------------------------------------------------------------------------------------
Congregate Care and Assisted Living Centers
Alabama (3) 1 84 --- --- --- 15
Arkansas 1 17 92 100 27 11
Arizona 1 98 64 100 496 9
California 11 999 62 93 5,845 15
Delaware 1 52 74 100 382 9
Florida (3) 10 738 55 88 2,316 12
Georgia 1 40 90 100 232 12
Idaho 1 117 39 100 770 14
Kansas(3) 2 194 33 57 262 12
Louisiana 5 449 54 100 3,246 9
Maryland (3) 2 140 44 61 860 12
Michigan (3) 2 200 --- 50 50 12
Missouri 1 73 --- 100 432 3
Nebraska 1 73 31 100 518 10
New Jersey(3) 4 279 57 70 1,281 12
New Mexico 2 285 63 100 1,909 12
New York 1 75 96 100 429 9
North Carolina 3 230 92 100 1,320 11
Ohio 1 156 87 100 800 13
Oregon 1 58 92 90 381 10
Pennsylvania 3 232 82 100 1,751 10
Rhode Island 1 172 99 100 1,580 2
South Carolina(3) 9 582 55 66 2,457 13
Texas 16 1,373 72 93 8,443 12
Virginia 1 90 44 100 616 15
Washington 2 139 93 86 691 9
- ------------------------------------------------------------------------------------------------------------
Sub-Total 84 6,945 62 87 37,094 11
- ------------------------------------------------------------------------------------------------------------
Medical Office Buildings (4)
Alaska 1 --- --- 100 726 2
California 7 --- --- 100 6,148 3
Indiana 13 --- --- 100 6,652 6
Minnesota 2 --- --- 100 2,218 8
North Dakota 1 --- --- 100 649 7
New York 1 --- --- 100 2,090 5
Texas 9 --- --- 100 5,083 8
Utah 1 --- --- 100 568 11
- ------------------------------------------------------------------------------------------------------------
Sub-Total 35 --- --- 100 24,134 6
- ------------------------------------------------------------------------------------------------------------
TOTAL FACILITIES 332 27,615 76% 61% $178,196 9
============================================================================================================
</TABLE>
(1) Congregate care and assisted living centers are measured in units.
Physician group practice clinics and medical office buildings are measured
in square feet and encompass approximately 1,325,000 and 2,038,000 square
feet, respectively. All other facilities are measured by bed count.
(2) All revenues, including Medicare revenues but excluding Medicaid revenues,
are included in "Private Patient" revenues.
(3) Includes facilities under construction, except for average occupancy data.
(4) Physician group practice clinics and medical office building lessees have
use of the leased facilities for their own use or for the use of sub-
lessees.
(5) This information is derived from information provided by HCPI's lessees.
RELATIONSHIP WITH MAJOR OPERATORS
At December 31, 1998, HCPI had investments in 332 properties located in 42
states, which are operated by 84 health care operators. In addition, 188 tenants
conduct business in the multi-tenant buildings. Listed below are HCPI's major
operators, the number of facilities operated by such operators, and the
annualized revenue and the percentage of annualized revenue
derived from such operators.
<TABLE>
<CAPTION>
Percentage
Number of Annualized of Annualized
Operators Facilities Revenue Revenue
- --------------------------------------------------------------------
<S> <C> <C> <C>
HealthSouth 6 $12,043,000 7%
Vencor 39 11,648,000 7
Emeritus 23 11,227,000 6
Beverly 28 10,685,000 6
Columbia 12 8,083,000 5
Centennial 19 8,241,000 5
Tenet 2 7,744,000 4
</TABLE>
Certain of the listed facilities have been subleased to other operators
with the original lessee remaining liable on the leases. The revenue applicable
to these sublessees is not included in the annualized revenue percentages
above. The percentage of annualized revenue on these subleased facilities was
4% for the year ended December 31, 1998. As discussed in more detail below, rent
obligations under Vencor leases are guaranteed through the primary term by
Tenet.
All of these operators listed above are subject to the informational filing
requirements of the Securities Exchange Act of 1934, as amended, and accordingly
file periodic financial statements on Form 10-K and Form 10-Q with the
Securities and Exchange Commission. HCPI obtained all of the financial and
other information relating to these operators from their public reports.
The following table summarizes HCPI's major operators' assets,
stockholders' equity, interim revenue and net income (or net loss) from
continuing operations as of or for the nine months ended September 30, 1998.
All of the following information is based upon such operators' public reports.
(Amounts in millions)
<TABLE>
<CAPTION> Net Income/
Stockholders' (Loss) from
Operators Assets Equity (Deficit) Revenue Operations
- --------------------------------------------------------------------------
<S> <C> <C> <C>
HealthSouth $ 7,057 $ 3,637 $ 2,898 $ 232
Vencor* 2,245 913 2,320 33
Emeritus 198 (38) 111 (23)
Beverly 2,199 869 2,116 61
Columbia 20,008 7,705 14,261 555
Centennial 273 115 265 1
Tenet** 13,629 3,864 5,116 262
</TABLE>
* Includes the combined results of the predecessor company for all
periods prior to May 1, 1998.
** The information described above for Tenet is for the six months ended
November 30, 1998 or as of November 30, 1998, as applicable.
The following table summarizes HCPI's major operators' assets,
stockholders' equity, annualized revenue and net income (or net loss) from
continuing operations as of or for the year ended December 31, 1997.
(Amounts in millions)
<TABLE>
<CAPTION> Net Income/
Stockholders' (Loss) from
Operators Assets Equity Revenue Operations
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HealthSouth $ 5,401 $ 3,157 $ 3,017 $ 331
Vencor* 3,335 905 3,116 135
Emeritus 229 1 118 (28)
Beverly 2,073 863 3,230 59
Columbia 22,002 7,250 18,819 182
Centennial 244 113 304 10
Tenet** 12,833 3,558 9,895 378
</TABLE>
* Includes the combined results of the predecessor company for all
periods prior to May 1, 1998.
** The information described above for Tenet is for the fiscal year ended
May 31, 1998 or as of May 31, 1998, as applicable.
The current equity market capitalization for each of the operators listed
above, based on the closing price of their common stock on March 24, 1999 as
reported in the Wall Street Journal, and based on the number of outstanding
shares of their common stock as reported in their most recent public filing
available is as follows: HealthSouth, $4.2 billion; Vencor, $91.6 million;
Emeritus, $117.9 million; Beverly, $524.7 million; Columbia, $12.1 billion;
Centennial, $184.1 million; and Tenet, $5.8 billion.
Certain additional information about these operators is provided below:
On May 1, 1998, Vencor completed a spin-off transaction. As a result, it
became two publicly held entities - Ventas, Inc. ("Ventas"), a real estate
company which intends to qualify as a REIT, and Vencor, a health care company
which at December 31, 1998 leased 39 of HCPI's properties. As of December 31,
1998, 3% of annualized revenue on facilities leased to Vencor related to
facilities sub-leased and operated by other providers. Both Ventas and
Vencor are responsible for payments due under the Vencor leases, including
subleased facilities.
According to a recent press release issued by Vencor, Vencor expects
that its earnings for the fourth quarter of 1998 will be substantially lower
than for the third quarter of 1998. Vencor reported a loss of $.02 per
share for the third quarter ended September 30, 1998. In addition,
Vencor announced that it recently obtained a waiver of its net worth covenant
through March 31, 1999 from the lenders under its bank credit facility. Vencor
accounts for 6.5% of HCPI's annualized revenue. Vencor's senior subordinated
debt is rated CCC and B2 by Standard & Poor's and Moody's, respectively, and
is currently on credit-watch with negative implications by Standard & Poor's.
Tenet is one of the nation's largest health care services companies,
providing a broad range of services through the ownership and management of
health care facilities. Tenet has historically guaranteed Vencor's leases.
However, during 1997 HCPI reached an agreement with Tenet whereby Tenet agreed
to forbear or waive some renewal and purchase options and related rights of
first refusal on facilities leased to Vencor. As part of that same agreement,
Tenet will guarantee the rent payments on the 36 Vencor leases that have not
reached the end of their base term as of December 31, 1998. All of those
remaining guaranteed leases expire within three years. During the year ended
December 31, 1998, 14 previously guaranteed Vencor leases expired. Eleven of
the fourteen were leased to third parties and three were retained by Vencor but
are no longer guaranteed by Tenet.
According to published reports, Columbia has been the subject of various
significant government investigations regarding its compliance with Medicare,
Medicaid and other programs. The following is derived from public reports
distributed by Columbia: "It is too early to predict the outcome or effect
that the ongoing investigations, the initiation of additional investigations,
if any, and the related media coverage will have on [Columbia's] financial
condition or results of operations in future periods. Were [Columbia] to be
found in violation of federal or state laws relating to Medicare, Medicaid
or similar programs, [Columbia] could be subject to substantial monetary
fines, civil and criminal penalties and exclusion from participation in the
Medicare and Medicaid programs. Any such sanctions could have a material
adverse effect on [Columbia's] financial position and results of operations."
Columbia's senior debt ratings remain investment grade, but have recently
been reduced by Moody's to Ba2 and by Standard & Poor's to BBB. In
February 1998, Moody's further downgraded Columbia's commercial paper
rating to NP (not prime) from P-3.
Recently there has been publicity about the reimbursement of nursing home
companies being impacted by Medicare's adoption of the Prospective Payment
System. The ratings of the following operators of HCPI facilities have been
put on credit-watch with negative implications by Standard & Poor's (S&P), the
bond rating agency, because of the impact of the implementation of the
Prospective Payment System. The indicated ratings are for the subordinated
debt issues as of March 22, 1999.
<TABLE>
<CAPTION>
Percentage
S&P Moody's of Annualized
Operators Rating Rating Revenue
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Genesis Health Ventures ("Genesis") B Ba3 2.4%
Integrated Health Services, Inc. ("IHS") CCC Ba3 2.1%
Sun Healthcare Group ("Sun") CCC Ba3 2.0%
Mariner Post-Acute Network, Inc. ("Mariner") CCC B1 0.6%
</TABLE>
These operators are current on all of their rental obligations to HCPI.
Since all these companies are publicly traded, interested readers are directed
to the periodic financial statements filed by such companies on Form 10-K and
Form 10-Q with the SEC.
LEASES AND LOANS
The initial base rental rates of the leases entered into by HCPI during
the three years ended December 31, 1998 have generally ranged from 9% to 14%
per annum of the acquisition price of the related property. Initial interest
rates on the loans entered into by HCPI during the three years ended December
31, 1998 have generally ranged from 9% to 12% per annum. Rental rates vary by
lease, taking into consideration many factors, such as:
- Credit worthiness of the lessee,
- Operating performance of the facility,
- Interest rates at the beginning of the lease, and
- Location, type and physical condition of the facility.
Most of the leases provide for additional rents that are based upon a
percentage of increased revenue over specific base period revenue of the leased
properties. Some leases and loans have annual fixed rent or interest rate
increases while others have rent increases based on inflation indices or other
factors. Additional Rental and Interest Income received for the years ended
December 31, 1998, 1997 and 1996 were $22.0 million, $21.1 million and $20.9
million, respectively. (See Note 2 to the Consolidated Financial Statements in
this Annual Report on Form 10-K.)
Each lessee that has a triple net lease is responsible thereunder, in
addition to the minimum and additional rents, for all additional charges,
including charges related to non-payment or late payment of rent, taxes and
assessments, governmental charges with respect to the leased property and
utility and other charges incurred with the operation of the leased property.
Each triple net lessee is required, at its expense, to maintain its leased
property in good order and repair. HCPI is not required to repair, rebuild or
maintain the properties.
Each lessee with a gross or modified gross lease is also responsible for
minimum and additional rents, but may not be responsible for all operating
expenses. Under gross or modified gross leases, HCPI may be responsible for
property taxes, repairs and maintenance and/or insurance on those properties.
The primary or fixed terms of the triple net and modified gross leases
generally range from 10 to 15 years, and generally have one or more five-year
(or longer) renewal options. The average remaining base lease-term on the
triple net and modified gross leases is approximately ten years and the average
remaining term on the loans is approximately 16 years. The primary term of the
gross leases to multiple tenants in the medical office buildings range from one
to ten years, with an average of five years remaining on those leases.
Obligations under the leases, in most cases, have corporate parent or
shareholder guarantees. Irrevocable letters of credit from various financial
institutions back 111 leases and loans covering 14 facilities which cover from
three to 18 months of lease or loan payments. HCPI requires the lessees and
mortgagors to renew such letters of credit during the lease or loan term in
amounts that may change based upon the passage of time, improved operating cash
flows or improved credit ratings.
HCPI believes that the credit enhancements discussed above provide it with
significant protection for its investment portfolio. HCPI is currently
receiving rents and interest in a timely manner from substantially all lessees
and mortgagors as provided under the terms of the leases or loans. Based upon
information provided to HCPI by lessees or mortgagors, certain facilities that
are current with respect to monthly rents and mortgage payments are presently
underperforming financially. Individual facilities may underperform as a result
of inadequate Medicaid reimbursement, low occupancy, less than optimal patient
mix, excessive operating costs, other operational issues or capital needs.
Management believes that, even if these facilities remain at current levels of
performance, the lease and loan provisions contain sufficient security to assure
that material rental and mortgage obligations will continue to be met for the
remainder of the lease or loan terms. In the future it is expected that some
lessees may choose not to renew their leases on certain properties
at existing rental rates (see Table below).
Many lessees have the right of first refusal to purchase the properties
during the lease term; many leases provide one or more five-year (or longer)
renewal options at existing lease rates and continuing additional rent formulas,
although certain leases provide for lease renewals at fair market value.
Certain lessees also have options to purchase the properties, generally for fair
market value, and generally at the expiration of the primary lease term and/or
any renewal term under the lease. If options are exercised, many such
provisions require lessees to purchase or renew several facilities together,
precluding the possibility of lessees purchasing or renewing only those
facilities with the best financial outcomes. Fifty-nine properties are not
subject to purchase options until 2008 or later, and an additional 219 leased
properties do not have any purchase options.
A table recapping lease expirations, mortgage maturities, properties
subject to purchase options and financial underperformance follows:
<TABLE>
<CAPTION>
Current Annualized Revenues of
-----------------------------------------------------
Properties Subject to
Lease Expirations,
Purchase Options and Properties Subject Possible Revenue
Mortgage Maturities to Purchase Options (Loss)/Gains at Lease
Year (1) (2) Expiration(3),(4)
----- --------------------- ------------------- ----------------------
(Amounts in thousands, except percentages) % Amount
------- ----------
<S> <C> <C> <C> <C>
1999 $7,383 $ 1,385 (0.6) $ (1,000)
2000 12,040 6,625 (0.9) (1,700)
2001 18,560 10,599 0.3 500
2002 11,838 1,511 0.1 200
2003 6,986 4,246 0.1 300
Thereafter 121,389 53,127 -- --
--------- --------- ----- -------
$ 178,196 $ 77,493 (1.0) $ (1,700)
========= ========= ===== =======
</TABLE>
(1) This column includes the revenue impact by year and the total annualized
rental and interest income associated with the properties subject to
lessees' renewal options and/or purchase options and mortgage maturities.
(2) This column includes the revenue impact by year and the total annualized
rental and interest income associated with properties subject to purchase
options. If a purchase option is exercisable at more than one date, the
convention used in the table is to show the revenue subject to the purchase
option at the earliest possible purchase date. Although certain purchase
option periods commenced in earlier years, lessees have not exercised their
purchase options as of this time. The total for this column (2) is a
component (subset) of column (1), the total current annualized revenue of
properties subject to lease expirations, purchase options and mortgage
maturities ($178,196,000).
(3) Based on current market conditions, management estimates that there could
be a revenue loss (compared to current rental rates) upon the expiration of
the current term of the leases in the percentages and amounts shown in the
table for lease expirations. Total revenue of HCPI has grown at a compound
annual growth rate of 13.0% in the past five years. The percentages are
computed by taking the possible revenue loss as a percentage of 1998 total
annualized revenue.
(4) HCPI estimates that in addition to the possible reduction in income from
lease expirations, it may also have a reduction of approximately $200,000
in 1999 due to the reinvestment of cash received from mortgage maturities
and exercises of purchase options. This amount is calculated based on
current interest rate levels and is not estimated in years subsequent to
1999 due to the unpredictable levels of interest rates and their impact on
lessees' purchase options and mortgage maturities.
There are numerous factors that could have an impact on lease renewals or
purchase options, including the financial strength of the lessee, expected
facility operating performance, the relative level of interest rates and
individual lessee financing options. Based upon management expectations of
HCPI's continued growth, the facilities subject to renewal and/or purchase
options and mortgage maturities and any possible rent loss therefrom should
represent a small percentage of revenue in the year of renewal or purchase.
Each lessee, at its expense, may make non-capital additions, modifications
or improvements to its leased property. All such alterations, replacements and
improvements must comply with the terms and provisions of the lease, and become
the property of HCPI or its affiliates upon termination of the lease. Each
lease requires the lessee to maintain adequate insurance on the leased property,
naming HCPI or its affiliates and any mortgagees as additional insureds. In
certain circumstances, the lessee may self-insure pursuant to a prudent program
of self-insurance if the lessee or the guarantor of its lease obligations has
substantial net worth. In addition, each lease requires the lessee to indemnify
HCPI or its affiliates against certain liabilities in connection with the leased
property.
DEVELOPMENT OF FACILITIES
Since 1987, HCPI has committed to the development of 54 facilities
(representing an aggregate investment of approximately $407 million), including:
- - Five rehabilitation hospitals
- - 33 congregate care and assisted living facilities
- - Five long-term care facilities
- - Four acute care hospitals
- - Seven medical office buildings
As of December 31, 1998, costs of approximately $344 million have been
funded and 40 facilities have been completed. The completed facilities
comprise:
- - Five rehabilitation hospitals
- - 21 congregate care and assisted living facilities
- - Five long-term care facilities
- - Two acute care hospitals
- - Seven medical office buildings
The 14 remaining development projects are scheduled for completion in 1999
and 2000. Simultaneously with the commencement of each of these development
programs and prior to funding, HCPI enters into a lease agreement with the
developer/operator. The base rent under the lease is generally established at a
rate equivalent to a specified number of basis points over the yield on the 10
year United States Treasury note at the inception of the lease agreement.
The build to suit development program generally includes a variety of
additional forms of credit enhancement and collateral beyond those provided by
the leases. During the development period, HCPI generally requires additional
security and collateral in the form of more than one of the following:
(a) Irrevocable letters of credit from financial institutions;
(b) Payment and performance bonds; and
(c) Completion guarantees by either one or a combination of the developer's
parent entity, other affiliates or one or more of the individual principals
who control the developer.
In addition, prior to any advance of funds by HCPI under the development
agreement, the developer must provide:
(a) Satisfactory evidence in the form of an endorsement to HCPI's title
insurance policy that no intervening liens have been placed on the property
since the date of HCPI's previous advance;
(b) A certificate executed by the project architect that indicates that all
construction work completed on the project conforms with the requirements
of the applicable plans and specifications;
(c) A certificate executed by the general contractor that all work requested
for reimbursement has been completed; and
(d) Satisfactory evidence that the funds remaining unadvanced are sufficient
for the payment of all costs necessary for the completion of the project in
accordance with the terms and provisions of the agreement.
As a further safeguard during the development period, HCPI generally will
retain 10% of construction funds incurred until it has received satisfactory
evidence that the project will be fully completed in accordance with the
applicable plans and specifications. HCPI also monitors the progress of the
development of each project and the accuracy of the developer's draw requests by
having its own in-house inspector perform regular on-site inspections of the
project prior to the release of any requested funds.
INVESTMENTS IN CONSOLIDATED AND NON-CONSOLIDATED JOINT VENTURES
At December 31, 1998, HCPI had varying percentage interests in several
limited liability companies and partnerships which together own 59 facilities,
as further discussed below:
(1) A 77% interest in a partnership (Health Care Property Partners) which owns
two acute care hospitals, one psychiatric facility and 20 long-term care
facilities.
(2) Interests of between 90% and 97% in four partnerships (HCPI/San Antonio
Ltd. Partnership, HCPI/Colorado Springs Ltd. Partnership, HCPI/Little Rock
Ltd. Partnership, HCPI/Kansas Ltd. Partnership), each of which owns a
comprehensive rehabilitation hospital.
(3) A 90% interest in a limited liability company (Cambridge Medical Property,
LLC) which owns five medical office buildings.
(4) A 90% interest in a limited liability company (HCPI Indiana, LLC) which
owns seven medical office buildings.
(5) An 80% interest in six limited liability companies (Vista-Cal Associates,
LLC; Oak City-Cal Associates, LLC; Statesboro Associates, LLC; Ft. Worth-
Cal Associates, LLC; Tucson-Cal Associates, LLC; Perris-Cal Associates,
LLC) each of which owns a long-term care facility.
(6) An 80% interest in two limited liability companies (Ponca-Cal Associates,
LLC, Louisiana-Two Associates, LLC) each of which owns two long-term care
facilities.
(7) An 80% interest in one limited liability company (Oklahoma-Four Associates,
LLC) which owns four long-term care facilities.
(8) A 50% interest in four partnerships (HCPI/Austin Investors, HCPI/Baton
Rouge Investors, HCPI/Rhode Island Investors and HCPI/Kenner Investors),
each of which owns a congregate care facility.
(9) A 45% interest in two limited liability companies (Seminole Shores Living
Center, LLC and Edgewood Assisted Living Center, LLC) each formed to own a
congregate care facility.
FUTURE ACQUISITIONS
HCPI anticipates acquiring additional health care related facilities and
leasing them to health care operators or investing in mortgages secured by
health care facilities.
TAXATION OF HCPI
Management of HCPI believes that HCPI has operated in such a manner as to
qualify for taxation as a real estate investment trust ("REIT") under Sections
856 to 860 of the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ended December 31, 1985, and HCPI intends to
continue to operate in such a manner. No assurance can be given that it has
operated or will be able to continue to operate in a manner so as to qualify or
to remain so qualified. This summary is qualified in its entirety by the
applicable Code provisions, rules and regulations promulgated thereunder, and
administrative and judicial interpretation thereof.
If HCPI qualifies for taxation as a REIT, it will generally not be subject
to Federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the
"double taxation" (i.e., at the corporate and stockholder levels) that generally
results from investment in a corporation. However, HCPI will continue to be
subject to federal income tax under certain circumstances.
The Code defines a REIT as a corporation, trust or association (i) which is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) which would be taxable, but for Sections 856 through
860 of the Code, as a domestic corporation; (iv) which is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi)
during the last half of each taxable year not more than 50% in value of the
outstanding stock of which is owned, actually or constructively, by five or
fewer individuals; and (vii) which meets certain other tests, described below,
regarding the amount of its distributions and the nature of its income and
assets. The Code provides that conditions (i) to (iv), inclusive, must be met
during the entire taxable year and that condition (v) 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.
There presently are two gross income requirements and, with respect to
taxable years of HCPI beginning before August 6, 1997, there was a third gross
income requirement. First, at least 75% of HCPI's gross income (excluding gross
income from Prohibited Transactions as defined below) for each taxable year must
be derived directly or indirectly from investments relating to real property or
mortgages on real property or from certain types of temporary investment income.
Second, at least 95% of HCPI's gross income (excluding gross income from
Prohibited Transactions) for each taxable year must be derived from income that
qualifies under the 75% test and all other dividends, interest and gain from the
sale or other disposition of stock or securities. Third, for taxable years of
HCPI beginning before August 6, 1997, short-term gains from the sale or other
disposition of stock or securities, gains from Prohibited Transactions and gains
on the sale or other disposition of real property held for less than four years
(apart from involuntary conversions and sales of foreclosure property) must
represent less than 30% of HCPI's gross income for each such taxable year. A
Prohibited Transaction is a sale or other disposition of property (other than
foreclosure property) held for sale to customers in the ordinary course of
business.
HCPI, at the close of each quarter of its taxable year, must also satisfy
three tests relating to the nature of its assets. First, at least 75% of the
value of HCPI's total assets must be represented by real estate assets
(including stock or debt instruments held for not more than one year, purchased
with the proceeds of a stock offering or long-term (more than five years) public
debt offering of HCPI), cash, cash items and government securities. Second, not
more than 25% of HCPI's total assets may be represented by securities other than
those in the 75% asset class. Third, of the investments included in the 25%
asset class, the value of any one issuer's securities owned by HCPI may not
exceed 5% of the value of HCPI's total assets and HCPI may not own more than 10%
of any one issuer's outstanding voting securities.
HCPI owns interests in various partnerships and limited liability
companies. In the case of a REIT that is a partner in a partnership or a member
of a limited liability company that is treated as a partnership under the Code,
Treasury Regulations provide that for purposes of the REIT income and asset
tests, the REIT will be deemed to own its proportionate share of the assets of
the partnership or limited liability company and will be deemed to be entitled
to the income of the partnership or limited liability company attributable to
such share. The ownership of an interest in a partnership or limited liability
company by a REIT may involve special tax risks, including the challenge by the
Internal Revenue Service (the "Service") of the allocations of income and
expense items of the partnership or limited liability company, which would
affect the computation of taxable income of the REIT, and the status of the
partnership or limited liability company as a partnership (as opposed to an
association taxable as a corporation) for federal income tax purposes. HCPI
also owns interests in a number of subsidiaries which are intended to be treated
as qualified real estate investment trust subsidiaries (each a "QRS"). The Code
provides that such subsidiaries will be ignored for federal income tax purposes
and all assets, liabilities and items of income, deduction and credit of such
subsidiaries will be treated as assets, liabilities and such items of HCPI. If
any partnership, limited liability company, or subsidiary in which HCPI owns an
interest were treated as a regular corporation (and not as a partnership or QRS)
for federal income tax purposes, HCPI would likely fail to satisfy the REIT
asset tests described above and would therefore fail to qualify as a REIT. HCPI
believes that each of the partnerships, limited liability companies, and
subsidiaries in which it owns an interest will be treated for tax purposes as a
partnership (in the case of a partnership or limited liability company) or QRS,
respectively, although no assurance can be given that the Service will not
successfully challenge the status of any such organization.
HCPI, in order to qualify as a REIT, is required to distribute dividends
(other than capital gain dividends) to its stockholders in an amount at least
equal to (A) the sum of (i) 95% of HCPI's "real estate investment trust taxable
income" (computed without regard to the dividends paid deduction and HCPI's net
capital gain) and (ii) 95% of the net income, if any (after tax), from
foreclosure property, minus (B) the sum of certain items of non-cash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before HCPI timely files its tax return
for such year, if paid on or before the first regular dividend payment date
after such declaration and if HCPI so elects and specifies the dollar amount in
its tax return. To the extent that HCPI does not distribute all of its net
long-term capital gain or distributes at least 95%, but less than 100%, of its
"real estate investment trust taxable income," as adjusted, it will be subject
to tax thereon at regular corporate tax rates. Furthermore, if HCPI should fail
to distribute during each calendar year at least the sum of (i) 85% of its real
estate investment trust ordinary income for such year, (ii) 95% of its real
estate investment capital gain income for such year, and (iii) any undistributed
taxable income from prior periods, HCPI would be subject to a 4% excise tax on
the excess of such required distributions over the amounts actually distributed.
If HCPI fails to qualify for taxation as a REIT in any taxable year, and
certain relief provisions do not apply, HCPI will be subject to tax (including
any applicable alternative minimum tax) on its taxable income at regular
corporate rates. Distributions to stockholders in any year in which HCPI fails
to qualify will not be deductible by HCPI nor will they be required to be made.
Unless entitled to relief under specific statutory provisions, HCPI will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether
in all circumstances HCPI would be entitled to the statutory relief. Failure to
qualify for even one year could substantially reduce distributions to
stockholders and could result in HCPI's incurring substantial indebtedness (to
the extent borrowings are feasible) or liquidating substantial investments in
order to pay the resulting taxes.
In addition, President Clinton's Fiscal 2000 budget proposal includes a
provision which, if enacted in its present form, would result in the immediate
taxation of all gain inherent in a C corporation's assets upon an election by
the corporation to become a REIT in taxable years beginning after January 1,
2000 (i.e., for elections starting in 2001), and thus could effectively preclude
HCPI from reelecting to be taxed as a REIT if there were a loss of its REIT
status.
Distributions made to HCPI's taxable U.S. stockholders out of current or
accumulated earnings and profits, unless designated as capital gain
distributions, will be taken into account by them as ordinary income. Such
distributions will not be eligible for the dividends received deductions for
corporations as long as HCPI qualifies as a REIT. Distributions made by HCPI
that are properly designated by HCPI as capital gain dividends will be taxable
to taxable U.S. stockholders as gains (to the extent that they do not exceed
HCPI's actual net capital gain for the taxable year) from the sale or
disposition of a capital asset. In general, such gains are taxable to non-
corporate U.S. stockholders at a 20% or 25% rate, depending on certain
designations, if any, which may be made by HCPI. Corporate stockholders may,
however, be required to treat up to 20% of any such capital gain dividend as
ordinary income. Distributions in excess of current or accumulated earnings and
profits will not be taxable to a U.S. stockholder to the extent that they do not
exceed the adjusted basis of the stockholder's shares. To the extent that such
distributions exceed the adjusted basis of a U.S. stockholder's shares they will
be included in income as capital gain (as described below with respect to the
sale or exchange of the shares) assuming the shares are held as a capital asset
in the hands of the stockholder. Stockholders may not include in their
individual income tax returns any net operating losses or capital losses of
HCPI.
HCPI may elect to retain, rather than distribute as a capital gain
dividend, its net long-term capital gains. In such event, HCPI would pay tax on
such retained net long-term capital gains. In addition, for tax years of HCPI
beginning on or after January 1, 1998, to the extent designated by HCPI, a U.S.
stockholder generally would (i) include its proportionate share of such
undistributed long-term capital gains in computing its long-term capital gains
in its return for its taxable year in which the last day of HCPI's taxable year
falls (subject to certain limitations as to the amount so includable), (ii) be
deemed to have paid the capital gains tax imposed on HCPI on the designated
amounts included in such stockholder's long-term capital gains, (iii) receive a
credit or refund for such amount of tax deemed paid by it, (iv) increase the
adjusted basis of its shares by the difference between the amount of such
includable gains and the tax deemed to have been paid by it, and (v) in the case
of a U.S. stockholder that is a corporation, appropriately adjust its earnings
and profits for the retained capital gains in accordance with Treasury
Regulations to be prescribed by the Service.
In general, any gain or loss upon a sale or exchange of shares by a taxable
U.S. stockholder who has held such shares as a capital asset will be taxable as
long-term capital gain if the shares have been held for more than one year or
short-term capital gain if the shares have been held for one year or less;
provided however, any loss on the sale or exchange of shares that have been held
by such stockholder for six months or less will be treated as a long-term
capital loss to the extent of distributions from HCPI required to be treated by
such stockholder as long-term capital gain.
HCPI and its stockholders may 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 HCPI and its
shareholders may not conform to the federal income tax consequences discussed
above.
GOVERNMENT REGULATION
The health care industry is heavily regulated by federal, state and local
laws. This government regulation of the health care industry affects HCPI
because:
(1) The financial ability of lessees to make rent and debt payments to HCPI may
be affected by government regulations such as licensure, certification for
participation in government programs, and government reimbursement, and
(2) HCPI's additional rents are generally based on its lessees' gross revenue
from operations.
These laws and regulations are subject to frequent and substantial changes
resulting from legislation, adoption of rules and regulations, and
administrative and judicial interpretations of existing law. These changes may
have a dramatic effect on the definition of permissible or impermissible
activities, the relative costs associated with doing business and the amount of
reimbursement by both government and other third-party payors. These changes
may be applied retroactively. The ultimate timing or effect of these changes
cannot be predicted. The failure of any borrower of funds from us or lessee of
any of our properties to comply with such laws, requirements and regulations
could affect its ability to operate its facility or facilities and could
adversely affect such borrower's or lessee's ability to make debt or lease
payments to us.
Fraud and Abuse. There are various federal and state laws prohibiting fraud
by healthcare providers, including criminal provisions which prohibit filing
false claims or making false statements to receive payment or certification
under Medicare and Medicaid, or failing to refund overpayments or improper
payments. Violation of these federal provisions is a felony punishable by up to
five years imprisonment and/or $25,000 fines. Civil provisions prohibit the
knowing filing of a false claim or the knowing use of false statements to obtain
payment. The penalties for such a violation are fines of not less than $5,000
nor more than $10,000, plus treble damages, for each claim filed.
There are also laws that attempt to eliminate fraud and abuse by
prohibiting payment arrangements that include compensation for patient
referrals. The federal Anti-Kickback Law prohibits, among other things, the
offer, payment, solicitation or receipt of any form of remuneration in return
for, or to induce, the referral of Medicare and Medicaid patients. A wide array
of relationships and arrangements, including ownership interests in a company by
persons who refer or who are in a position to refer patients, as well as
personal services agreements, have under certain circumstances, been alleged or
been found to violate these provisions. In addition to the Anti-Kickback
Statute, the federal government restricts certain financial relationships
between physicians and other providers of healthcare services.
State and federal governments are devoting increasing attention and
resources to anti-fraud initiatives against healthcare providers. The Health
Insurance Portability and Accountability Act of 1996 and the Balanced Budget Act
expand the penalties for healthcare fraud, including broader provisions for the
exclusion of providers from the Medicare and Medicaid programs. Further, under
Operation Restore Trust, a major anti-fraud demonstration project, the Office of
Inspector General of the U.S. Department of Health and Human Services, in
cooperation with other federal and state agencies, has focused on the activities
of skilled nursing facilities, home health agencies, hospices and durable
medical equipment suppliers in certain states, including California, in which we
have properties. Due to the success of Operation Restore Trust, the project has
been expanded to numerous other states and to additional providers including
providers of ancillary nursing home services.
Violations of such laws and regulations may jeopardize a borrower's or
lessee's ability to operate a facility or to make rent and debt payments,
thereby potentially adversely affecting HCPI. HCPI's lease arrangements with
lessees may also be subject to these fraud and abuse laws. Federal and state
laws governing illegal rebates and kickbacks regulate contingent or
percentage rent arrangements where HCPI's co-investors are physicians or
others in a position to refer patients to the facilities. Although only
limited interpretive or enforcement guidance is available, HCPI has
structured its rent arrangements in a manner which it believes complies with
such laws and regulations.
Based upon information HCPI has periodically received from its operators
over the terms of their respective leases and loans, HCPI believes that the
facilities in which it has investments are in substantial compliance with the
various regulatory requirements applicable to them, although there can be no
assurance that the operators are in compliance or will remain in compliance in
the future.
Licensure Risks. Health care facilities must obtain licensure to operate.
Failure to obtain licensure or loss of licensure would prevent a facility from
operating. These events could adversely affect the facility operator's ability
to make rent and debt payments. State and local laws also may regulate
expansion, including the addition of new beds or services or acquisition of
medical equipment, and occasionally the contraction of health care facilities by
requiring certificate of need or other similar approval programs. In addition,
health care facilities are subject to the Americans with Disabilities Act and
building and safety codes which govern access to and physical design
requirements and building standards for facilities.
Environmental Matters. A wide variety of federal, state and local
environmental and occupational health and safety laws and regulations affect
healthcare facility operations. Under various federal, state and local
environmental laws, ordinances and regulations, an owner of real property or
a secured lender (such as HCPI) may be liable for the costs of removal or
remediation of hazardous or toxic substances at, under or disposed of in
connection with such property, as well as other potential costs relating to
hazardous or toxic substances (including government fines and damages for
injuries to persons and adjacent property). Such laws often impose such
liability without regard to whether the owner or secured lender knew of,
or was responsible for, the presence or disposal of such substances and may
be imposed on the owner or secured lender in connection with the activities
of an operator of the property. The cost of any required remediation,
removal, fines or personal or property damages and the owner's or secured
lender's liability therefore could exceed the value of the property, and/or
the assets of the owner or secured lender. In addition, the presence of
such substances, or the failure to properly dispose of or remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral which, in turn,
would reduce HCPI's revenues.
Although the mortgage loans that HCPI provides and leases covering its
properties require the borrower and the lessee to indemnify HCPI for certain
environmental liabilities, the scope of such obligations may be limited and HCPI
cannot assure that any such borrower or lessee would be able to fulfill its
indemnification obligations.
Medicare and Medicaid Programs. Sources of revenues for lessees may
include the federal Medicare program, state Medicaid programs, private insurance
carriers, health care service plans and health maintenance organizations, among
others. You should expect efforts to reduce costs by these payors to continue,
which may result in reduced or slower growth in reimbursement for certain
services provided by some of HCPI's lessees. In addition, the failure of any of
HCPI's lessees to comply with various laws and regulations could jeopardize
their ability to continue participating in the Medicare and Medicaid programs.
Medicare payments for psychiatric, long-term and rehabilitative care are
based on allowable costs plus a return on equity for proprietary facilities.
Medicare payments to acute care hospitals for inpatient services are based on
the Prospective Payment System. Under the Prospective Payment System, a
hospital is paid a prospectively established rate based on the category of
the patient's diagnosis ("Diagnostic Related Groups" or "DRGs"). Beginning
in 1991, Medicare payments began to phase-in the Prospective Payment System
over a period of years. Thus, Medicare reimbursement to hospitals for capital-
related inpatient costs began using a federal rate rather than the cost-based
reimbursement system previously used. DRG rates are subject to adjustment on
an annual basis as part of the federal budget reconciliation process. The
Balanced Budget Act of 1997 expanded the Prospective Payment System to
include skilled nursing facilities, home health agencies, hospital outpatient
departments, and rehabilitation hospitals. See "Health Care Reform" section
and further discussion below.
Medicaid programs generally pay for acute, rehabilitative and psychiatric
care based on reasonable costs at fixed rates; long-term care facilities are
generally reimbursed using fixed daily rates. Both Medicare and Medicaid
payments are generally below retail rates for lessee-operated facilities.
Increasingly, states have introduced managed care contracting techniques in the
administration of Medicaid programs. Such mechanisms could have the impact of
reducing utilization of and reimbursement to lessee-operated facilities.
Third party payors in various states and areas base payments on costs,
retail rates or, increasingly, negotiated rates. Negotiated rates can include
discounts from normal charges, fixed daily rates and prepaid capitated rates.
Prospective Payment System. Up until July 1, 1998, Medicare and most state
Medicaid programs utilized a cost-based reimbursement system for skilled nursing
facilities which reimbursed these facilities for the reasonable direct and
indirect allowable costs incurred in providing routine services plus in certain
states, a return on equity, subject to certain cost ceilings. These costs
normally included allowances for administrative and general costs as well as
the costs of property and equipment (depreciation and interest, fair rental
allowance or rental expense). In certain states, cost-based reimbursement was
typically subject to retrospective adjustment through cost report settlement,
and for certain states, payments made to a facility on an interim basis that
were subsequently determined to be less than or in excess of allowable costs
could be adjusted through future payments to the affected facility and to
other facilities owned by the same owner. State Medicaid reimbursement programs
varied as to the methodology used to determine the level of allowable costs
which were reimbursed to operators.
Beginning on July 1, 1998, the congressionally mandated Prospective
Payment System was implemented for skilled nursing facilities. Under the
Prospective Payment System, skilled nursing facilities are paid a case-mix
adjusted federal per diem rate for Medicare-covered services
provided by skilled nursing facilities. The per diem rate is calculated to
cover routine service costs, ancillary costs and capital-related costs. The
phased-in implementation of the prospective payment system for skilled nursing
facilities began with the first cost-reporting period beginning on or after July
1, 1998. The Prospective Payment System is expected to be fully implemented
by July 1, 2001. The effect of the implementation of the Prospective
Payment System on a particular skilled nursing facility will vary in
relation to the amount of revenue derived from Medicare patients for each
skilled nursing facility.
Skilled nursing facilities may need to restructure their operations to
accommodate the new Medicare Prospective Payment System reimbursement. In part
because of the uncertainty as to the effect of the Prospective Payment System on
skilled nursing facilities, in November 1998, Standard & Poor's placed many
skilled nursing facility companies on a "credit watch" because of the potential
negative impact of the implementation of the Prospective Payment System on the
financial condition of skilled nursing facilities, including the ability to make
interest and principal payments on outstanding borrowings. In early March 1999,
Standard & Poor's lowered the ratings of several skilled nursing facility
companies, including HCPI's tenants Genesis, IHS, Sun and Mariner as discussed
above under "Relationship with Major Operators," because of the impact of the
implementation of the Prospective Payment System, particularly those companies
with substantial debt.
Long-Term Care Facilities. Long-term care facilities are regulated
primarily through the licensing of such facilities against a common background
established by federal law enacted as part of the Omnibus Budget Reconciliation
Act of 1987. Regulatory authorities and licensing standards vary from state to
state, and in some instances from locality to locality. These standards are
constantly reviewed and revised. Agencies periodically inspect facilities, at
which time deficiencies may be identified. The facilities must correct these
deficiencies as a condition to continued licensing or certification and
participation in government reimbursement programs. Depending on the nature of
such deficiencies, remedies can be routine or costly. Similarly, compliance
with regulations which cover a broad range of areas such as patients' rights,
staff training, quality of life and quality of resident care may increase
facility start-up and operating costs.
Congregate Care and Assisted Living Facilities. Assisted living facilities
are subject to federal, state and local licensure, certification and inspection
laws. These laws regulate, among other matters, the number of licensed beds,
the provision of services, equipment, staffing and operating policies and
procedures. Failure to comply with these laws and regulations could result in
the denial of reimbursement, the imposition of fines, suspension or
decertification from the Medicare and Medicaid program, and in extreme cases,
the revocation of a facility's license or closure of a facility. Such actions
may have an effect on the revenues of the operators of properties owned by HCPI
and therefore adversely impact HCPI.
Acute Care Hospitals. Acute care hospitals are also subject to extensive
federal, state and local regulation. Acute care hospitals undergo periodic
inspections regarding standards of medical care, equipment and hygiene as a
condition of licensure. Various licenses and permits also are required for
purchasing and administering narcotics, operating laboratories and pharmacies
and the use of radioactive materials and certain equipment. Each of the
lessees' facilities, the operation of which requires accreditation, is
accredited by the Joint Commission on Accreditation of Healthcare Organizations.
Such accreditation may be a more cost-effective and time-efficient method of
meeting requirements for continued licensing and for participation in government
sponsored provider programs.
Acute care hospitals must comply with requirements for various forms of
utilization review. In addition, under the Prospective Payment System, each
state must have a Peer Review Organization carry out federally mandated
reviews of Medicare patient admissions, treatment and discharges in acute
care hospitals.
Psychiatric and Rehabilitation Hospitals. Psychiatric and rehabilitation
hospitals are subject to extensive federal, state and local legislation,
regulation, inspection and licensure requirements similar to those of acute care
hospitals. For psychiatric hospitals, there are specific laws regulating civil
commitment of patients and disclosure of information. Many states have adopted
a "patient's bill of rights" which provides for certain higher standards for
patient care that are designed to decrease restrictions and enhance dignity in
treatment. Insurance reimbursement for psychiatric treatment generally is more
limited than for general health care.
Physician Group Practice Clinics. Physician group practice clinics are
subject to extensive federal, state and local legislation and regulation. Every
state imposes licensing requirements on individual physicians and on facilities
and services operated by physicians. In addition, federal and state laws
regulate health maintenance organizations and other managed care organizations
with which physician groups may have contracts. Many states require regulatory
approval, including certificates of need, before establishing certain types of
physician-directed clinics, offering certain services or making expenditures in
excess of statutory thresholds for health care equipment, facilities or
programs. In connection with the expansion of existing operations and the entry
into new markets, physician clinics and affiliated practice groups may become
subject to compliance with additional regulation.
HEALTH CARE REFORM
The health care industry has continually faced various challenges,
including increased government and private payor pressure on health care
providers to control costs, the migration of patients from acute care
facilities into extended care and home care settings and the vertical and
horizontal consolidation of health care providers. The pressure to control
health care costs intensified during 1994 and 1995 as a result of the
national health care reform debate and continued into 1997 as Congress
attempted to slow the rate of growth of federal health care expenditures
as part of its effort to balance the federal budget.
In addition to the reforms enacted and considered by Congress from time to
time, state legislatures periodically consider various health care reform
proposals. Changes in the law, new interpretations of existing laws, and
changes in payment methodology may have a dramatic effect on the definition of
permissible or impermissible activities, the relative costs associated with
doing business and the amount of reimbursement by both government and other
third-party payors. These changes may be applied retroactively. The ultimate
timing or effect of legislative efforts cannot be predicted and may impact HCPI
in different ways.
These changes include:
(1) The adoption of the Medicare+Choice program, which expands Medicare
beneficiaries' choices to include traditional Medicare fee-for-service,
private fee-for-service medical savings accounts, various managed care
plans, and provider sponsored organizations, among others,
(2) The expansion and restriction of reimbursement for various Medicare
benefits,
(3) The freeze in hospital rates in 1998 and more limited annual increases in
hospital rates for 1999-2002,
(4) The adoption of a Prospective Payment System for skilled nursing
facilities, home health agencies, hospital outpatient departments, and
rehabilitation hospitals,
(5) The repeal of the Boren amendment payment standard for Medicaid so that
states have the exclusive authority to determine provider rates and
providers have no federal right of action,
(6) The reduction in Medicare disproportionate share payments to hospitals, and
(7) The removal of the $150,000,000 limit on tax-exempt bonds for nonacute
hospital capital projects.
The implementation of these amendments will occur at various times: for
instance, the Prospective Payment System for skilled nursing facilities went
into effect for the first cost reporting period after July 1, 1998, while the
Prospective Payment System for home health agencies will not be implemented
until October 1, 2000.
In seeking to limit Medicare reimbursement for long term care services,
Congress established the Prospective Payment System for skilled nursing facility
services to replace the cost-based reimbursement system. See "Government
Regulation -- Prospective Payment System."
In addition, the Balanced Budget Act of 1997 strengthens the anti-fraud and
abuse laws to provide for stiffer penalties for fraud and abuse violations.
The Balanced Budget Act of 1997 signed by President Clinton on August 5,
1997, is expected to produce several billion dollars in net savings for
Medicaid over five years. In addition, the Balanced Budget Act repealed the
Boren Amendment under which states were required to pay long-term care
providers, including skilled nursing facilities, rates that are "reasonable and
adequate to meet the cost which must be incurred by efficiently and economically
operated facilities." As a result of the repeal of the Boren Amendment, states
are now required by the Balanced Budget Act for skilled nursing facilities to:
- Use a public process for determining rates
- Publish proposed and final rates, the methodologies underlying the
rates, and justifications for the rates
- Give methodologies and justifications
During rate-setting procedures, states are required to take into account
the situation of skilled nursing facilities that serve a disproportionate number
of low-income patients with special needs. The Secretary of the Department of
Health and Human Services is required to study and report to Congress within
four years concerning the effect of state rate-setting methodologies on the
access to and the quality of services provided to Medicaid beneficiaries. The
Balanced Budget Act also provides the federal government with expanded
enforcement powers to combat waste, fraud and abuse in delivery of healthcare
services. Though applicable to payments for services furnished on or after
October 1, 1997, the new requirements are not retroactive. Thus, states that
have not proposed changes in their payment methods or standards, or changes in
rates for items and services furnished on or after October 1, 1997, need not
immediately implement a Balanced Budget Act public approval process.
President Clinton recently signed the Omnibus Consolidated and Emergency
Supplemental Appropriations Act of 1999 ("Appropriations Act") into law. The
Appropriations Act delays imposition of the Prospective Payment System for home
health agencies until October 1, 2000. Moreover, the Appropriations Act
increases both the per-enrollee and per-agency limits implemented under the
interim payment system imposed by the Balance Budget Act of 1997. According to
a statement from the House Commerce Committee, more than 65 percent of the
home health agencies will receive increased Medicare payments under the
Appropriations Act. A portion of the cost of these changes will be financed
by reducing the annual Medicare home health update by 1.1 percentage points
from 2000 to 2003. These changes may also affect the revenues of the
operators of the properties owned by HCPI.
In addition to the reforms enacted and considered by Congress from time to
time, state legislatures periodically consider various health care reform
proposals. Congress and state legislatures can be expected to continue to
review and assess alternative health care delivery systems and payment
methodologies and public debate of these issues can be expected to continue in
the future. There are numerous initiatives at the federal and state levels
for comprehensive reforms affecting the payment for and availability of
health care services. Changes in the law, new interpretations of existing laws,
and changes in payment methodology may have a dramatic effect on the
definition of permissible or impermissible activities, the relative costs
associated with doing business and the amount of reimbursement by both
government and other third-party payors. These changes may be applied
retroactively. The ultimate timing or effect of legislative efforts cannot be
predicted and may impact HCPI in different ways.
In 1997, health expenditures in the United States amounted to $1.1
trillion, representing 13.5 percent of Gross Domestic Product. The Health Care
Financing Administration projects that national health spending growth will
accelerate beginning in 1998, growing at an average annual rate of 6.5 percent
between 1998 and 2001. This compares to a 5.0 percent average annual growth
rate from 1993 to 1996. HCPI believes that government and private efforts to
contain or reduce health care costs will continue. These trends are likely to
lead to reduced or slower growth in reimbursement for certain services provided
by some of HCPI's lessees. HCPI believes that the vast nature of the health
care industry, the financial strength and operating flexibility of its operators
and the diversity of its portfolio will mitigate the impact of any such
diminution in reimbursements. However, HCPI cannot predict whether any of the
above proposals or any other proposals will be adopted and, if adopted, no
assurance can be given that the implementation of such reforms will not have a
material adverse effect on HCPI's financial condition or results of operations.
OBJECTIVES AND POLICIES
HCPI is organized to invest in income-producing health care related
facilities. In evaluating potential investments, HCPI considers such factors as
(1) The geographic area, type of property and demographic profile;
(2) The location, construction quality, condition and design of the property;
(3) The current and anticipated cash flow and its adequacy to meet operational
needs and lease obligations and to provide a competitive market return on
equity to HCPI's investors;
(4) The potential for capital appreciation, if any;
(5) The growth, tax and regulatory environment of the communities in which the
properties are located;
(6) Occupancy and demand for similar health facilities in the same or nearby
communities;
(7) An adequate mix of private and government sponsored patients;
(8) Potential alternative uses of the facilities; and
(9) Prospects for liquidity through financing or refinancing.
There are no limitations on the percentage of HCPI's total assets that may
be invested in any one property or partnership. The Investment Committee of the
Board of Directors may establish limitations as it deems appropriate from time
to time. No limits have been set on the number of properties in which HCPI will
seek to invest, or on the concentration of investments in any one facility or
any one city or state. HCPI acquires its investments primarily for income.
At December 31, 1998, HCPI has preferred stock and two classes of debt
securities which are senior to the common stock. HCPI may, in the future, issue
additional debt or equity securities which will be senior to the common stock.
HCPI has authority to offer shares of its capital stock in exchange for
investments which conform to its standards and to repurchase or otherwise
acquire its shares or other securities.
HCPI may incur additional indebtedness when, in the opinion of its
management and directors, it is advisable. For short-term purposes HCPI from
time to time negotiates lines of credit, or arranges for other short-term
borrowings from banks or otherwise. HCPI may arrange for long-term borrowings
through public offerings or from institutional investors. Under its Bylaws,
HCPI is subject to various restrictions with respect to borrowings.
In addition, HCPI may incur additional mortgage indebtedness on real estate
which it has acquired through purchase, foreclosure or otherwise. Where
leverage is present on terms deemed favorable, HCPI invests in properties
subject to existing loans, or secured by mortgages, deeds of trust or similar
liens on the properties. HCPI also may obtain non-recourse or other mortgage
financing on unleveraged properties in which it has invested or may refinance
properties acquired on a leveraged basis.
In July 1990, HCPI adopted a rights agreement whereby HCPI
distributed a dividend of one right for each outstanding share of common stock
and authorized the distribution of one right with respect to each subsequently
issued share. Each right, as adjusted for HCPI's 1992 stock split, will
entitle its holder to purchase one-half of a share of common stock of HCPI at
an exercise price of $47.50 per share. The rights will become exercisable if a
person acquires 15% or more of HCPI's outstanding common stock or makes a
tender offer which will result in the person's owning 30% or more of HCPI's
common stock. Under certain circumstances, the rights will entitle the holders
to purchase shares of HCPI's common stock, or securities of an entity that
acquires HCPI, at one-half market value. HCPI may redeem the rights at any
time prior to a person's acquiring 15% of HCPI's common stock. The rights are
intended to protect stockholders of HCPI from takeover tactics that could
deprive them of the full value of their shares.
HCPI will not, without the prior approval of a majority of directors,
acquire from or sell to any director, officer or employee of HCPI, or any
affiliate thereof, as the case may be, any of the assets or other property of
HCPI.
HCPI provides to its stockholders annual reports containing audited
financial statements and quarterly reports containing unaudited information.
The policies set forth herein have been established by the Board of
Directors of HCPI and may be changed without stockholder approval.
<TABLE>
<CAPTION>
Health Care Property Investors
|
-------------------------------------------------------------------------------------------------------------------------|
<S> <C> <C> <C> <C> <C> |
| | | | | | |
Texas HCP, Inc. Texas HCP, G.P., Inc. HCPI Trust HCPI Knightdale, Inc. HCPI Charlotte, Inc. HCPI Mortgage Corp. |
100 % 100% 100% 100% 100% 100% |
| | |
| | |
|------------------| |
| |
Texas HCP Holding, LP |
| |
99% | 1% |
| |
------------------------ |
| | |
| | |
| | |
HCPI/San Antonio LP HCPI/Austin Investors** ----------------------------------------------------------------------------
- ------------------ ----------------------- |
90% 50% |
|
|
---------------------------------
Health Care Property Partners - 77%
HCPI Kansas LP - 97%
HCPI Indiana, LLC - 90%
HCPI/Little Rock, LP - 97%
HCPI/Colorado Springs, LP - 97%
HCPI/Baton Rouge Investors** - 50%
HCPI/Rhode Island Investors** - 50%
HCPI/Kenner Investors** - 50%
Cambridge Medical Properties, LLC - 90%
Seminole Shores Living Center, LLC** - 45%
Edgewood Assisted Living, LLC** - 45%
Various Non-Consolidated LLCs*
* HCPI is non-managing member and has an 80% interest in the following limited liability companies:
Ft. Worth-Cal Associates, LLC Ponca-Cal Associates, LLC
Louisiana-Two Associates, LLC Statesboro Associates, LLC
Oak City-Cal Associates, LLC Tucson-Cal Associates, LLC
Oklahoma-Four Associates, LLC Vista Cal Associates, LLC
Perris-Ca Associates, LLC
** Non-Consolidated Partnerships
</TABLE>
ITEM 2. PROPERTIES
See Item 1. for details.
ITEM 3. LEGAL PROCEEDINGS
During 1998, HCPI was not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
HCPI's common stock is listed on the New York Stock Exchange. Set forth
below for the fiscal quarters indicated are the reported high and low closing
prices of HCPI's common stock on the New York Stock Exchange.
<TABLE>
<CAPTION>
1998 1997 1996
High Low High Low High Low
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $39 1/4 $35 13/16 $37 1/8 $33 1/8 $35 1/2 $31 1/2
Second Quarter 37 33 7/16 35 3/4 32 33 7/8 31
Third Quarter 37 1/2 30 3/16 38 3/4 35 7/8 34 1/2 32 5/8
Fourth Quarter 35 9/16 28 7/8 40 5/16 37 5/8 37 1/2 32 1/2
</TABLE>
As of March 1, 1999 there were approximately 1,468 stockholders of record
and approximately 38,000 beneficial stockholders of HCPI's common stock.
It has been HCPI's policy to declare quarterly dividends to the holders of
its shares of common stock so as to comply with applicable sections of the
Internal Revenue Code governing REITs. The cash dividends per share paid by
HCPI on common stock are set forth below:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
First Quarter $.64 $.60 $.56
Second Quarter .65 .61 .57
Third Quarter .66 .62 .58
Fourth Quarter .67 .63 .59
</TABLE>
Bremner & Wiley. On December 4, 1998, HCPI completed the acquisition of a
managing member interest in HCPI/Indiana, LLC, a Delaware limited liability
company ("HCPI/Indiana"). In connection with the acquisition, several limited
partnerships affiliated with James D. Bremner made a capital contribution to
HCPI/Indiana of a portfolio of seven medical office buildings with an equity
value (net of assumed debt) of approximately $6.7 million. In exchange for
this capital contribution, the contributing limited partnerships designated
their constituent partners to receive approximately $3.9 million in cash and
89,452 non-managing member units of HCPI/Indiana (representing a minority
interest in HCPI/Indiana). HCPI/Indiana also issued 781,213 managing member
units to HCPI in exchange for a capital contribution of approximately $24.6
million. In addition, HCPI has retained Bremner & Wiley, Inc., a company also
affiliated with James D. Bremner and the current manager of each of the
contributed properties, to provide property management and leasing services at
each contributed property and each purchased property for an initial period of
three years.
Beginning on December 4, 1999, the non-managing member units may be
exchanged for common stock or, at HCPI's option, for cash. The non-managing
member units will be exchangeable for common stock on a one to one basis
(subject to certain adjustments, such as stock splits and reclassifications) or
for an amount of cash equal to the then-current market value of the shares of
common stock into which the non-managing member units may be exchanged.
HCPI/Indiana relied on the exemption provided by Section 4(2) of the Securities
Act, in connection with the issuance and sale of the non-managing member units.
HCPI has agreed to provide registration rights with respect to the shares of
common stock for which the non-managing member units may be exchanged.
Boyer. On January 25, 1999, HCPI completed the acquisition of a managing
member interest in HCPI/Utah, LLC, a Delaware limited liability company
("HCPI/Utah"), in exchange for a cash contribution of approximately $18.9
million. In connection with this acquisition, several limited liability
companies and general partnerships affiliated with The Boyer Company, L.C.
("Boyer") contributed a portfolio of 14 medical office buildings (including two
ground lease holds associated therewith) to HCPI/Utah with an aggregate equity
value (net of assumed debt) of approximately $18.9 million. In exchange for
this capital contribution, the contributing entities received 593,249 non-
managing member units of HCPI/Utah. HCPI/Utah also issued 590,555 managing
member units to HCPI. HCPI/Utah was also granted the right to acquire five
additional medical office buildings. HCPI anticipates that the contribution of
these additional properties to HCPI/Utah will be completed prior to December 31,
1999. Although HCPI has a minority interest in HCPI/Utah as determined by the
number of outstanding membership units, the Amended and Restated Limited
Liability Company Agreement of HCPI/Utah provides that only HCPI is authorized
to act on behalf of HCPI/Utah and that HCPI has responsibility for the
management of its business. Beginning on January 25, 2000, the non-managing
member units may be exchanged for common stock or, at HCPI's option, for cash.
The non-managing member units will be exchangeable for common stock on a one to
one basis (subject to certain adjustments, such as stock splits and
reclassifications) or for an amount of cash equal to then-current market value
of the shares of common stock into which the non-managing member units may be
exchanged. HCPI/Utah relied on the exemption provided by Section 4(2) of the
Securities Act of 1933, as amended, in connection with the issuance and sale of
the non-managing member units. HCPI has agreed to provide registration rights
with respect to the shares of common stock for which the non-managing member
units may be exchanged.
In connection with the contribution of properties to HCPI/Utah, HCPI
entered into a Future Projects Rights Agreement with Boyer. Under this
agreement HCPI obtained the right to purchase any health care facility which is
owned or ground leased by Boyer and is within two and one half miles of a health
care facility that has been acquired by HCPI/Utah from Boyer. In addition, HCPI
received a right of first offer to acquire any health care facility located in
the States of Arizona, Nevada or Utah which Boyer or any of its affiliates
proposes to sell. In return, HCPI has agreed that neither HCPI nor its
affiliates will act as or control any developer with respect to the development
of a heath care facility in Arizona, Nevada or Utah unless:
- HCPI engages Boyer or its affiliates as the developer; or
- At the time HCPI acquires the land on which the health care
facility is to be located or on or prior to the date HCPI or its
affiliate has committed to fund or pay the cost of development,
65% or more of the net rentable space in the health care facility
has been pre-leased to tenants for a minimum of five years.
HCPI has also provided Boyer with a right of first negotiation to act as
the manager, leasing agent and developer of certain development projects that
HCPI may undertake or fund or properties that HCPI may acquire within Arizona,
Nevada or Utah. Under a separate management agreement, HCPI has retained Boyer
to manage the properties contributed to HCPI/Utah by entities affiliated with
Boyer.
Cambridge. On November 21, 1997, HCPI completed the acquisition of a
managing member interest in Cambridge Medical Properties, LLC, a Delaware
limited liability company ("CMP"). In connection with the acquisition,
Cambridge Medical Center of San Diego, LLC ("Cambridge") made a capital
contribution to CMP of real property and improvements with an equity value (net
of assumed debt) of $6.5 million in exchange for $1 million in cash and 142,450
non-managing member units of CMP ("LLC Units") (representing a minority interest
in CMP). CMP also issued 1,048,951 units of membership interest to the Company
in exchange for a capital contribution of $40.5 million.
Beginning on November 21, 1998, the LLC Units held by Cambridge may be
exchanged by Cambridge for common stock of the Company or, at the option of the
Company, for cash. The LLC Units are exchangeable for common stock on a one to
one basis (subject to certain adjustments, such as stock splits and
reclassifications) or for an amount of cash equal to then-current market value
of the shares of common stock into which the LLC Units may be exchanged. CMP
relied on the exemption provided by Section 4(2) of the Securities Act of 1933,
as amended, in connection with the issuance and sale of the LLC Units. HCPI has
agreed to provide certain registration rights with respect to the shares of
common stock for which the LLC Units may be exchanged.
Item 6. SELECTED FINANCIAL DATA
Set forth below is selected financial data with respect to HCPI as of and
for the years ended December 31, 1998, 1997, 1996, 1995, and 1994.
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
--------------------------------------------------------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Total Revenue $161,549 $128,503 $120,393 $105,696 $98,996
Net Income Applicable to
Common Shares 78,635 63,542 60,641 80,266 49,977
Basic Earnings per Common Share 2.56 2.21 2.12 2.83 1.87
Diluted Earnings per Common Share 2.54 2.19 2.10 2.78 1.86
Balance Sheet Data:
Total Assets 1,356,612 940,964 753,653 667,831 573,826
Debt Obligations 709,045 452,858 379,504 299,084 271,463
Stockholders' Equity 595,419 442,269 336,806 339,460 269,403
Other Data:
Basic Funds From Operations (1) 96,255 83,442 80,517 72,911 65,274
Cash Flows From Operating
Activities 112,311 87,544 90,585 71,164 65,519
Cash Flows Used In Investing
Activities 417,524 205,238 104,797 80,627 61,383
Cash Flows Provided By (Used
In) Financing Activities 305,633 118,967 15,023 8,535 (24,418)
Dividends Paid 89,210 71,926 65,905 60,167 52,831
Dividends Paid Per Common Share 2.620 2.460 2.300 2.140 1.980
</TABLE>
(1) HCPI believes that Funds From Operations ("FFO") is an important
supplemental measure of operating performance. HCPI adopted the new
definition of FFO prescribed by the National Association of Real Estate
Investment Trusts (NAREIT). FFO is now defined as Net Income applicable to
common shares (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales
of property, plus real estate depreciation, and after adjustments for
unconsolidated partnerships and joint ventures. FFO does not, and is not
intended to, represent cash generated from operating activities in
accordance with generally accepted accounting principles, is not
necessarily indicative of cash available to fund cash needs and should not
be considered as an alternative to Net Income. FFO, as defined by HCPI may
not be comparable to similarly entitled items reported by other REITs that
do not define it in accordance with the definition prescribed by NAREIT.
FFO for the years presented has been restated for the new definition. The
following table represents items and amounts being aggregated to compute
FFO.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Income Applicable to Common Shares $78,635 $63,542 $60,641 $80,266 $49,977
Real Estate Depreciation 29,577 22,667 20,700 16,691 15,829
Joint Venture Adjustments 2,096 (720) (824) (496) (532)
Gain on Sale of Real Estate Properties (14,053) (2,047) --- (23,550) ---
-------------------------------------------------------
$96,255 $83,442 $80,517 $72,911 $65,274
=======================================================
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Health Care Property Investors, Inc. (HCPI), including its wholly-owned
subsidiaries and affiliated joint ventures, acquires health care facilities and
generally leases them on a long-term basis to health care providers. On a more
limited basis, HCPI provides mortgage financing on health care facilities. As
of December 31, 1998, HCPI's portfolio of properties, including equity
investments, consisted of 332 facilities located in 42 states. These facilities
are comprised of 157 long-term care facilities, 84 congregate care and assisted
living facilities, 41 physician group practice clinics, 35 medical office
buildings, eight acute care hospitals, six freestanding rehabilitation
facilities, and one psychiatric care facility. The gross acquisition price of
the properties, which includes joint venture acquisitions, was approximately
$1,541,000,000 at December 31, 1998.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 VS. YEAR ENDED DECEMBER 31, 1997
Net Income applicable to common shares for the year ended December 31, 1998
totaled $78,635,000 or $2.54 per share on a diluted basis on revenue of
$161,549,000. This compares to Net Income applicable to common shares of
$63,542,000 or $2.19 per share on a diluted basis on revenue of $128,503,000 for
the corresponding period in 1997. Included in Net Income applicable to common
shares and earnings per share on a diluted basis for the years ended December
31, 1998 and 1997 is a Gain on Sale of Real Estate Properties of $14,053,000, or
$0.42 per share, and $2,047,000, or $0.07 per share, respectively.
Base Rental Income for the year ended December 31, 1998 increased by
$23,610,000 to $116,470,000. The majority of this increase was generated by
rents on $429,000,000 of new property acquisitions made in 1998 and a full year
of rents on $226,000,000 of property acquisitions made in 1997. These amounts
represent significant increases over the acquisition activity of prior years.
Additional Rental and Interest Income increased by $909,000 to $21,969,000 from
the prior year; Interest and Other Income for the year ended December 31, 1998
increased by $8,527,000 to $23,110,000. The increase in Interest and Other
Income was due in part to new loans made during 1998 and late 1997, and due to
an increase in facility operating income related to medical office buildings
that are leased on a gross or modified gross basis. There was $5,053,000 in
related Facility Operating Expenses during the year ended December 31, 1998, a
$4,891,000 increase over 1997. Facility Operating Expenses include property
taxes, insurance and other facility related operating expenses that HCPI is
responsible for under gross or modified gross leases. Since November 1997, HCPI
has acquired 23 medical office buildings and multiple clinics that are leased on
a gross or modified gross basis.
Interest Expense for the year ended December 31, 1998 increased by
$7,928,000 to $36,753,000. The increase is primarily the result of an increase
in short-term borrowings used to fund the acquisitions made during 1998 and
interest related to the June 1998 issuance of MandatOry Par Put Remarketed
Securities (MOPPRS) senior debt, described in more detail below in the
"LIQUIDITY AND CAPITAL RESOURCES" section. The increase in Depreciation/Non
Cash Charges of $6,867,000 to $32,523,000 for the year ended December 31, 1998,
is directly related to the new investments discussed above.
HCPI believes that Funds From Operations (FFO) is the most important
supplemental measure of operating performance. (See Note 10 to the Consolidated
Financial Statements)
FFO for the year ended December 31, 1998 increased by $12,813,000 to
$96,255,000. The increase is mainly attributable to increases in Base Rental
Income and Interest and Other Income, as offset by increases in Interest Expense
and Facility Operating Expenses, which are discussed in more detail above.
YEAR ENDED DECEMBER 31, 1997 VS. YEAR ENDED DECEMBER 31, 1996
Net Income applicable to common shares for the year ended December 31, 1997
totaled $63,542,000 or $2.19 per share on a diluted basis on revenue of
$128,503,000. This compares to Net Income applicable to common shares of
$60,641,000 or $2.10 per share on revenue of $120,393,000 for the corresponding
period in 1996. Included in Net Income applicable to common shares for the year
ended December 31, 1997 is a Gain on Sale of Real Estate Properties of
$2,047,000 or $0.07 per share of common stock on a diluted basis. Net Income
applicable to common shares for the year ended December 31, 1996 included
$2,061,000 or $0.07 per share on a diluted basis from the payoff of two mortgage
loans that had been purchased at a discount in 1992.
Base Rental Income for the year ended December 31, 1997 increased by
$9,158,000 to $92,860,000. The majority of this increase was generated by rents
on $226,000,000 of new property acquisitions made in 1997 and a full year of
rents on $117,000,000 of property acquisitions made in 1996. Higher Additional
Rental and Interest Income from the existing portfolio also assisted the
increase in revenue. After adjusting for the mortgage loan income for 1996
described earlier, Additional Rental and Interest Income increased by $2,196,000
to $21,060,000 from the prior year. The increases noted above were offset by a
decrease in Interest and Other Income for the year ended December 31, 1997 of
$1,183,000 to $14,583,000, due in part to the pay-down or payoff of certain
mortgage loans.
Interest Expense for the year ended December 31, 1997 increased by
$2,424,000 to $28,825,000. The increase in Interest Expense is directly related
to HCPI's higher borrowing levels resulting from the increase in new investment
activity. The increase in Depreciation/Non Cash Charges of $2,507,000 to
$25,656,000 for the year ended December 31, 1997, is related to the new
investments discussed above.
FFO for the year ended December 31, 1997, increased $2,925,000 from the
prior year. The increase is attributable to increases in Base Rental Income and
Additional Rental and Interest Income, and offset by increases in Interest
Expense and Other Expenses and decreases in Interest and Other Income all of
which are discussed in more detail above.
LIQUIDITY AND CAPITAL RESOURCES
HCPI has financed acquisitions through the sale of common and preferred
stock, issuance of long-term debt, assumption of mortgage debt, use of short-
term bank lines and through internally generated cash flows. Facilities under
construction are generally financed by means of cash on hand or short-term
borrowings under its existing bank lines. At the completion of construction and
commencement of the lease, short-term borrowings used in the construction phase
are generally refinanced with new long-term debt, including Medium Term Notes
(MTNs), or with equity offerings.
MTN FINANCINGS
The following table summarizes the MTN financing activities during 1997 and
1998:
<TABLE>
<CAPTION>
Amount
Date Maturity Coupon Rate Issued/(Redeemed)
- --------------------------------------------------------------------------
<S> <C> <C> <C>
March/April 1997 10 years 7.30% - 7.62% $20,000,000
June 1997 --- 10.20% - 10.30% (12,500,000)
February 1998 --- 9.88% (10,000,000)
March 1998 5 years 6.66% 20,000,000
April-November 1998 --- 6.10% - 9.70% (17,500,000)
November 1998 3-8 years 7.30% - 7.88% 28,000,000
</TABLE>
OTHER SENIOR DEBT OFFERING
During June 1998, HCPI issued $200 million of 6.875% MandatOry Par Put
Remarketed Securities ("MOPPRS") due June 8, 2015 which are subject to mandatory
tender on June 8, 2005. HCPI received total proceeds of approximately
$203,000,000 (including the present value of a put option associated with the
debt) which was used to repay borrowings under HCPI's revolving lines of credit.
The weighted average cost of the debt including the amortization of the option
and offering expenses is 6.77%. The MOPPRS are senior, unsecured obligations of
HCPI.
Equity Offerings
Since September 1997, HCPI has completed four equity offerings, summarized
in the table below:
<TABLE>
<CAPTION>
Shares Equity
Date Issuance Issued Raised Net Proceeds
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
September 1997 7-7/8% Series A Cumulative 2,400,000 $ 60,000,000 $ 57,810,000
Redeemable Preferred Stock
December 1997 Common Stock at $38.3125/share 1,437,500 $ 55,000,000 $ 51,935,000
April 1998 Common Stock at $33.2217/share 698,752 $ 23,200,000 $ 23,000,000
to a Unit Investment Trust
September 1998 8.70% Series B Cumulative 5,385,000 $135,000,000 $130,000,000
Redeemable Preferred Stock
</TABLE>
HCPI used the net proceeds from the equity offerings to pay down or pay off
short-term borrowings under its revolving lines of credit. HCPI invested any
excess funds in short-term investments until they were needed for acquisitions
or development.
At December 31, 1998, stockholders' equity totaled $595,419,000 and the
debt to equity ratio was 1.19 to 1.00. For the year ended December 31, 1998,
FFO (before interest expense) covered Interest Expense 3.62 to 1.00.
AVAILABLE FINANCING SOURCES
During June 1998, HCPI registered $600,000,000 of debt and equity
securities under a shelf registration statement filed with the Securities and
Exchange Commission. As of December 31, 1998 HCPI had $490,280,000 remaining on
shelf filings for future financings. Of that amount, HCPI had approximately
$174,905,000 available under MTN senior debt programs. These amounts may be
issued from time to time in the future based on HCPI's needs and then existing
market conditions. On September 30, 1998 HCPI renegotiated its lines of credit
with a group of seven banks. HCPI has two revolving lines of credit, one for
$135,000,000 that expires on September 30, 2003 and one for $45,000,000 that
expires on September 30, 1999. As of December 31, 1998, HCPI had $92,000,000
available on these lines of credit. Since 1986 the debt rating agencies have
rated HCPI's Senior Notes and Convertible Subordinated Notes investment grade.
Current ratings are as follows:
<TABLE>
<CAPTION>
Moody's Standard & Poor's Duff & Phelps
-------- ----------------- --------------
<S> <C> <C> <C>
Senior Notes Baa1 BBB+ A-
Convertible
Subordinated Notes Baa2 BBB BBB+
</TABLE>
Since inception in May 1985, HCPI has recorded approximately $690,469,000
in cumulative FFO. Of this amount, HCPI has distributed a total of $578,872,000
to stockholders as dividends on common stock. HCPI has retained the balance of
$111,597,000 and used it as an additional source of capital.
On November 20, 1998, HCPI paid a dividend of $0.67 per common share or
$20,761,000 in the aggregate. Total dividends paid during the year ended
December 31, 1998, as a percentage of FFO, was 84%. During the first quarter of
1999, HCPI declared and paid a dividend of $0.68 per common share or
approximately $21,072,000 in the aggregate.
LETTERS OF CREDIT
At December 31, 1998, HCPI held approximately $41,000,000 in irrevocable
letters of credit from commercial banks to secure the obligations of many
lessees' lease and borrowers' loan obligations. HCPI may draw upon the letters
of credit if there are any defaults under the leases and/or loans. Amounts
available under letters of credit could change based upon facility operating
conditions and other factors and such changes may be material.
FACILITY ROLLOVERS
HCPI has concluded a significant number of "facility rollover" transactions
in 1995, 1996, 1997 and 1998 on properties that have been under long-term leases
and mortgages. "Facility rollover" transactions principally include lease
renewals and renegotiations, exchanges, sales of properties, and, to a lesser
extent, payoffs on mortgage receivables. The annualized impact was to increase
FFO in 1995 by $900,000 and decrease FFO in each of the years 1996 through 1998
by $1,200,000, $1,600,000 and $3,100,000. Total rollovers were 20 facilities,
20 facilities, 12 facilities and 44 facilities in each of the years 1995 - 1998.
For the year ending December 31, 1999, HCPI has 23 facilities that are
subject to lease expiration and mortgage maturities. These facilities currently
represent approximately 8% of annualized revenues. For the year ended December
31, 2000, HCPI has seven facilities that are subject to lease expiration and
mortgage maturities. These facilities currently represent approximately 5% of
annualized revenue.
During 1997, HCPI reached agreement with Tenet Healthcare Corporation
(Tenet) (the holder of substantially all the option rights of the Vencor, Inc.
(Vencor) leases) whereby Tenet agreed to waive renewal and purchase options, and
related rights of first refusal, on up to 51 facilities. As part of these
agreements, HCPI has the right to continue to own the facilities. HCPI paid
Tenet $5,000,000 in cash, accelerated the purchase option on two acute care
hospitals leased to Tenet, and reduced Tenet's guarantees on the facilities
leased to Vencor. Leases on 20 of those 51 facilities had expiration dates
through December 31, 2000. HCPI has increased rents on five of the facilities
with leases that have already expired during 1998, and believes it will be able
to increase rents on other facilities whose lease terms expire through 2001.
However, there can be no assurance that HCPI will be able to realize any
increased rents on future rollovers. HCPI has completed certain facility
rollovers earlier than the scheduled lease expirations or mortgage maturities
and will continue to pursue such opportunities where it is advantageous to do
so.
Management believes that HCPI's liquidity and sources of capital are
adequate to finance its operations as well as its future investments in
additional facilities.
YEAR 2000 ISSUE
The Year 2000 issue is the result of widely used computer programs that
identify the year by two digits, rather than by four. It is believed that
continued use of these programs may result in widespread computer-generated
malfunctions and miscalculations beginning in the year 2000, when the digits
"00" are interpreted as "1900." Those miscalculations could cause disruption of
operations including the temporary inability to process transactions such as
invoices for payment. Those computer programs that identify the year based on
all four digits are considered "Year 2000 compliant." The statements in the
following section include "Year 2000 readiness disclosure" within the meaning of
the Year 2000 Information and Readiness Disclosure Act of 1998.
STATUS OF YEAR 2000 ISSUES WITH HCPI'S OWN INFORMATION TECHNOLOGY SYSTEMS AND
NON-IT SYSTEMS
HCPI's primary use of information technology ("IT") is in its financial
accounting systems, billing and collection systems and other information
management software. HCPI's operations are conducted out of its corporate
offices in Newport Beach, California where it uses and is exposed to non-IT
systems such as those contained in embedded micro-processors in telephone and
voicemail systems, elevators, heating, ventilation and air conditioning (HVAC)
systems, lighting timers, security systems, and other property operational
control systems.
HCPI believes that it does not have significant exposure to Year 2000
issues with respect to its own accounting and information software systems or
with respect to non-IT systems contained in embedded chips used in its corporate
offices. HCPI has been working with its computer consultants to test and
continually upgrade its management information systems and has reasonable
assurance from its vendors and outside computer consultants that HCPI's
financial and other information systems are Year 2000 compliant. The cost to
bring the management information systems into Year 2000 compliance has not been
material. While any disruption in services at HCPI's corporate offices due to
failure of non-IT systems may be inconvenient and disruptive to normal day-to-
day activities, it is not expected to have a material adverse effect on HCPI's
financial performance or operations.
EXPOSURE TO THIRD PARTIES' YEAR 2000 ISSUES
Because HCPI believes its own accounting and information systems are
substantially Year 2000 compliant, HCPI does not feel there will be material
disruption to its transaction processing on January 1, 2000. However, HCPI
depends upon its tenants for rents and cash flows, its financial institutions
for availability of working capital and capital markets financing and its
transfer agent to maintain and track investor information. If HCPI's primary
lessees and mortgagors are not Year 2000 compliant, or if they face disruptions
in their cash flows due to Year 2000 issues, HCPI could face significant
temporary disruptions in its cash flows after that date. These disruptions
could be exacerbated if the commercial banks that process HCPI's cash receipts
and disbursements and its lending institutions are not Year 2000 compliant.
Furthermore, to the extent there are broad market disruptions as a result of
widespread Year 2000 issues, HCPI's access to the capital markets to raise cash
for investing activity could be impaired.
To address this concern, during the second quarter of 1998, HCPI commenced
a written survey of all of its major tenants, Bank of New York in its capacity
as agent under HCPI's credit facilities, and as common stock Transfer Agent and
Trustee under its senior debt indenture, each other lender under HCPI's credit
facility, its primary investment banker for HCPI's capital raising activities,
and HCPI's independent public accountants and primary outside legal counsel.
The survey asked each respondent to assess its exposure to Year 2000 issues and
asked what preparations each has made to deal with the Year 2000 issue with
respect to both information technology and non-IT systems. In addition HCPI
asked each respondent to inform it about their exposure to third party vendors,
customers and payers who may not be Year 2000 compliant.
Through this process HCPI has been informed in writing by approximately 95%
of those surveyed that they believe that they have computer systems that are or
will be Year 2000 compliant by the end of 1999. All continue to assess their
own exposure to the issue. However neither HCPI nor its lessees and mortgagors
can be assured that the federal and state governments, upon which they rely for
Medicare and Medicaid revenue, will be in compliance in a timely manner.
HCPI is in the process of assessing its exposure to failures of embedded
microprocessors contained in elevators, electrical and HVAC systems, security
systems and the breakdown of other non-IT systems due to the Year 2000 issue at
the properties operated by its tenants. Under a significant portion of its
leases, HCPI is not responsible for the cost to repair such items and is
indemnified by the tenants for losses caused by their operations on the
property. For the medical office buildings where HCPI may be responsible for
repairing such items, HCPI does not believe that the costs of repair will be
material to HCPI and any such costs will be expensed as incurred.
RISKS TO HCPI OF YEAR 2000 ISSUES
HCPI's exposure to the Year 2000 issue depends primarily on the readiness
of its significant tenants and commercial banks, who in turn, are dependent upon
suppliers, payers and other external parties, all of which is outside HCPI's
control. HCPI believes the most reasonably likely worst case scenario faced by
HCPI as a result of the Year 2000 issue is the possibility that reimbursement
delays caused by a failure of federal and state welfare programs responsible for
Medicare and Medicaid could adversely affect its tenants' cash flow, resulting
in their temporary inability to meet their obligations under its leases.
Depending upon the severity of any reimbursement delays and the financial
strength of any particular operator, the operations of HCPI's tenants could be
materially adversely affected, which in turn could have a material adverse
effect on its results of operations.
In September 1998, the General Accounting Office reported that the Health
Care Financing Administration ("HCFA"), which runs Medicare, is behind schedule
in taking steps to deal with the Year 2000 issue and that it is highly unlikely
that all of the Medicare systems will be compliant in time to ensure the
delivery of uninterrupted benefits and services into the year 2000. The General
Accounting Office also reported in November 1998 that, based upon its survey of
the states, the District of Columbia and three territories, less than 16% of the
automated systems used by state and local government to administer Medicaid are
reported to be Year 2000 compliant. HCPI does not know at this time whether
there will in fact be a disruption of Medicare or Medicaid reimbursements to its
lessees and mortgagors and HCPI is therefore unable to determine at this time
whether the Year 2000 issue will have a material adverse effect on HCPI or its
future operations.
CONTINGENCY PLANS
If there are severe disruptions in HCPI's cash flow as a result of
disruptions in its tenant's or mortgagor's cash flow, HCPI may be forced to slow
its investment activity, or seek additional liquidity from its lenders.
Readers are cautioned that most of the statements contained in the "Year
2000 Issue" paragraphs are forward looking and should be read in conjunction
with HCPI's disclosures under the heading "CAUTIONARY LANGUAGE REGARDING FORWARD
LOOKING STATEMENTS" set forth below.
CAUTIONARY LANGUAGE REGARDING FORWARD LOOKING STATEMENTS
Statements in this Annual Report that are not historical factual statements
are "forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The statements include, among other things,
statements regarding the intent, belief or expectations of HCPI and its officers
and can be identified by the use of terminology such as "may", "will", "expect",
"believe", "intend", "plan", "estimate", "should" and other comparable terms or
the negative thereof. In addition, HCPI, through its senior management, from
time to time makes forward looking oral and written public statements concerning
HCPI's expected future operations and other developments. Shareholders and
investors are cautioned that, while forward looking statements reflect HCPI's
good faith beliefs and best judgment based upon current information, they are
not guarantees of future performance and are subject to known and unknown risks
and uncertainties. Actual results may differ materially from the expectations
contained in the forward looking statements as a result of various factors.
Such factors include:
(a) Legislative, regulatory, or other changes in the healthcare industry at the
local, state or federal level which increase the costs of or otherwise
affect the operations of HCPI's lessees;
(b) Changes in the reimbursement available to HCPI's lessees and mortgagors by
governmental or private payors, including changes in Medicare and Medicaid
payment levels and the availability and cost of third party insurance
coverage;
(c) Competition for lessees and mortgagors, including with respect to new
leases and mortgages and the renewal or rollover of existing leases;
(d) Competition for the acquisition and financing of health care facilities;
(e) The ability of HCPI's lessees and mortgagors to operate HCPI's properties
in a manner sufficient to maintain or increase revenues and to generate
sufficient income to make rent and loan payments;
(f) Changes in national or regional economic conditions, including changes in
interest rates and the availability and cost of capital to HCPI; and
(g) General uncertainty inherent in the Year 2000 issue, particularly the
uncertainty of the Year 2000 readiness of third parties who are material to
HCPI's business, such as public or private healthcare reimbursers, over
whom HCPI has no control with the result that HCPI cannot ensure its
ability to timely and cost-effectively avert or resolve problems associated
with the Year 2000 issue that may affect its operations and business.
Item 7a. DISCLOSURES ABOUT MARKET RISK
HCPI is exposed to market risks related to fluctuations in interest rates
on its mortgage loans receivable and on its debt instruments. The following
discussion and table presented below are provided to address the risks
associated with potential changes in HCPI's interest rate environment.
HCPI provides mortgage loans to operators of healthcare facilities in the
normal course of business. All of the mortgage loans receivable have fixed
interest rates or interest rates with periodic fixed increases. Therefore, the
mortgage loans receivable are all considered to be fixed rate loans, and the
current interest rate (the lowest rate) is used in the computation of market
risk provided in the table below if material.
HCPI generally borrows on its short-term bank lines of credit to complete
acquisition transactions. These borrowings are then repaid using proceeds from
subsequent long-term debt and equity offerings. HCPI may also assume mortgage
notes payable already in place as part of an acquisition transaction. Currently
HCPI has two mortgage notes payable with variable interest rates and the
remaining mortgage notes payable have fixed interest rates or interest rates
with fixed periodic increases. HCPI's senior notes and convertible debt are at
fixed rates. The variable rate loans are at interest rates below the current
prime rate of 7.75%, and fluctuations are tied to the prime rate or to a rate
currently below the prime rate.
Fluctuation in the interest rate environment will not impact HCPI's future
earnings and cash flows on its fixed rate debt until that debt matures and must
be replaced or refinanced. Interest rate changes will affect the fair value of
the fixed rate instruments. Conversely, changes in interest rates on variable
rate debt would change the future earnings and cash flows of HCPI, but not
affect the fair value on those instruments. Assuming a one percentage point
increase in the interest rate related to the variable rate debt including the
mortgage notes payable and the bank lines of credit, and assuming no change in
the outstanding balance as of year end, interest expense for the coming year
would increase by approximately $947,000. Approximately 50% of the increase in
interest expense related to the bank lines of credit, or $440,000, would be
capitalized into construction projects.
The principal amount and the average interest rates for the mortgage loans
receivable and debt categorized by the final maturity dates is presented in the
table below. Certain of the mortgage loans receivable and certain of the debt
securities, excluding the convertible debentures, require periodic principal
payments prior to the final maturity date. The fair value estimates for the
mortgage loans receivable are based on the estimates of management and on rates
currently prevailing for comparable loans. The fair market value estimates for
debt securities are based on discounting future cash flows utilizing current
rates offered to HCPI for debt of the same type and remaining maturity.
<TABLE>
<CAPTION>
|----------------------------------Maturity---------------------------------------|
Fair
1999 2000 2001 2002 2003 Thereafter Total Value
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Mortgage Loans Receivable $18,295 $ 2,501 $ 118,637 $139,432 $148,000
13.03% 10.17% 9.84% 10.27%
LIABILITIES
Variable Rate Debt:
Bank Notes Payable 88,000 88,000 88,000
Weighted Average Interest Rate 5.90% 5.90%
Mortgage Notes Payable 1,679 5,006 6,685 4,838
Weighted Average Interest Rate 5.87% 5.75% 5.78%
Fixed Rate Debt:
Senior Notes Payable 15,000 10,000 13,000 17,000 31,000 413,162 499,162 480,278
Weighted Average Interest Rate 9.98% 8.87% 7.88% 8.40% 7.09% 6.90% 7.15%
Convertible Subordinated Notes Payable 100,000 100,000 99,234
Weighted Average Interest Rate 6.00% 6.00%
Mortgage Notes Payable 505 302 1,225 13,166 15,198 16,650
Weighted Average Interest Rate 8.91% 9.00% 9.00% 8.65% 8.71%
</TABLE>
HCPI does not believe that the future market rate risks related to the
above securities will have a material impact on HCPI or the results of its
future operations. Readers are cautioned that most of the statements contained
in these "Disclosures about Market Risk" paragraphs are forward looking and
should be read in conjunction with HCPI's disclosures under the heading
"Cautionary Language Regarding Forward Looking Statements" set forth above.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HCPI's Consolidated Balance Sheets as of December 31, 1998 and 1997 and its
Consolidated Statements of Income, Stockholders' Equity, and Cash Flows for the
years ended December 31, 1998, 1997 and 1996, together with the Report of Arthur
Andersen LLP, Independent Public Accountants, are included elsewhere herein.
Reference is made to the "Index to Consolidated Financial Statements."
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of HCPI were as follows on March 18, 1998:
<TABLE>
<CAPTION>
Name Age Position
- ----------------- ------ ----------------------------------------------------
<S> <C> <C>
Kenneth B. Roath 63 Chairman, President and Chief Executive Officer
James G. Reynolds 47 Executive Vice President and Chief Financial Officer
Devasis Ghose 45 Senior Vice President - Finance and Treasurer
Edward J. Henning 46 Senior Vice President, General Counsel and Corporate Secretary
Stephen R. Maulbetsch 42 Senior Vice President - Acquisitions
</TABLE>
There is hereby incorporated by reference the information appearing under
the captions "Board of Directors and Officers" and "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the Registrant's definitive
proxy statement relating to its Annual Meeting of Stockholders to be held on
April 28, 1999.
Item 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information under the caption
"Executive Compensation" in the Registrant's definitive proxy statement relating
to its Annual Meeting of Stockholders to be held on April 28, 1999.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information under the
captions "Principal Stockholders" and "Board of Directors and Officers" in the
Registrant's definitive proxy statement relating to its Annual Meeting of
Stockholders to be held on April 28, 1999.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information under the caption
"Certain Transactions" in the Registrant's definitive proxy statement relating
to its Annual Meeting of Stockholders to be held on April 28, 1999.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
a) Financial Statements:
1) Report of Independent Public Accountants
2) Financial Statements
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Income - for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity - for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows - for the years ended December
31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Note - All schedules have been omitted because the required
information is presented in the financial statements and the related
notes or because the schedules are not applicable.
b) Reports on Form 8-K:
On November 5, 1998, HCPI filed a Report on Form 8-K with the
Securities and Exchange Commission regarding the acquisition of assets
with an aggregate purchase price of $108.3 million as required under
Rule 3-14 of Regulation S-X.
c) Exhibits:
3.1 Articles of Restatement of HCPI./1
3.2 Amendment and Restated Bylaws of HCPI./2
3.3 Articles Supplementary of HCPI Classifying 2,760,000 Shares of
7-7/8% Series A Cumulative Redeemable Preferred Stock./3
4.1 Rights Agreement, dated as of July 5, 1990, between HCPI
and Manufacturers Hanover Trust Company of California, as
Rights Agent./4
4.2 Indenture dated as of September 1, 1993 between HCPI and
The Bank of New York, as Trustee, with respect to the Series B
Medium Term Notes and the Senior Notes due 2006. /5
4.3 Indenture dated as of April 1, 1989 between HCPI and The Bank
of New York for Debt Securities./6
4.4 Form of Fixed Rate Note./6
4.5 Form of Floating Rate Note./6
4.6 Registration Rights Agreement dated November 21, 1997 between
HCPI and Cambridge Medical Center of San Diego, LLC./7
4.7 First Amendment to Rights Agreement dated as of January 28, 1999
between HCPI and The Bank of New York.
4.8 Registration Rights Agreement dated November 20, 1998 between
HCPI and James D. Bremner./8
4.9 Registration Rights Agreement dated January 20, 1999 between HCPI
and Boyer Castle Dale Medical Clinic, LLC./9
10.1 Amendment No. 1, dated as of May 30, 1985, to Partnership
Agreement of Health Care Property Partners, a California general
partnership, the general partners of which consist of HCPI and
certain affiliates of Tenet./10
10.2 Amended and Restated Limited Liability Company Agreement dated
November 21, 1997 of Cambridge Medical Properties, LLC./7
10.3 Health Care Property Investors, Inc. Second Amended and Restated
Directors Stock Incentive Plan./11*
10.4 Health Care Property Investors, Inc. Second Amended and Restated
Stock Incentive Plan./11*
10.5 Health Care Property Investors, Inc. Second Amended and Restated
Directors Deferred Compensation Plan./12*
10.6 Employment Agreement dated April 28, 1988 between HCPI and
Kenneth B. Roath./13*
10.7 First Amendment to Employment Agreement dated February 1, 1990
between HCPI and Kenneth B. Roath./14*
10.8 Health Care Property Investors, Inc. Executive Retirement
Plan./15*
10.9 Amendment No. 1 to Health Care Property Investors, Inc. Executive
Retirement Plan./16*
10.10 Revolving Credit Agreement dated as of October 22, 1997 among
Health Care Property Investors, Inc., the banks named therein
and The Bank of New York./17
10.11 $50,000,000 Revolving Credit Agreement dated as of October 22,
1997 among Health Care Property Investors, Inc., the banks named
therein and The Bank of New York./17
10.12 Stock Transfer Agency Agreement between Health Care Property
Investors, Inc. and The Bank of New York dated as of July 1,
1996./18
10.13 Amended and Restated $45,000,000 Revolving Credit Agreement dated
as of October 22, 1997 and amended and restated as of September
30, 1998 among Health Care Property Investors, Inc., the banks
named herein and The Bank of New York and BNY Capital Markets,
Inc./19
10.14 Amended and Restated $135,000,000 Revolving Credit Agreement
dated as of October 22, 1997 and amended and restated as of
September 30, 1998 among Health Care Property Investors, Inc.,
the banks named herein and The Bank of New York and BNY Capital
Markets, Inc./19
10.15 Amended and Restated Limited Liability Company Agreement dated
November 20, 1998 of HCPI/Indiana, LLC.
10.16 Amended and Restated Limited Liability Company Agreement dated
January 20, 1999 of HCPI/Utah, LLC.
21.1 List of Subsidiaries.
23.1 Consent of Independent Public Accountants.
27.1 Financial Data Schedule.
1. This exhibit is incorporated by reference to exhibit 3.1 in
HCPI's Annual Report on Form 10-K for the year ended December 31,
1995.
2. This exhibit is incorporated by reference to the exhibit numbered
3(ii) in HCPI's Quarterly Report on Form 10-Q for the period
ended June 30, 1996.
3. This exhibit is incorporated by reference to HCPI's Form 8-A
(file no. 001-08895) filed with the Commission on September 25,
1997.
4. This exhibit is incorporated by reference to exhibit 1 to HCPI's
Form 8-A filed with the Commission on July 17, 1990.
5. This exhibit is incorporated by reference to exhibit 4.1 to
HCPI's Registration Statement on Form S-3 dated September 9,
1993.
6. These exhibits are incorporated by reference to exhibits 4.1, 4.2
and 4.3, respectively, in HCPI's Registration Statement on Form
S-3 dated March 20, 1989.
7. These exhibits are incorporated by reference to exhibits 4.6 and
10.2, respectively, in HCPI's Annual Report on Form 10-Q for the
year ended December 31, 1997.
8. This exhibit is identical in all material respects to two other
documents except the parties thereto. The parties to these other
documents, other than HCPI, were James P. Revel and Michael F.
Wiley.
9. This exhibit is identical in all material respects to 14 other
documents except the parties thereto. The parties to these other
documents, other than HCPI, were Centerville, LLC, Elko, LLC,
Desert Springs, LLC, Grantsville, LLC, Ogden, LP, Ogden II, LP,
SLIC, LP, Springville, LLC, SM I, LP, SM II, LP, SM II-Mckay, LP,
Desert Spings, LLC, Iomege, LLC and Primary, LLC.
10. This exhibit is incorporated by reference to exhibit 10.1 in
HCPI's Annual Report on Form 10-K for the year ended December 31,
1985.
11. These exhibits are incorporated by reference to exhibits 10.43
and 10.44, respectively, in HCPI's Quarterly Report on Form 10-Q
for the period ended March 31, 1997.
12. This exhibit is incorporated by reference to exhibit number 10.45
in HCPI's Quarterly Report on Form 10-Q for the period ended
September 30, 1997.
13. This exhibit is incorporated by reference to exhibit 10.27 in
HCPI's Annual Report on Form 10-K for the year ended December 31,
1988.
14. This exhibit is incorporated by reference to Appendix B of HCPI's
Annual Report on Form 10-K for the year ended December 31, 1990.
15. This exhibit is incorporated by reference to exhibit 10.28 in
HCPI's Annual Report on Form 10-K for the year ended December 31,
1987.
16. This exhibit is incorporated by reference to exhibit 10.39 in
HCPI's Annual Report on Form 10-K for the year ended December 31,
1995.
17. These exhibits are incorporated by reference to exhibit numbers
10.37 and 10.38, respectively, in HCPI's Quarterly Report on Form
10-Q for the period ended September 30, 1997.
18. This exhibit is incorporated by reference to exhibit 10.40 in
HCPI's Quarterly Report on Form 10-Q for the period ended
September 30, 1996.
19. These exhibits are incorporated by reference to exhibit numbers
10.1 and 10.2, respectively, in HCPI's Quarterly Report on Form
10-Q for the period ended September 30, 1998.
* Management Contract or Compensatory Plan or Arrangement.
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statement on Form S-8
No. 33-28483 (filed May 11, 1989):
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy expressed in the Securities Act
of 1933 and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 29, 1999
HEALTH CARE PROPERTY INVESTORS, INC.
(Registrant)
/S/ Kenneth B. Roath
-----------------------------------------------
Kenneth B. Roath, Chairman of the Board of
Directors, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date Signature and Title
March 29, 1999 /S/ Kenneth B. Roath
-----------------------------------------
Kenneth B. Roath, Chairman of the Board of
Directors, President and Chief Executive Officer
(Principal Executive Officer)
March 29, 1999 /S/ James G. Reynolds
-----------------------------------------
James G. Reynolds, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
March 29, 1999 /S/ Devasis Ghose
--------------------------------------------
Devasis Ghose, Senior Vice President- Finance
and Treasurer (Principal Accounting Officer)
March 29, 1999 /S/ Paul V. Colony
--------------------------------------------
Paul V. Colony, Director
March 29, 1999 /S/ Robert R. Fanning
--------------------------------------------
Robert R. Fanning, Jr., Director
March 29, 1999 /S/ Michael D. McKee
--------------------------------------------
Michael D. McKee, Director
March 29, 1999 /S/ Orville E. Melby
--------------------------------------------
Orville E. Melby, Director
March 29, 1999 /S/ Harold M. Messmer, Jr.
--------------------------------------------
Harold M. Messmer, Jr., Director
March 29, 1999 /S/ Peter L. Rhein
--------------------------------------------
Peter L. Rhein, Director
EXHIBIT INDEX
EXHIBIT INDEX
- -------------------------
Ex. 4.7 First Amendment to Rights Agreement dated as of January 28, 1999
between HCPI and The Bank of New York.
Ex. 4.8 Registration Rights Agreement dated November 20, 1998 between HCPI and
James D. Bremner.
Ex. 4.9 Registration Rights Agreement dated January 20, 1999 between HCPI and
Boyer Castle Dale Medical Clinic, LLC.
Ex.10.15 Amended and Restated Limited Liability Company Agreement dated
November 20,1998 of HCPI/Indiana, LLC.
Ex.10.16 Amended and Restated Limited Liability Company Agreement dated January
20, 1999 of HCPI/Utah, LLC.
Ex. 21.1 List of Subsidiaries
Ex. 23.1 Consent of Independent Public Accountants
Ex. 27.1 Financial Data Schedule
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
-----
Report of Independent Public Accountants
Consolidated Balance Sheets - as of December 31, 1998 and 1997
Consolidated Statements of Income -
for the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity -
for the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows -
for the years ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Health Care Property Investors, Inc.:
We have audited the accompanying consolidated balance sheets of Health Care
Property Investors, Inc. (a Maryland corporation) as of December 31, 1998 and
1997, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Health Care
Property Investors, Inc. as of December 31, 1998 and 1997, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Orange County, California
January 19, 1999
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except par values)
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
----------- ----------
<S> <C> <C>
ASSETS
Real Estate Investments
Buildings and Improvements $1,143,077 $ 837,857
Accumulated Depreciation (190,941) (170,502)
--------- ---------
952,136 667,355
Construction in Progress 26,938 19,627
Land 152,045 99,520
--------- ---------
1,131,119 786,502
Loans Receivable 154,363 125,381
Investments in and Advances to Joint Ventures 54,478 14,241
Other Assets 12,148 10,756
Cash and Cash Equivalents 4,504 4,084
--------- ---------
TOTAL ASSETS $1,356,612 $ 940,964
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank Notes Payable $ 88,000 $ 66,900
Senior Notes Payable 499,162 275,023
Convertible Subordinated Notes Payable 100,000 100,000
Mortgage Notes Payable 21,883 10,935
Accounts Payable, Accrued Expenses and Deferred Income 28,758 23,492
Minority Interests in Joint Ventures 23,390 22,345
Commitments
Stockholders' Equity:
Preferred Stock, $1.00 par value:
Authorized_50,000,000 shares;
7,785,000 and 2,400,000 shares outstanding as of
December 31, 1998 and 1997. 187,847 57,810
Common Stock, $1.00 par value; 100,000,000
shares authorized; 30,987,536 and 30,216,319
outstanding as of December 31, 1998 and 1997. 30,987 30,216
Additional Paid-In Capital 433,309 408,924
Cumulative Net Income 531,926 444,759
Cumulative Dividends (588,650) (499,440)
--------- ---------
Total Stockholders' Equity 595,419 442,269
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,356,612 $ 940,964
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
REVENUE
Base Rental Income $ 116,470 $ 92,860 $ 83,702
Additional Rental and Interest Income 21,969 21,060 20,925
Interest and Other Income 23,110 14,583 15,766
--------- --------- ---------
161,549 128,503 120,393
--------- --------- ---------
EXPENSES
Interest Expense 36,753 28,825 26,401
Depreciation/Non Cash Charges 32,523 25,656 23,149
Other Expenses 8,566 7,414 6,826
Facility Operating Expenses 5,053 162 ---
--------- --------- ---------
82,895 62,057 56,376
--------- --------- ---------
INCOME FROM OPERATIONS 78,654 66,446 64,017
Minority Interests (5,540) (3,704) (3,376)
Gain on Sale of Real Estate Properties 14,053 2,047 ---
--------- --------- ---------
NET INCOME $ 87,167 $ 64,789 $ 60,641
DIVIDENDS TO PREFERRED STOCKHOLDERS 8,532 1,247 ---
--------- --------- ---------
NET INCOME APPLICABLE TO COMMON SHARES $ 78,635 $ 63,542 $ 60,641
========= ========= =========
BASIC EARNINGS PER COMMON SHARE $ 2.56 $ 2.21 $ 2.12
========= ========= =========
DILUTED EARNINGS PER COMMON SHARE $ 2.54 $ 2.19 $ 2.10
========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING 30,747 28,782 28,652
========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------- ------------------------------
Par Additional Total
Number of Number of Value Paid In Cumulative Cumulative Stockholders'
Shares Amount Shares Amount Capital Net Income Dividends Equity
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
December 31, 1995 --- $ --- 28,574 $28,574 $353,166 $319,329 $(361,609) $339,460
Issuance of Common Stock, Net 30 30 1,044 1,074
Exercise of Stock Options 74 74 1,462 1,536
Net Income 60,641 60,641
Dividends Paid - Common Shares (65,905) (65,905)
- --------------------------------------------------------------------------------------------------------------------------
Balances,
December 31, 1996 28,678 28,678 355,672 379,970 (427,514) 336,806
Issuance of Preferred Stock, Net 2,400 57,810 57,810
Issuance of Common Stock, Net 1,468 1,468 51,589 53,057
Exercise of Stock Options 70 70 1,663 1,733
Net Income 64,789 64,789
Dividends Paid - Preferred Shares (1,247) (1,247)
Dividends Paid - Common Shares (70,679) (70,679)
- --------------------------------------------------------------------------------------------------------------------------
Balances,
December 31, 1997 2,400 57,810 30,216 30,216 408,924 444,759 (499,440) 442,269
Issuance of Preferred Stock, Net 5,385 130,037 130,037
Issuance of Common Stock, Net 731 731 23,513 24,244
Exercise of Stock Options 40 40 872 912
Net Income 87,167 87,167
Dividends Paid - Preferred Shares (8,532) (8,532)
Dividends Paid - Common Shares (80,678) (80,678)
- --------------------------------------------------------------------------------------------------------------------------
Balances,
December 31, 1998 7,785 $187,847 30,987 $30,987 $433,309 $531,926 $(588,650) $595,419
==========================================================================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 87,167 $ 64,789 $ 60,641
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Real Estate Depreciation 29,577 22,667 20,700
Non Cash Charges 2,946 2,989 2,449
Joint Venture Adjustments 2,096 (720) (824)
Gain on Sale of Real Estate Properties (14,053) (2,047) ---
Changes in:
Operating Assets (806) (2,457) (973)
Operating Liabilities 5,384 2,323 8,592
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 112,311 87,544 90,585
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Real Estate (411,722) (200,032) (115,308)
Proceeds from Sale of Real Estate Properties 21,538 8,624 ---
Advances Repaid by Joint Ventures --- --- 4,465
Other Investments and Loans (27,340) (13,830) 6,046
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (417,524) (205,238) (104,797)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Bank Notes Payable 21,100 66,900 (31,700)
Repayment of Senior Notes (27,500) (12,500) ---
Issuance of Senior Notes 251,469 19,876 113,329
Cash Proceeds from Issuing Preferred Stock 130,037 57,810 ---
Cash Proceeds from Issuing Common Stock 23,871 53,667 1,536
Increase in Minority Interests 201 5,500 ---
Periodic Payments on Mortgages (1,107) (1,030) (1,324)
Dividends Paid (89,210) (71,926) (65,905)
Other Financing Activities (3,228) 670 (913)
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 305,633 118,967 15,023
--------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 420 1,273 811
Cash and Cash Equivalents, Beginning of Period 4,084 2,811 2,000
--------- --------- ---------
Cash and Cash Equivalents, End of Period $ 4,504 $ 4,084 $ 2,811
========= ========= =========
ADDITIONAL CASH FLOW DISCLOSURES
Interest Paid, Net of Capitalized Interest $ 36,292 $ 29,065 $ 23,734
========= ========= =========
Capitalized Interest $ 1,800 $ 1,469 $ 1,017
========= ========= =========
Mortgages Assumed on Acquired Properties $ 12,715 $ --- $ ---
========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
HEALTH CARE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY
Health Care Property Investors, Inc., a Maryland corporation, was organized
in March 1985 to qualify as a real estate investment trust (REIT). Health Care
Property Investors, Inc. and its affiliated subsidiaries and partnerships (HCPI)
were organized to invest in health care related properties located throughout
the United States. As of December 31, 1998, HCPI owns interests in 332
properties located in 42 states. The properties include 157 long-term care
facilities, 84 congregate care and assisted living centers, 41 physician group
practice clinics, 35 medical office buildings (MOBs), eight acute care
hospitals, six rehabilitation hospitals and one psychiatric facility. As of
December 31, 1998, HCPI provided mortgage loans or leased these properties to 84
health care operators and to 188 tenants in the multi-tenant buildings.
(2) SIGNIFICANT ACCOUNTING POLICIES
Real Estate:
HCPI records the acquisition of real estate at cost and uses the
straight-line method of depreciation for buildings and improvements over
estimated useful lives ranging up to 45 years. HCPI periodically evaluates its
investments in real estate for potential impairment by comparing its investment
to the expected future cash flows to be generated from the properties. If such
impairments were to occur, HCPI would write down its investment in the property
to estimated market value. HCPI provides accelerated depreciation on certain of
its investments based primarily on an estimation of net realizable value of such
investments at the end of the primary lease terms.
Acquisition, development and construction arrangements are accounted for as
real estate investments/joint ventures or loans based on the characteristics of
the arrangements.
Investments In Consolidated Subsidiaries And Partnerships:
HCPI consolidates the accounts of its subsidiaries and certain general and
limited partnerships which are majority owned and controlled. All significant
intercompany investments, accounts and transactions have been eliminated.
Investments In Joint Ventures:
HCPI has investments in certain general partnerships and joint ventures in
which HCPI may serve as the managing member. However, since the other members
in these joint ventures have significant voting rights relative to acquisition,
sale and refinancing of assets, HCPI accounts for these investments using the
equity method of accounting. The accounting policies of these members are
substantially consistent with those of HCPI.
Cash And Cash Equivalents:
Investments purchased with original maturities of three months or less are
considered to be cash and cash equivalents.
Federal Income Taxes:
HCPI has operated at all times so as to qualify as a REIT under Sections
856 to 860 of the Internal Revenue Code of 1986. As such, HCPI is not taxed on
its income that is distributed to stockholders. At December 31, 1998, the tax
bases of HCPI's net assets and liabilities are less than the reported amounts by
approximately $32,000,000. This net difference includes a favorable tax
depreciation adjustment attributable to an application for change in accounting
method, which is subject to review by the Internal Revenue Service.
Earnings and profits, which determine the taxability of dividends to
stockholders, differ from net income for financial statements due to the
treatment required under the Internal Revenue Code of certain interest income
and expense items, depreciable lives, bases of assets and timing of rental
income.
Additional Rental And Interest Income:
Additional Rental and Interest Income includes the amounts in excess of the
initial annual Base Rental and Interest Income. Additional Rental and Interest
Income is generated by a percentage of increased revenue over specified base
period revenue of the properties and increases based on inflation indices or
other factors. HCPI has certain financing leases that allow HCPI to "put" the
facilities to the lessees at lease termination for an amount greater than HCPI's
initial investment. These amounts are accreted to Additional Rental and
Interest Income over the lease term. In addition, HCPI may receive payments
from its lessees upon transferring or assignment of existing leases; such
amounts received are deferred and amortized over the remaining term of the
leases.
Facility Operations:
During 1997 and 1998, HCPI purchased 90 - 100 percent ownership interests
in 23 MOBs which are operated by independent property management companies on
behalf of HCPI. These facilities are leased to multiple tenants under gross,
modified gross or triple net leases. Operating income other than basic rental
income attributable to these properties is recorded under Interest and Other
Income on HCPI's books. Expenses related to the operation of these facilities
are recorded as Facility Operating Expenses.
During 1998 HCPI purchased several physician group practice clinics which
are leased on a modified gross basis to several tenants. The property taxes and
any other related operating expenses that HCPI is responsible for are included
in Facility Operating Expenses.
Reclassification:
Reclassifications have been made for comparative financial statement
presentation.
Use Of Estimates In The Preparation Of Financial Statements:
Management is required to make estimates and assumptions in the preparation
of financial statements in conformity with generally accepted accounting
principles. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of expense during
the reporting period. Actual results could differ from those estimates.
(3) REAL ESTATE INVESTMENTS
HCPI was organized to make long-term equity-oriented investments
principally in operating, income-producing health care related properties.
HCPI's equity investments have generally been structured as land and building
leasebacks.
Under the terms of the lease agreements, HCPI earns fixed monthly Base
Rental Income and may earn periodic Additional Rental Income. At December 31,
1998, minimum future rental income from 305 non-cancelable operating leases is
expected to be approximately $147,000,000 in 1999, $139,000,000 in 2000,
$128,000,000 in 2001, $121,000,000 in 2002, $117,000,000 in 2003 and
$726,000,000 in the aggregate thereafter.
During 1998, HCPI purchased and leased or agreed to construct 100
facilities for an aggregate investment of approximately $429,000,000. These
facilities include 13 assisted living facilities, 16 MOBs, 38 physician group
practice clinics and 33 long-term care facilities. Twenty-eight different
lessees operate 84 of these facilities and the 16 MOBs are multi-tenant.
Seven of the MOBs were acquired through the acquisition of a majority interest
in a limited liability company in which the non-managing member purchased 89,452
non-managing member units. These units are convertible into HCPI common stock
on a one-for-one basis beginning in December 1999.
HCPI sold six facilities and a partnership interest in another facility
during 1998, resulting in a gain of $14,053,000.
The following tabulation lists HCPI's total Real Estate Investments at
December 31, 1998 (dollar amounts in thousands):
<TABLE>
<CAPTION>
Number
of Buildings & Total Accumulated Mortgage Notes
Facility Location Facilities Land Improvements Investments Depreciation Payable
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LONG-TERM CARE FACILITIES
California 14 $ 5,782 $ 24,148 $ 29,930 $ 11,265 $ ---
Florida 8 4,680 26,170 30,850 7,476 ---
Indiana 20 4,645 81,754 86,399 11,232 ---
Maryland 3 1,287 20,627 21,914 6,840 ---
Massachusetts 5 1,587 16,872 18,459 8,514 ---
North Carolina 8 1,552 28,075 29,627 6,234 5,862
Ohio 6 1,125 25,037 26,162 9,680 853
Oklahoma 5 825 14,640 15,465 2,443
Tennessee 10 1,072 38,062 39,134 11,557 ---
Texas 9 1,119 15,224 16,343 4,169 ---
Wisconsin 7 1,197 17,408 18,605 6,724 ---
Others (18 States) 31 5,382 85,545 90,927 25,270 2,709
- -------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Care Facilities 126 30,253 393,562 423,815 111,404 9,424
- -------------------------------------------------------------------------------------------------------------------------------
ACUTE CARE HOSPITALS
Tucson, Arizona 1 630 2,989 3,619 92 ---
Los Gatos, California 1 3,736 17,139 20,875 7,338 ---
Slidell, Louisiana 1 2,520 19,412 21,932 6,539 ---
Plaquemine, Louisiana 1 737 9,722 10,459 1,703 ---
Webster, Texas 1 890 5,161 6,051 187 ---
- -------------------------------------------------------------------------------------------------------------------------------
Total Acute Care Hospitals 5 8,513 54,423 62,936 15,859 ---
- -------------------------------------------------------------------------------------------------------------------------------
CONGREGATE CARE AND ASSISTED LIVING CENTERS
California 11 6,938 51,567 58,505 3,161 ---
Florida 9 4,092 27,848 31,940 2,463 ---
Louisiana 3 1,280 16,096 17,376 424 ---
New Jersey 4 1,619 15,767 17,386 927 ---
New Mexico 2 1,077 16,419 17,496 1,332 ---
North Carolina 2 420 9,733 10,153 1,066 ---
Pennsylvania 3 515 17,160 17,675 1,757 ---
South Carolina 9 953 32,544 33,497 2,630 ---
Texas 15 4,008 66,790 70,798 4,095 ---
Others (13 States) 16 8,175 68,154 76,329 7,751 644
- -------------------------------------------------------------------------------------------------------------------------------
Total Congregate Care and Assisted Living Centers 74 29,077 322,078 351,155 25,606 644
- -------------------------------------------------------------------------------------------------------------------------------
PSYCHIATRIC FACILITY, Georgia 1 280 3,181 3,461 1,712 ---
- -------------------------------------------------------------------------------------------------------------------------------
REHABILITATION HOSPITALS
Peoria, Arizona 1 1,565 7,051 8,616 1,574 ---
Little Rock, Arkansas 1 709 10,311 11,020 1,894 ---
Colorado Springs, Colorado 1 690 8,346 9,036 1,586 ---
Fort Lauderdale, Florida 1 2,000 16,769 18,769 10,854 ---
Overland Park, Kansas 1 2,316 10,719 13,035 2,449 ---
San Antonio, Texas 1 1,990 13,087 15,077 4,504 ---
- -------------------------------------------------------------------------------------------------------------------------------
Total Rehabilitation Hospitals 6 $ 9,270 $ 66,283 $ 75,553 $ 22,861 $ ---
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Number
of Buildings & Total Accumulated Mortgage Notes
Facility Location Facilities Land Improvements Investments Depreciation Payable
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MEDICAL OFFICE BUILDINGS
California 6 $ 16,681 $ 43,150 $ 59,831 $ 2,500 $ ---
Indiana 13 13,887 54,786 68,673 129 5,105
Minnesota 2 277 22,404 22,681 456 5,020
North Dakota 1 480 10,774 11,254 178 ---
New York 1 2,200 18,011 20,211 141 ---
Texas 8 1,966 40,778 42,744 4,907 ---
Utah 1 276 5,237 5,513 382 ---
- -------------------------------------------------------------------------------------------------------------------------------
Total Medical Office Buildings 32 35,767 195,140 230,907 8,693 10,125
- -------------------------------------------------------------------------------------------------------------------------------
PHYSICIAN GROUP PRACTICE CLINICS
Arkansas 1 3,045 20,267 23,312 2,255 ---
California 2 8,070 37,662 45,732 743 ---
Florida 11 8,950 18,848 27,798 322 ---
Georgia 3 2,100 7,513 9,613 140 ---
North Carolina 4 4,050 5,975 10,025 114 ---
Tennessee 4 2,295 13,857 16,152 746 1,690
Texas 9 5,500 22,752 28,252 340 ---
Other (4 States) 7 3,000 8,474 11,474 146
- -------------------------------------------------------------------------------------------------------------------------------
Total Physician Group Practice Clinics 41 37,010 135,348 172,358 4,806 1,690
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL CONSOLIDATED REAL ESTATE OWNED 285 150,170 1,170,015 1,320,185 190,941 21,883
Vacant Land Parcels --- 1,875 --- 1,875 --- ---
Partnership Investments,
Including All Partners' Assets 20 --- --- 71,773 --- ---
Financing Leases (See Note 6) 2 --- --- 7,850 --- ---
Mortgage Loans Receivable (See Note 6) 25 --- --- 139,432 --- ---
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO 332 $152,045 $1,170,015 $1,541,115 $190,941 $21,883
=============================================================================================================================
</TABLE>
(4) MAJOR OPERATORS
Listed below are HCPI's major operators which represent five percent or
more of HCPI's revenue, the investment in properties operated by those health
care providers, and the percentage of total annualized revenue from these
operators for the years ended December 31, 1998, 1997 and 1996. All of these
operators are publicly traded companies and are subject to the informational
filing requirements of the Securities and Exchange Act of 1934, as amended, and
accordingly file periodic financial statements on Form 10-K and Form 10-Q with
the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Percentage of Total
Annualized Revenue
Investment at Year Ended December 31,
December 31, 1998 1998 1997 1996
--------------------- --------- --------- ---------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Vencor, Inc. ("Vencor") $85,785 7% 10% 16%
HealthSouth Corporation ("HealthSouth") 74,878 7 9 5
Emeritus Corporation ("Emeritus") 116,111 6 8 7
Beverly Enterprises, Inc. ("Beverly") 98,224 6 6 8
Columbia/HCA Healthcare Corp. 66,551 5 6 7
Centennial Healthcare Corp. 48,761 5 3 4
Tenet Healthcare Corporation ("Tenet") 42,807 4 6 6
Horizon/CMS Healthcare Corp. --- --- --- 8
----------- ------ ------ ------
$ 533,117 40% 48% 61%
=========== ====== ====== ======
</TABLE>
Certain of these properties have been subleased or assigned to other
operators but with the original lessee remaining liable on the leases. The
investment and revenue applicable to these subleased properties are not included
in the table above. The percentage of annualized revenue on these subleased
facilities was 4%, 7%, and 3% in 1998, 1997 and 1996, respectively.
On May 1, 1998, Vencor completed a spinoff transaction pursuant to which it
became two publicly held entities, Ventas, Inc. ("Ventas"), a real estate
company which intends to qualify as a REIT, and Vencor, a health care company.
Vencor currently leases 39 of HCPI's properties, of which 17 are leased to
various sublessees. Both Ventas and Vencor are responsible for payments due
under the Vencor leases and a majority of the Vencor leases are guaranteed by
Tenet, as described below.
Based upon public reports, for the three months ended September 30, 1998,
Vencor had revenue of approximately $718.1 million and a net loss, excluding non
recurring transactions, of approximately $1.1 million. For the nine months
ended September 30, 1998, Vencor had revenue of approximately $2.3 billion and a
net loss (including an extraordinary loss of $77.9 million) of approximately
$44.9 million.
Based upon public reports, Ventas' revenue, income from operations and net
income for the three months ended September 30, 1998 were approximately $56.2
million, $13.0 million and $12.9 million, respectively. As of September 30,
1998, Ventas had total assets of $960.0 million and a stockholders' deficit of
$24.2 million.
Tenet unconditionally guaranteed 17%, 26% and 30% of HCPI's total revenue
for the years ended December 31, 1998, 1997 and 1996. As of December 31, 1998,
those leases guaranteed by Tenet include two acute care hospitals operated by
Tenet's subsidiaries and 37 long-term care and assisted living facilities leased
by subsidiaries of Vencor. During 1998, 14 of the Vencor leases that were
guaranteed by Tenet expired. During 1997 one such lease expired. All of those
15 properties have been re-leased, have agreements to re-lease in place with
other operators, or have other agreements in principle and will no longer be
guaranteed by Tenet.
Based upon public reports, for the three months ended September 30, 1998,
Emeritus had revenue of approximately $39.0 million and a net loss of
approximately $7.1 million. For the nine months ended September 30, 1998,
Emeritus had revenue of $110.8 million and a net loss of $25.0 million. As of
September 30, 1998, Emeritus had total assets of $198.0 million and a
stockholders' deficit of $38.5 million.
Based upon a recent press release issued by Emeritus, for the three months
ended December 31, 1998, Emeritus had revenue of approximately $41.0 million and
a net loss, excluding non-recurring transactions, of approximately $6.0 million.
For the year ended December 31, 1998, Emeritus had revenue of approximately
$151.8 million and a net loss excluding non-recurring transactions of
approximately $28.8 million.
During 1997, HealthSouth acquired Horizon/CMS Healthcare Corporation in a
stock-for-stock merger. HealthSouth retained the rehabilitation hospital
division, and sold the long-term care division to Integrated Health Services,
Inc.
(5) INVESTMENTS IN JOINT VENTURES
HCPI is the general partner and has a 50% equity interest in four general
partnerships that each owns a congregate care center. During 1997 and 1998,
HCPI acquired an 80% interest in nine joint ventures that lease 14 long-term
care facilities and a 45% interest in two joint ventures that each operate or
are currently constructing a Michigan assisted living facility.
Combined summarized financial information of the joint ventures follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
----------- ----------
(Amounts in thousands)
<S> <C> <C>
Real Estate Investments, Net $ 63,294 $ 31,224
Other Assets 5,881 2,627
--------- ---------
Total Assets $ 69,175 $ 33,851
========= =========
Notes Payable to Others $ 14,151 $ 19,348
Accounts Payable 1,087 545
Other Partners' Deficit (541) (283)
Investments and Advances from HCPI, Net 54,478 14,241
--------- ---------
Total Liabilities and Partners' Capital $ 69,175 $ 33,851
========= =========
Rental and Interest Income $ 9,254 $ 5,423
========= =========
Net Income $ 1,809 $ 1,741
========= =========
Company's Equity in Joint Venture Operations $ 1,099 $ 992
========= =========
Distributions to HCPI $ 2,016 $ 916
========= =========
</TABLE>
(6) LOANS RECEIVABLE
The following is a summary of the Loans Receivable:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
----------- ----------
(Amounts in thousands)
<S> <C> <C>
Mortgage Loans (See below) $ 139,432 $ 101,729
Financing Leases 7,850 18,056
Other Loans 7,081 5,596
--------- ---------
Total Loans Receivable $154,363 $125,381
========= =========
</TABLE>
The following is a summary of Mortgage Loans Receivable at December 31, 1998:
<TABLE>
<CAPTION>
Final Number Initial
Payment of Principal Carrying
Due Loans Payment Terms Amount Amount
- -------------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
2001 2 Monthly payments from $112,500 to $32,000 $18,295
$337,500 including interest of 13.03%
secured by an acute care hospital and three
medical office buildings leased and operated
by Columbia/HCA Healthcare Corp.
2006 2 Monthly payments of $20,000 and $250,000 including 35,530 35,530
interest of 11.00% and 8.99% on an acute care hospital
located in Texas and operated by MedCath, Inc.
2007 1 Construction loan (will convert to mortgage loan) 4,713 4,713
on acute care facility in Albuquerque to be operated by
MedCath, Inc.; interest rate of 8.75%.
2008 1 Monthly payment of $48,800 including 5,900 5,890
interest of 8.82% secured by an assisted living
facility in Nebraska.
2009 2 Monthly payments of $41,200 and 10,228 9,866
$63,700 including interest of 12.11%
and 11.56% on a long-term care facility and one
medical office building both located in California.
2010 1 Monthly payments of $333,000 including 34,760 33,743
interest of 10.70% secured
by a congregate care facility and nine long-
term care facilities operated by Beverly.
2010 2 Monthly payments of $56,000 and $113,200 18,397 18,206
including interest of 9.29% secured by two
long-term care facilities located in Colorado.
</TABLE>
<TABLE>
<CAPTION>
Final Number Initial
Payment of Principal Carrying
Due Loans Payment Terms Amount Amount
- -------------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
2002-2031 5 Monthly payments from $9,900 to $51,500 including $ 14,390 $ 13,189
interest rates from 9.34% to 11.5% on
various facilities in various states.
--- -------- --------
Totals 16 $155,918 $139,432
=== ======== ========
</TABLE>
At December 31, 1998, minimum future principal payments from non-cancelable
Mortgage Loans are expected to be approximately $4,104,000 in 1999, $4,596,000
in 2000, $13,327,000 in 2001, $4,265,000 in 2002, $2,200,000 in 2003 and
$110,940,000 in the aggregate thereafter.
(7) NOTES PAYABLE
Senior Notes Payable:
The following is a summary of Senior Notes outstanding at December 31, 1998
and 1997:
<TABLE>
<CAPTION>
Year Prepayment
Issued 1998 1997 Interest Rate Maturity Without Penalty
- ------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
1989 $ 10,000 $ 10,000 10.56% 1999 None
1991 --- 22,500 9.44-9.88% 2001 1998-2001
1993 10,000 10,000 8.00% 2003 2000-2003
1993 1,000 6,000 6.70% 2003 None
1994 15,000 15,000 8.81-9.10% 1999-2004 None
1995 58,000 58,000 7.03-8.87% 2000-2005 None
1995 20,000 20,000 6.62-9.00% 2010-2015 2002-2015
1996 115,000 115,000 6.5% 2006 None
1997 20,000 20,000 7.30-7.62% 2007 None
1998 200,000 --- 6.77% 2005 None
1998 48,000 --- 6.66-7.88% 2001-2006 None
--------- ---------
497,000 276,500
MOPPRS Option,
Net 5,086 ---
Less:Unamortized
Original Issue
Discount (2,924) (1,477)
--------- ----------
$ 499,162 $ 275,023
========= ==========
</TABLE>
During June 1998, HCPI issued $200,000,000 of senior unsecured debt in the
form of 6.875% MandatOry Par Put Remarketed Securities ("MOPPRS") due June 8,
2015 which are subject to mandatory tender on June 8, 2005. HCPI received total
proceeds of approximately $203,000,000 including the present value of the put
option at June 8, 2005 associated with the debt instrument. The option is
being amortized to interest expense over 17 years. The weighted average cost of
the debt including the amortization of the option and offering expenses is
6.77%.
The weighted average interest rate on the Senior Notes was 7.2% and 7.5%
for 1998 and 1997, respectively, and the weighted average balance of the Senior
Notes borrowings was approximately $387,733,000 and $277,646,000 during 1998 and
1997, respectively. Original issue discounts are amortized over the term of the
Senior Notes. If held to maturity, the first required Senior Note maturities
would be $15,000,000 in 1999, $10,000,000 in 2000, $13,000,000 in 2001,
$17,000,000 in 2002, $31,000,000 in 2003 and $411,000,000 in the aggregate
thereafter.
CONVERTIBLE SUBORDINATED NOTES PAYABLE:
On November 8, 1993, HCPI issued $100,000,000 6% Convertible Subordinated
Notes due November 8, 2000. These Notes are prepayable without penalty after
November 8, 1998. The Notes are convertible into shares of common stock of HCPI
at a conversion price of $37.806. A total of 2,645,083 shares of common stock
have been reserved for such issuance.
MORTGAGE NOTES PAYABLE:
At December 31, 1998, HCPI had a total of $21,883,000 in Mortgage Notes
Payable secured by 14 health care facilities with a net book value of
approximately $53,815,000. Interest rates on the Mortgage Notes ranged from
5.75% to 10.63%. Required principal payments on the Mortgage Notes range from
$728,000 to $1,779,000 per year in the next five years and $16,785,000 in the
aggregate thereafter.
BANK NOTES:
HCPI has two unsecured revolving credit lines aggregating $180,000,000 with
certain banks. The credit lines for $45,000,000 and $135,000,000 expire on
September 30, 1999 and September 30, 2003, respectively, and bear a total annual
facility fee of 0.15% and 0.20%, respectively. These agreements provide for
interest at the Prime Rate, the London Interbank Offered Rate ("LIBOR") plus
0.40% (LIBOR plus 0.45% for the $45,000,000 credit line) or at a rate negotiated
with each bank at the time of borrowing. Interest rates incurred by HCPI ranged
from 9.75% to 4.85%, and 7.13% to 5.38%, on maximum short-term bank borrowings
of $190,000,000 and $87,400,000 for 1998 and 1997, respectively. The weighted
average interest rates were approximately 5.90% and 5.91% on weighted average
short-term bank borrowings of $68,193,000 and $39,976,000 for the same
respective periods.
(8) PREFERRED STOCK
On September 26, 1997, HCPI issued 2,400,000 shares of 7-7/8% Series A
Cumulative Redeemable Preferred Stock which generated net proceeds of
$57,810,000 (net of underwriters' discount and other offering expenses). The
Series A Preferred Stock is not redeemable prior to September 30, 2002, after
which date the Series A Preferred Stock may be redeemable at par ($25 per share
or $60,000,000 in the aggregate) any time for cash at the option of HCPI.
On September 4, 1998, HCPI issued 5,385,000 shares of 8.70% Series B
Cumulative Redeemable Preferred Stock which generated net proceeds of
$130,000,000 (net of underwriters' discount and other offering expenses). The
Series B Preferred Stock is not redeemable prior to September 30, 2003, after
which date the Preferred Stock may be redeemable at par ($25 per share or
$134,625,000 in the aggregate) any time for cash at HCPI's option.
Dividends on the both Series A and Series B Preferred Stock are payable
quarterly in arrears on the last day of March, June, September and December.
The Series A and Series B Preferred Stock have no stated maturity, will not be
subject to any sinking fund or mandatory redemption and are not convertible into
any other securities of HCPI.
(9) EARNINGS PER COMMON SHARE
HCPI adopted Statement of Financial Accountings Standards No. 128, Earnings
Per Share, effective December 15, 1997. As a result, both basic and diluted
earnings per common share are presented for each of the years ended December 31,
1998 and 1997 and 1996. Prior to 1997, only basic earnings per common share
were disclosed. Basic earnings per common share is computed by dividing net
income applicable to common shares by the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per common share
are calculated including the effect of dilutive securities. Options to purchase
shares of common stock that had an exercise price in excess of the average
market price of the common stock during the period were not included because
they are not dilutive. The convertible debt was included only in 1998, when the
effect on earnings per common share was dilutive.
(Amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
--------------------------------------------
Per Share
Income Shares Amount
------------ ------------ ---------
<S> <C> <C> <C>
Net Income $ 87,167
Less: Preferred Stock Dividends (8,532)
------------
Basic Earnings Per Common Share:
Net Income Applicable to Common Shares $ 78,635 30,747 $ 2.56
---------
Dilutive Options (See Note 12) --- 155
Non-Managing Member Units (See Note 3) 308 117
Interest and Amortization applicable
to Convertible Debt (See Note 7) 6,397 2,645
------------ -----------
Diluted Earnings Per Common Share:
Net Income Applicable to Common
Shares Plus Assumed Conversions $ 85,340 33,664 $ 2.54
---------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
--------------------------------------------
Per Share
Income Shares Amount
------------ ------------ ---------
<S> <C> <C> <C>
Net Income $ 64,789
Less: Preferred Stock Dividends (1,247)
------------
Basic Earnings Per Common Share:
Net Income Applicable to Common Shares $63,542 28,782 $ 2.21
---------
Dilutive Options (See Note 12) --- 196
Non-Managing Member Units (See Note 3) 40 16
------------ -----------
Diluted Earnings Per Common Share:
Net Income Applicable to Common
Shares Plus Assumed Conversions $ 63,582 28,994 $ 2.19
---------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
--------------------------------------------
Per Share
Income Shares Amount
------------ ------------ ---------
<S> <C> <C> <C>
Basic Earnings Per Common Share:
Net Income Applicable to Common Shares $60,641 28,652 $ 2.12
---------
Dilutive Options (See Note 12) --- 174
------------ -----------
Diluted Earnings Per Common Share:
Net Income Applicable to Common
Shares Plus Assumed Conversions $ 60,641 28,826 $ 2.10
---------
</TABLE>
(10) FUNDS FROM OPERATIONS
HCPI is required to report information about operations on the basis that
it uses internally to measure performance under Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information, effective beginning in 1998.
HCPI believes that Funds From Operations ("FFO") is the most important
supplemental measure of operating performance. Because the historical cost
accounting convention used for real estate assets requires straight-line
depreciation (except on land) such accounting presentation implies that the
value of real estate assets diminishes predictably over time. Since real estate
values instead have historically risen and fallen with market conditions,
presentations of operating results for a real estate investment trust that uses
historical cost accounting for depreciation could be less informative. The term
FFO was designed by the real estate investment trust industry to address this
problem.
HCPI adopted the definition of FFO prescribed by the National Association
of Real Estate Investment Trusts ("NAREIT"). FFO is defined as net income
applicable to common shares (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from debt restructuring and
sales of property, plus real estate depreciation and real estate related
amortization, and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint ventures are
calculated to reflect FFO on the same basis.
FFO does not represent cash generated from operating activities in
accordance with generally accepted accounting principles, is not necessarily
indicative of cash available to fund cash needs and should not be considered as
an alternative to net income. FFO, as defined by HCPI, may not be comparable to
similarly entitled items reported by other real estate investment trusts that do
not define it exactly as the NAREIT definition.
Below are summaries of the calculation of FFO for the years ended December
31, 1998, 1997 and 1996 (all amounts in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net Income Applicable to Common Shares $ 78,635 $ 63,542 $ 60,641
Real Estate Depreciation and Amortization 29,577 22,667 20,700
Joint Venture Adjustments 2,096 (720) (824)
Gain on Sale of Real Estate Properties (14,053) (2,047) ---
--------- --------- ---------
Funds From Operations $ 96,255 $ 83,442 $ 80,517
========= ========= =========
</TABLE>
(11) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value. The carrying amount for Cash and Cash Equivalents approximates fair
value because of the short-term maturity of those instruments. Fair values for
Mortgage Loans Receivable and long-term debt are based on the estimates of
management and on rates currently prevailing for comparable loans and
instruments of comparable maturities, and are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- -------- ---------- -------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Mortgage Loans Receivable $139,432 $148,000 $101,729 $111,000
Long-Term Debt $621,045 $601,000 $385,958 $396,000
</TABLE>
(12) STOCK INCENTIVE PLANS
Directors and officers and key employees of HCPI are eligible to
participate in HCPI's Directors' Stock Incentive Plan or HCPI's Amended Stock
Incentive Plan ("Plans"). A summary of the status of HCPI's Plans at December
31, 1998, 1997 and 1996 and changes during the years then ended is presented in
the table and narrative below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
Stock Incentive Plan (000's) Price (000's) Price (000's) Price
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 1,056 $30 896 $28 717 $25
Granted 306 38 230 36 263 34
Exercised (40) 23 (70) 26 (74) 19
Forfeited (13) 35 -- -- (10) 29
------- ------- -------
Outstanding, end of year 1,309 32 1,056 30 896 28
Exercisable at end of year 581 26 543 26 423 25
Weighted average fair value
of options granted during
the year $2.96 $4.49 $3.66
Incentive Stock Awards
- ----------------------
Issued 33 32 34
Canceled (1) (1) (4)
</TABLE>
The incentive stock awards ("Awards") are granted at no cost to the
employees. The Awards generally vest and are amortized over five-year periods.
The stock options become exercisable on either a one-year or a five-year
schedule after the date of the grant.
The following table describes the options outstanding as of December 31,
1998:
<TABLE>
<CAPTION>
Weighted
Average Options
Total Options Weighted Contractual Life Exercisable At Weighted
Outstanding Exercise Average Remaining December 31, 1998 Average
(000's) Price Exercise Price (Years) (000's) Exercise Price
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
32 $12 - $20 $17 2 32 $17
503 $22 - $30 $26 5 477 $26
774 $32 - $39 $36 8 72 $33
------ -----
1,309 581
====== =====
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following ranges of assumptions:
risk-free interest rates from 4.50% to 6.30%; expected dividend yields from
5.54% to 7.78% percent; and expected lives of 10 years; expected volatility of
.16% to .19%.
HCPI accounts for stock options under Accounting Principles Board Opinion
25 ("APB25"), Accounting for Stock Issued to Employees, which is permitted under
FASB Statement No. 123 ("FASB 123"), Accounting for Stock Based Compensation,
issued in 1995. Had compensation cost for the Plans been determined instead in
accordance with rules set out in FASB 123, HCPI's Net Income and Basic Earnings
Per Common Share on a proforma basis would have been $0.01 lower for each of the
three years ended December 31, 1998, 1997 and 1996.
During the years ended December 31, 1998 and 1997, respectively, HCPI made
loans totaling $976,000 and $188,000 secured by stock in HCPI to Directors,
Officers and key employees. The interest rate charged is based on the
prevailing applicable federal rate as of the inception of the loan. Loans
secured by stock totaling $1,637,000 and $855,000 were outstanding at December
31, 1998 and 1997, respectively.
(13) DIVIDENDS
Common stock dividend payment dates are scheduled approximately 50 days
following each calendar quarter. The Board of Directors declared a dividend of
$0.68 per share on January 20, 1999, paid on February 19, 1999 to stockholders
of record on February 3, 1999.
In order to qualify as a REIT, HCPI must generally, among other
requirements, distribute at least 95% of its taxable income to its stockholders.
Per share dividend payments made by HCPI to the stockholders were
characterized in the following manner for tax purposes:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Common Stock
Ordinary Income $2.4550 $2.3750 $2.1250
Capital Gains Income .1650 .0850 .1750
--------- -------- --------
Total Dividends Paid $2.6200 $2.4600 $2.3000
========= ======== ========
7-7/8% Preferred Stock Series A
Ordinary Income $1.8438 $0.5045 $ ---
Capital Gains Income .1250 .0150 ---
--------- -------- --------
Total Dividends Paid $1.9688 $0.5195 $ ---
========= ======== ========
8.70% Preferred Stock Series B
Ordinary Income $0.6619 $ --- $ ---
Capital Gains Income 0.0450 --- ---
--------- -------- --------
Total Dividends Paid $0.7069 $ --- $ ---
========= ======== ========
</TABLE>
Dividends on both series of preferred stock are paid on the last day of
each quarter.
(14) COMMITMENTS
HCPI has acquired real estate properties and has outstanding commitments to
fund development of facilities on those properties of approximately $50,000,000.
Since year end, HCPI has acquired approximately $83,000,000 in existing
health care real estate, and is committed to acquire an additional $83,000,000
of existing health care real estate. HCPI expects that a significant portion of
these commitments will be funded; however, experience suggests that some
committed transactions will not close. The letters of intent representing such
commitments permit either party to elect not to go forward with the transaction
under various circumstances. HCPI may not close committed transactions for
various reasons including unsatisfied pre-closing conditions, competitive
financing sources, final negotiation differences or the operator's inability to
obtain required internal or governmental approvals.
(15) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
1998 March 31 June 30 September 30 December 31
- -------------------------- -------- -------- ------------ ------------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenue $ 36,334 $ 37,948 $ 42,166 $ 45,101
Net Income Applicable To
Common Shares $ 16,297 $ 16,546(1) $ 22,836(2) $ 22,956(3)
Dividends Paid Per Common
Share $ .64 $ .65 $ .66 $ .67
Basic Earnings Per Common
Share $ .54 $ .54(1) $ .74(2) $ .74(3)
Diluted Earnings Per
Common Share $ .54 $ .53(1) $ .72(2) $ .73(3)
1997
Revenue $ 30,867 $ 31,751 $ 32,307 $ 33,578
Net Income Applicable To
Common Shares $ 17,119(4) $ 15,394 $ 15,553 $ 15,476
Dividends Paid Per Common
Share $ .60 $ .61 $ .62 $ .63
Basic Earnings Per Common
Share $ .60(4) $ .54 $ .54 $ .53
Diluted Earnings Per
Common Share $ .59(4) $ .53 $ .54 $ .53
</TABLE>
(1) Includes $512 or $0.02 per basic/diluted share for Gain on Sale of Real
Estate Properties.
(2) Includes $6,230 or $0.20/$0.18 per basic/diluted share for Gain on Sale of
Real Estate Properties.
(3) Includes $7,311 or $0.24/$0.22 per basic/diluted share for Gain on Sale of
Real Estate Properties.
(4) Includes $2,047 or $0.07 per basic/diluted share for Gain on Sale of Real
Estate Properties.
(16) NEW PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Statement 133 is
effective for fiscal years beginning after June 15, 1999, although earlier
implementation is allowed.
HCPI has not yet quantified the impact of adopting Statement 133 on the
financial statements and has not determined the timing of or method of the
adoption of Statement 133. However, the effect is not expected to be material.
APPENDIX I
Tenet Healthcare Corporation
SET FORTH BELOW IS CERTAIN CONDENSED FINANCIAL DATA OF TENET HEALTHCARE
CORPORATION ("TENET") WHICH IS TAKEN FROM TENET'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED MAY 31, 1998 AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ("THE COMMISSION") UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"), AND THE TENET QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 30, 1998 AS FILED WITH THE COMMISSION.
The information and financial data contained herein concerning Tenet was
obtained and has been condensed from Tenet's public filings under the
Exchange Act. The Tenet financial data presented includes only the most
recent interim and fiscal year end reporting periods. The Company can make
no representation as to the accuracy and completeness of Tenet's public filings
but has no reason not to believe the accuracy and completeness of such filings.
It should be noted that Tenet has no duty, contractual of otherwise, to advise
the Company of any events which might have occurred subsequent to the date
of such publicly available information which could affect the significance
or accuracy of such information.
Tenet is subject to the information filing requirements of the Exchange Act,
and, in accordance herewith, is obligated to file periodic reports, proxy
statements and other information with the Commission relating to its business,
financial condition and other matters. Such reports, proxy statements and other
information may be inspected at the offices of the Commission at 450 Fifth
Street, N.W. Washington D.C., and should also be available at the following
Regional Offices of the Commission: Room 1400, 75 Park Place, New York, New
York 10007 and Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661. Such reports and other information concerning Tenet
can also be inspected at the offices of the New York Stock Exchange, Inc., 20
Broad Street, Room 1102, New York, New York 10005.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollar amounts in millions, except par values)
<TABLE>
<CAPTION>
November 30, May 31,
1998 1998
------------ ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 32 $ 23
Short-term investments in debt securities 139 132
Accounts and notes receivable, less
allowances for doubtful accounts
($203 at November 30 and $191 at May 31) 2,044 1,742
Inventories of supplies, at cost 237 214
Deferred income taxes 233 275
Prepaid expenses and other assets 398 504
------------- -------------
Total current assets $ 3,083 $ 2,890
------------- --------------
Investments and other assets 567 515
Property, plant and equipment net 6,422 6,014
Intangible assets, at cost
Less accumulated amortization
($381 at November 30 and $327 at May 31) 3,557 3,414
------------- --------------
$ 13,629 $ 12,833
============= ==============
</TABLE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollar amounts in millions, except par values and share amounts)
<TABLE>
<CAPTION>
November 30, May 31,
1998 1998
------------ ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 10 $ 10
Accounts payable 554 657
Accrued expenses 507 461
Reserves related to discontinued operations and
other non-recurring charges 138 189
Other current liabilities 611 450
---------- -----------
Total current liabilities 1,820 1,767
========== ===========
Long-term debt, net of current portion 6,309 5,829
Other long-term liabilities and minority interests 1,201 1,256
Deferred income taxes 435 423
Common stock, $.075 par value; authorized
700,000,000 shares; 313,816,696 shares issued
at November 30, 1998 and 313,044,417 shares
issued at May 31, 1998 24 23
Other shareholders' equity 3,910 3,605
Treasury stock, at cost, 3,754,891 shares at
November 30, 1998 and May 31, 1998 (70) (70)
--------- -----------
Total shareholders' equity 3,864 3,558
--------- -----------
$ 13,629 $ 12,833
========= ===========
</TABLE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollar amounts in millions)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
November 30, 1998 May 31, 1998
----------------- -------------
<S> <C> <C>
Net operating revenues $ 5,116 $ 9,895
------------ -----------
Operating expenses (4,200) (8,086)
Depreciation and amortization (261) (460)
Interest expense, net of capitalized portion (238) (464)
Merger, facility consolidation and other
non-recurring charges --- (221)
------------ -----------
Total costs and expenses (4,699) (9,231)
------------ -----------
Investment earnings 13 22
Minority interests in income of consolidated subsidiaries (5) (22)
Net loss on disposals of facilities
and long-term investments --- (17)
------------ -----------
Income from continuing operations before
income taxes 425 647
Taxes on income (163) (269)
------------ ------------
Income from continuing operations 262 378
------------ ------------
Extraordinary charge from early extinguishment of debt --- (117)
------------ ------------
Net income $ 262 $ 261
============ ============
</TABLE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollar amounts in millions)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
November 30, 1998 May 31, 1998
----------------- -------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 297 $ 403
(Includes changes in all operating assets and liabilities) ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (241) (534)
Purchase of new business, net of cash acquired (446) (679)
Proceeds from sales of facilities, investments and
other assets 4 170
Other items (64) (40)
----------- -----------
Net cash used in investing activities (747) (1,083)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of other borrowings (1,667) (2,762)
Proceeds from other borrowings 2,118 3,349
Proceeds from sales of common stock --- 17
Proceeds from stock options exercised 8 80
Other items --- (16)
----------- -----------
Net cash provided by financing activities 459 668
----------- -----------
Net decrease in cash and cash equivalents 9 (12)
Cash and cash equivalents at beginning of year 23 35
----------- -----------
Cash and cash equivalents at end of year $ 32 $ 23
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000765880
<NAME> HEALTH CARE PROPERTY INVESTORS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,504
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,322,060
<DEPRECIATION> 190,941
<TOTAL-ASSETS> 1,356,612
<CURRENT-LIABILITIES> 0
<BONDS> 621,045
0
187,847
<COMMON> 30,987
<OTHER-SE> 376,585
<TOTAL-LIABILITY-AND-EQUITY> 1,356,612
<SALES> 0
<TOTAL-REVENUES> 161,549
<CGS> 0
<TOTAL-COSTS> 43,116
<OTHER-EXPENSES> 8,566
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,753
<INCOME-PRETAX> 87,167
<INCOME-TAX> 0
<INCOME-CONTINUING> 87,167
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 87,167
<EPS-PRIMARY> 2.56
<EPS-DILUTED> 2.54
</TABLE>
Exhibit 4.7
FIRST AMENDMENT TO RIGHTS AGREEMENT
FIRST AMENDMENT, dated as of January 28, 1999 ("First Amendment"), to
Rights Agreement dated as of July 5, 1990 (the "Rights Agreement"), between
Health Care Property Investors, Inc., a Maryland corporation (the "Company"),
and The Bank of New York (the "Rights Agent"). Capitalized terms used but not
otherwise defined herein shall have the meanings ascribed to them in the Rights
Agreement.
WHEREAS, effective as of July 1, 1996, the Rights Agent was appointed
as successor to Chemical Trust Company of California, which in turn was the
successor Manufacturers Hanover Trust Company of California, the original rights
agent under the Rights Agreement;
WHEREAS, the Company and the Rights Agent previously entered into the
Rights Agreement; and
WHEREAS, pursuant to Section 26 of the Rights Agreement, the Company
and the Rights Agent may from time to time supplement or amend any provision of
the Rights Agreement in accordance with the terms of such Section 26.
NOW, THEREFORE, in consideration of the foregoing premises and mutual
agreements set forth in this Amendment, the parties hereby amend the Rights
Agreement as follows:
1. Section 1(g) of the Rights Agreement is hereby deleted in its
entirety.
2. The second sentence of Section 1(k) of the Rights Agreement is
hereby amended to (a) add the words "prior to the time that any Person has
become an Acquiring Person and" after the word "determines," and before the word
"after" and (b) delete the words "; provided, however, that there must be
Continuing Directors then in office and any such determination shall require the
concurrence of a majority of such Continuing Directors."
3. Section 3(a) of the Rights Agreement is hereby amended by
amending the second sentence thereof to (a) replace the words "beyond the
earlier of the dates set forth in such preceding sentence; provided, however,
there must be Continuing Directors then in office and any such postponement
shall require the concurrence of a majority of such Continuing Directors" from
the second sentence thereof with the words: "specified as a result of an event
described in clause (ii) beyond the date set forth in such clause (ii)" and (b)
add as the third sentence thereof "Nothing herein shall permit such a
postponement of a Distribution Date after a Person becomes an Acquiring Person."
4. Section 11(a)(ii) is hereby amended to delete the second proviso
in its entirety.
5. Section 22 of the Rights Agreement is hereby amended to add the
following after the last sentence thereof:
"In addition, in connection with the issuance or sale of
Common Shares following the Distribution Date and prior to
the Expiration Date, the Company shall, with respect to
Common Shares so issued or sold pursuant to the exercise of
stock options or under any employee plan or arrangement,
granted or awarded, or upon exercise, conversion or exchange
of securities hereafter issued by the Company or by any
limited liability company or limited partnership of which
the Company is the managing member or general partner, in
each case existing prior to the Distribution Date, issue
Right Certificates representing the appropriate number of
Rights in connection with such issuance or sale; provided,
however, that (i) no such Right Certificate shall be issued
if, and to the extent that, the Company shall be advised by
counsel that such issuance would create a significant risk
of material adverse tax consequences to the Company or the
Person to whom such Right Certificate would be issued and
(ii) no such Right Certificate shall be issued if, and to
the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof."
6. Section 23(a) of the Rights Agreement is hereby amended and
restated in its entirety as follows:
"(a) The Board of Directors of the Company may, at its
option, at any time prior to a Trigger Event, redeem all but
not less than all of the then outstanding Rights at a
redemption price of $.005 per Right, appropriately adjusted
to reflect any stock split, stock dividend, recapitalization
or similar transaction occurring after the date hereof (such
redemption price being hereinafter referred to as the
"Redemption Price"), and the Company may, at its option, pay
the Redemption Price in Common Shares (based on the "current
per share market price," determined pursuant to Section
11(d), of the Common Shares at the time of redemption), cash
or any other form of consideration deemed appropriate by the
Board of Directors. The redemption of the Rights by the
Board of Directors may be made effective at such time, on
such basis and subject to such conditions as the Board of
Directors in its sole discretion may establish."
7. Section 26 of the Rights Agreement is hereby amended by deleting
clause (ii) of the second sentence thereof in its entirety, renumbering
clause (iii) of the second sentence to (ii), adding the word "or" immediately
prior to the new clause (ii) and deleting the words "or Redemption Date" and
substituting therefor the words "pursuant to the second sentence of Section
3(a)" in the proviso.
8. The fourth paragraph of Exhibit A to the Rights Agreement ("Form
of Right Certificate") is hereby amended and restated in its entirety as
follows:
"Subject to the provisions of the Rights Agreement, the
Board of Directors may, at its option, (i) redeem the Rights
evidenced by this Right Certificate at a redemption price of
$.005 per Right or (ii) exchange Common Shares for the
Rights evidenced by this Right Certificate, in whole or in
part."
9. The third paragraph of Exhibit B to the Rights Agreement (SUMMARY
OF RIGHTS TO PURCHASE COMMON SHARES) is hereby amended to delete the words "the
Board of Directors, with the concurrence of a majority of the Continuing
Directors (as defined below), may postpone the Distribution Date and that."
10. The ninth paragraph of Exhibit B to the Rights Agreement is
hereby amended to (a) delete the words "until ten days following the public
announcement that a Person has become an Acquiring Person" and replace them with
the words "prior to the time that an Acquiring Person has become such" and (b)
delete the second and third sentences in their entirety.
11. The tenth paragraph of Exhibit B to the Rights Agreement is
hereby deleted in its entirety.
12. The twelfth paragraph of Exhibit B to the Rights Agreement is
hereby amended to delete the following:
", to shorten or lengthen any time period under the Rights Agreement
relating to when the Rights may be redeemed (so long as, under certain
circumstances, a majority of Continuing Directors approve such shortening or
lengthening)."
13. This First Amendment shall be effective as of the date hereof
and, except as expressly set forth herein, the Rights Agreement shall remain in
full force and effect and be otherwise unaffected hereby.
14. This First Amendment may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all such counterparts shall together constitute one and the same document.
IN WITNESS WHEREOF, the parties have executed this First Amendment as
of the date first written above.
HEALTH CARE PROPERTY INVESTORS, INC.
By: /s/ Edward J. Henning
-------------------------
Name: Edward J. Henning
-------------------------
Title: Senior Vice President
THE BANK OF NEW YORK
By: /s/ William F. Powers
-------------------------
Name: William F. Powers
-------------------------
Title: Assistant Vice President
------------------------
Exhibit 4.8
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of
November 20, 1998, is entered into by and between Health Care
Property Investors, Inc., a Maryland corporation (the "Company"),
and James D. Bremner, an individual (the "Unitholder").
RECITALS
WHEREAS, the Company, HCPI/Indiana, LLC, a Delaware
limited liability company (the "Operating LLC") and certain other
parties named therein (the "Transferors") have entered into that
certain Contribution Agreement dated as of the date hereof (the
"Contribution Agreement") providing, among other things, for the
contribution of certain property by the Transferors to the
Operating LLC, the contribution of cash by the Company to the
Operating LLC and the issuance of LLC Units (as defined below) to
the designees, including Unitholder, of the Transferors; and
WHEREAS, it is a condition to the closing of the
transactions contemplated by the Contribution Agreement that the
parties hereto enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and
the mutual agreements herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions.
The following capitalized terms, as used in this
Agreement, have the following meanings:
"Agreement" means this Registration Rights Agreement,
as it may be amended, supplemented or restated from time to time.
"Business Day" means any day except a Saturday, Sunday
or other day on which commercial banks in New York, New York or
Los Angeles, California are authorized by law to close.
"Closing Price" means (i) the closing price of a share
of Common Stock on the principal exchange on which shares of
Common Stock are then trading, if any, or (ii) if the Common
Stock is not traded on an exchange but is quoted on NASDAQ or a
successor quotation system, (1) the last sales price (if the
Common Stock is then listed as a National Market Issue under the
NASD National Market System) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the
Common Stock as reported by NASDAQ or such successor quotation
system or (iii) if the Common Stock is not publicly traded on an
exchange and not quoted on NASDAQ or a successor quotation
system, the mean between the closing bid and asked prices for the
Common Stock.
"Commission" means the Securities and Exchange
Commission.
"Common Stock" means the Common Stock, par value $1.00
per share, of the Company.
"Contribution Agreement" has the meaning set forth in
the recitals to this Agreement.
"Demand Registration" has the meaning set forth in
Section 3.1 (a) hereof.
"Demand Registration Statement" has the meaning set
forth in Section 3.1 (a) hereof.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Exchangeable LLC Units" means LLC Units which may be
exchanged for Common Stock pursuant to the LLC Agreement.
"Full Conversion Date" has the meaning set forth in
Section 2.1 hereof.
"Holder" means any Person (including the Unitholder)
who is the record or beneficial owner of any Registrable Security
or any assignee or transferee of such Registrable Security
(including assignments or transfers of Registrable Securities to
such assignees or transferees as a result of the foreclosure on
any loans secured by such Registrable Securities) unless such
Registrable Security is acquired in a sale pursuant to a
registration statement under the Securities Act or pursuant to a
transaction exempt from registration under the Securities Act, in
each such case where the security sold in such transaction may be
resold without subsequent registration under the Securities Act.
"Issuance Registration Statement" has the meaning set
forth in Section 2.1.
"LLC Agreement" means the Limited Liability Company
Agreement of the Operating LLC dated as of the date of this
Agreement, as the same may be amended, modified or restated from
time to time.
"LLC Units" has the meaning set forth in the LLC
Agreement.
"Person" means an individual or a corporation,
partnership, limited liability company, association, trust, or
any other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"Piggy-Back Registration Statement" means any
registration statement of the Company in which Registrable
Securities are included pursuant to Section 3.1 hereof.
"Registrable Securities" means shares of Common Stock
of the Company issued upon exchange of Exchangeable LLC Units
pursuant to the terms of the LLC Agreement at any time owned,
either of record or beneficially, by any Holder unless and until
(i) a registration statement covering such shares has been
declared effective by the Commission and the shares have been
issued by the Company to Holder upon exchange of Exchangeable LLC
Units pursuant to the effective registration statement or have
been sold or transferred by Holder to another Person pursuant to
the effective registration statement, (ii) such shares are sold
pursuant to the provisions of Rule 144 under the Securities Act
(or any similar provisions then in force) ("Rule 144"), (iii)
such shares are held by a Holder who is not an affiliate of the
Company within the meaning of Rule 144 (a "Rule 144 Affiliate")
and may be sold pursuant to Rule 144(k) under the Securities Act,
(iv) such shares are held by a Holder who is a Rule 144 Affiliate
and all such shares may be sold pursuant to Rule 144 within a
period of three months in accordance with the volume limitations
set forth in Rule 144(e)(1), or (iv) such shares have been
otherwise transferred in a transaction that would constitute a
sale under the Securities Act and such shares may be resold
without subsequent registration under the Securities Act.
"Resale Prospectus" has the meaning set forth in
Section 3.5.
"Resale Registration Statement" has the meaning set
forth in Section 3.5.
"Reinstatement Period" has the meaning set forth in
Section 3.1.
"S-3 Expiration Date" means the date on which Form S-3
(or a similar successor form of registration statement) is not
available to the Company for the registration of Registrable
Securities pursuant to the Securities Act.
"Securities Act" means the Securities Act of 1933, as
amended.
"Selling Holder" means a Holder who is selling
Registrable Securities pursuant to a Demand Registration
Statement or a Piggyback Registration Statement.
"Supplemental Rights Period" has the meaning set forth
in Section 3.1.
ARTICLE II
REGISTRATION
SECTION 2.1. Registration Statement Covering Issuance
of Common Stock. Subject to the provisions of Article III
hereof, the Company will file with the Commission a registration
statement on Form S-3 (the "Issuance Registration Statement")
under Rule 415 under the Securities Act covering the issuance to
Holders of shares of Common Stock in exchange for Exchangeable
LLC Units, such filing to be made not later than the first date
on which the Exchangeable LLC Units issued pursuant to the
Contribution Agreement may be exchanged for shares of Common
Stock pursuant to the provisions of the LLC Agreement. The
Company shall use its reasonable efforts to cause the Issuance
Registration Statement filed with the Commission to be declared
effective by the Commission as soon as practicable following the
filing. In the event the Company is unable to cause the Issuance
Registration Statement to be declared effective by the
Commission, then the rights of the Holders set forth in Sections
3.1 and 3.2 hereof shall apply to Common Stock received by
Holders upon exchange of the Exchangeable LLC Units for shares of
Common Stock. Notwithstanding the availability of rights under
Section 3.1 hereof, the Company shall continue to use its
reasonable efforts to cause the Issuance Registration Statement
to be declared effective by the Commission and if it shall be
declared effective by the Commission, the obligations of the
Company under Section 3.1 hereof shall cease. The Company agrees
to use its reasonable efforts to keep the Issuance Registration
Statement continuously effective (a) until the earlier of (i) the
S-3 Expiration Date, or (ii) the first date (the "Full Conversion
Date") on which no Exchangeable LLC Units (other than those held
by the Company) remain outstanding, and (b) during any
Reinstatement Period.
ARTICLE III
REGISTRATION RIGHTS
SECTION 3.1. Registration Rights if Form S-3 is Not
Available.
The following provisions shall apply with respect to
Registrable Securities during the period, if any, beginning on
the S-3 Expiration Date (or, if the S-3 Expiration Date shall
occur before the 30th day prior to the first date on which the
Exchangeable LLC Units issued pursuant to the Contribution
Agreement may be exchanged for shares of Common Stock, beginning
on such 30th prior day) and ending on the date when the Company
would no longer be obligated to maintain the applicable
registration statement in effect pursuant to the terms of Section
2.1 if the S-3 Expiration Date had not occurred (the
"Supplemental Rights Period") provided, however, that the
Supplemental Rights Period shall not include any period following
the S-3 Expiration Date and prior to the Full Conversion Date if
during that period (the "Reinstatement Period") the Company shall
again be entitled to use Form S-3 or a similar successor form of
registration statement) for registration of the Registrable
Securities. During the Supplemental Rights Period, the Holders
shall have the following rights:
(a) Demand Right. Holders may make a written
demand for registration under the Securities Act of all or part
of the Registrable Securities (a "Demand Registration");
provided, however, that (i) the Company shall not be obligated to
effect more than one Demand Registration for Holders in any
twelve month period, and (ii) the number of Registrable
Securities proposed to be sold by the Holders making such written
demand either (x) shall be all the Registrable Securities owned
by all Holders of all Registrable Securities or (y) shall have an
estimated market value at the time of such demand (based upon the
then market price of a share of Common Stock) of at least
$1,000,000. The Company shall file any registration statement
required by this Section 3.1(a) (a "Demand Registration
Statement") with the Commission within thirty (30) days of
receipt of the requisite Holder demand and shall use its
reasonable efforts to cause the Demand Registration Statement to
be declared effective by the Commission as soon as practicable
thereafter. The Company shall use its reasonable efforts to keep
each such Demand Registration Statement continuously effective
for a period of forty five (45) days, unless the offering
pursuant to the Demand Registration Statement is an underwritten
offering and the managing underwriter requires that the Demand
Registration Statement be kept effective for a longer period of
time, in which event the Company shall maintain the effectiveness
of the Demand Registration Statement for such longer period up to
one hundred twenty (120) days (such period, in each case, to be
extended by the number of days, if any, during which Holders were
not permitted to make offers or sales under the Demand
Registration Statement by reason of Section 3.3 hereof). The
Company may elect to include in any Demand Registration Statement
additional shares of Common Stock to be issued by the Company,
subject, in the case of an underwritten secondary Demand
Registration, to cutback by the managing underwriters. A
registration shall not constitute a Demand Registration under
this Section 3.1(a) until the Demand Registration Statement has
been declared effective.
(b) Piggyback Rights. If the Company at any time
during the Supplemental Rights Period proposes to file a
registration statement under the Securities Act with respect to
an offering of shares of Common Stock for its own account or for
the account of any holders of shares of its Common Stock, in each
case solely for cash (other than an Issuance Registration
Statement or a registration statement (i) on Form S-8 or any
successor form to Form S-8 or in connection with any employee or
director welfare, benefit or compensation plan, (ii) in
connection with an exchange offer or an offering of securities
exclusively to existing security holders of the Company or its
subsidiaries or (iii) relating to a transaction pursuant to Rule
145 of the Securities Act), the Company shall give written notice
of the proposed registration to the record owners of Registrable
Securities at least twenty (20) days prior to the filing of the
registration statement. The Holders of Registrable Securities
shall have the right to request that all or any part of the
Registrable Securities be included in the registration by giving
written notice to the Company within ten (10) days after the
giving of the foregoing notice by the Company; provided, however,
(A) if the registration relates to an underwritten primary
offering on behalf of the Company and the managing underwriters
of the offering determine in good faith that the aggregate amount
of securities of the Company which the Company, Holders of
Registrable Securities and holders of other piggyback
registration rights propose to include in the registration
statement exceeds the maximum amount of securities that could
practicably be included therein, the Company will include in the
registration, up to such maximum amount, first, the securities
which the Company proposes to sell, and second, pro rata, the
Registrable Securities and the securities proposed to be included
by any holders of other piggyback registration rights, and (B) if
the registration is an underwritten secondary registration on
behalf of any of the other security holders of the Company (the
"Secondary Offering Security Holders") and the managing
underwriters determine in good faith that the aggregate amount of
securities which the Holders of Registrable Securities, the
Secondary Offering Security Holders and the holders of other
piggyback registration rights propose to include in the
registration exceeds the maximum amount of securities that could
practicably be included therein, the Company will include in the
registration, up to such maximum amount, first, the securities to
be sold for the account of the Secondary Offering Security
Holders, and second, pro rata, the Registrable Securities and the
securities proposed to be included by any holders of other
piggyback registration rights. (It is understood, however, that
the underwriters shall have the right to terminate entirely the
participation of the Holders of Registrable Securities if the
underwriters eliminate entirely the participation in the
registration of all the other holders electing to include
securities in the registration (other than the Company and the
Secondary Offering Security Holders) because it is not
practicable to include such securities in the registration.) If
the registration is not an underwritten registration, then all of
the Registrable Securities requested to be included in the
registration shall be included. Registrable Securities proposed
to be registered and sold pursuant to an underwritten offering
for the account of the Holders of Registrable Securities shall be
sold to prospective underwriters selected by such Holders and
approved by the Company and on the terms and subject to the
conditions of one or more underwriting agreements negotiated
between the Company, the Secondary Offering Security Holders, the
Holders of Registrable Securities and any other holders demanding
registration and the prospective underwriters. Registrable
Securities need not be included in any registration statement
pursuant to this provision if in the opinion of counsel to the
Company (a copy of which opinion is delivered to such record
owners) registration under the Securities Act is not required for
public distribution of the Registrable Securities. The Company
shall have the right to terminate or withdraw any registration
initiated by it under this Section 3.1(b) prior to the
effectiveness of the registration statement whether or not any
holder has elected to include any Registrable Securities in the
registration statement.
(c) Company Repurchase. Upon receipt by the
Company of a registration demand pursuant to Section 3.1(a) or
3.1(b), the Company may, but will not be obligated to, purchase
for cash from any Holder so requesting registration all, but not
less than all, of the Registrable Securities which are the
subject of the request at a price per share equal to the average
of the Closing Prices of a share of Common Stock for the ten (10)
trading days immediately preceding the date of receipt by the
Company of the registration request. In the event the Company
elects to purchase the Registrable Securities which are the
subject of a registration request, the Company shall notify the
Holder within five Business Days of the date of receipt of the
request by the Company, which notice shall indicate (i) that the
Company will purchase for cash the Registrable Securities held by
the Holder which are the subject of the request, (ii) the price
per share, calculated in accordance with the preceding sentence,
which the Company will pay the Holder and (iii) the date upon
which the Company shall purchase the Registrable Securities,
which date shall not be later than the tenth business day after
receipt of the registration request. If the Company so elects to
purchase the Registrable Securities which are the subject of a
registration request, then upon such purchase the Company shall
be relieved of its obligations under this Section 3.1 with
respect to such Registrable Securities.
SECTION 3.2. Additional Registration Procedures.
In connection with any registration statement
covering Registrable Securities filed by the Company pursuant to
Section 2.1 or 3.1 hereof:
(a) Each Holder agrees to provide in a timely
manner information requested by the Company regarding the
proposed distribution by that Holder of the Registrable
Securities and all other information reasonably requested by the
Company in connection with the preparation of the registration
statement covering the Registrable Securities. The Company will
provide the Holder with a copy of the portion of the registration
statement containing information provided by the Holder pursuant
to this Section 3.2(a) at least 48 hours in advance of the filing
of the registration statement containing such information with
the Commission.
(b) In connection with any Demand Registration
Statement or Piggyback Registration Statement, the Company will
furnish to each Selling Holder of Registrable Securities that
number of copies of the registration statement or prospectus in
conformity with the requirements of the Securities Act and such
other documents as the Selling Holder may reasonably request in
order to facilitate the disposition of the Registrable Securities
owned by the Selling Holder.
(c) The Company will promptly notify each Selling
Holder of Registrable Securities covered by the registration
statement of the effectiveness of the registration statement and
of any stop order issued or threatened by the Commission and take
all reasonable actions required to prevent the entry of such stop
order or to remove it if entered.
(d) In connection with any Demand Registration
Statement or Piggyback Registration Statement, the Company will
use reasonable efforts to register or qualify the Registrable
Securities under such securities or blue sky laws of those
jurisdictions in the United States (where an exemption is not
available) as any Selling Holder or managing underwriter or
underwriters, if any, reasonably (in light of the Selling
Holder's intended plan of distribution) requests, provided,
however, that the Company will not be required to (i) qualify
generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (d), (ii)
subject itself to taxation in any such jurisdiction or (iii)
consent to general service of process in any such jurisdiction.
(e) In connection with any Demand Registration
Statement or Piggyback Registration Statement, the Company will
enter into customary agreements (including an underwriting
agreement, if any, in customary form) as are reasonably required
in order to expedite or facilitate the disposition of Registrable
Securities pursuant to the Demand Registration Statement or
Piggyback Registration Statement. Each Selling Holder
participating in an underwritten offering shall also enter into
and perform its or his obligations under the underwriting
agreement.
(f) The Company will use its reasonable efforts
to cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the
Company are then listed.
SECTION 3.3. Material Developments; Suspension
of Offering.
(a) Notwithstanding the provisions of Sections
2.1 or 3.1 hereof or any other provisions of this Agreement to
the contrary, the Company shall not be required to file a
registration statement or to keep any registration statement
effective if the negotiation or consummation of a transaction by
the Company or any of its subsidiaries is pending or an event has
occurred, which negotiation, consummation or event would require
additional disclosure by the Company in the registration
statement of material information which the Company (in the
judgment of management of the Company) has a bona fide business
purpose for keeping confidential and the nondisclosure of which
in the registration statement might cause the registration
statement to fail to comply with applicable disclosure
requirements; provided, however, that the Company (i) will
promptly notify the Holders of Registrable Securities otherwise
entitled to registration of the foregoing and (ii) may not delay,
suspend or withdraw the registration statement for such reason
more than twice in any twelve (12) month period or three times in
any twenty-four (24) month period or for more than ninety (90)
days at any time. Upon receipt of any notice from the Company of
the happening of any event during the period the registration
statement is effective which is of a type specified in the
preceding sentence or as a result of which the registration
statement or related prospectus contains any untrue statement of
a material fact or omits to state any material fact required to
be stated therein or necessary to make the statement therein, in
light of the circumstances under which they were made not
misleading, Holders agree that they will immediately discontinue
offers and sales of the Registrable Securities under the
registration statement (until they receive copies of a
supplemental or amended prospectus that corrects the
misstatements or omissions and receive notice that any post-
effective amendment has become effective). If so directed by the
Company, Holders will deliver to the Company any copies of the
prospectus covering the Registrable Securities in their
possession at the time of receipt of such notice. In the event
the Company shall give notice of the happening of an event of the
kind described in this Section 3.3(a), the Company shall extend
the period during which the affected registration statement is
required to be maintained pursuant to this Agreement by the
number of days during the period from and including the date of
the giving of notice pursuant to this Section 3.3(a) to the date
when the Company shall make available a prospectus supplemented
or amended to conform with the requirements of the Securities
Act.
(b) If all reports required to be filed by the
Company pursuant to the Exchange Act have not been filed by the
required date without regard to any extension, or if the
consummation of any business combination by the Company has
occurred or is probable for purposes of Rule 3-05 or Article 11
of Regulation S-X under the Securities Act, upon written notice
thereof by the Company to the Holders, the rights of the Holders
to acquire Registrable Securities pursuant to the Issuance
Registration Statement or to offer, sell or distribute any
Registrable Securities pursuant to any Demand Registration
Statement or Piggyback Registration Statement or to require the
Company to take action with respect to the registration of any
Registrable Securities pursuant to this Agreement shall be
suspended until the date on which the Company has filed such
reports or obtained and filed the financial information required
by Rule 3-05 or Article 11 of Regulation S-X to be included or
incorporated by reference, as applicable, in the Issuance
Registration Statement, the Demand Registration Statement or the
Piggyback Registration Statement and the Company shall notify the
Holders as promptly as practicable when such suspension is no
longer required.
SECTION 3.4. Registration Expenses.
In connection with any registration statement
required to be filed hereunder, the Company shall pay the
following registration expenses incurred in connection with the
registration (the "Registration Expenses"): (i) all registration
and filing fees, (ii) fees and expenses of compliance with
securities or blue sky laws, (iii) printing expenses, (iv)
internal expenses (including, without limitation, all salaries
and expenses of its officers and employees performing legal or
accounting duties), (v) the fees and expenses incurred in
connection with the listing of the Registrable Securities on each
securities exchange on which similar securities issued by the
Company are then listed, (vi) fees and disbursements of counsel
for the Company and the independent public accountants of the
Company, and (vii) the fees and expenses of any experts retained
by the Company in connection with such registration. The Holders
shall be responsible for the payment of any and all other
expenses incurred by them in connection with the registration and
sale of Registrable Securities, including, without limitation,
brokerage and sales commissions, underwriting fees, discounts and
commissions attributable to the Registrable Securities, fees and
disbursements of counsel representing the Holder, and any
transfer taxes relating to the sale or disposition of the
Registrable Securities.
SECTION 3.5. Indemnification by the Company.
The Company agrees to indemnify and hold harmless each
Selling Holder, its officers, directors and agents, and each
Person, if any, who controls such Selling Holder within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages
and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in any Demand Registration
Statement or Piggyback Registration Statement (individually, a
"Resale Registration Statement") or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, or
arising out of any untrue statement or alleged untrue statement
of a material fact contained in any prospectus contained in a
Resale Registration Statement at the time it became effective (a
"Resale Prospectus"), or the omission or alleged omission
therefrom of a material fact necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading, except insofar as such losses,
claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission
based upon information furnished in writing to the Company by
such Selling Holder or on such Selling Holder's behalf expressly
for inclusion therein; provided, however, that the Company will
not be liable in any case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based upon
any untrue statement or omission contained in a Resale Prospectus
which was corrected in a supplement or amendment thereto if such
claim is brought by a purchaser of Registrable Securities from
the Selling Holder and the Selling Holder failed to deliver to
such purchaser the supplement or amendment to the Resale
Prospectus in a timely manner.
SECTION 3.6. Indemnification by Holders of Registrable
Securities.
Each Selling Holder of Resale Registrable Securities
covered by a Registration Statement agrees to indemnify and hold
harmless the Company, its officers, directors and agents and each
Person, if any, who controls the Company within the meaning of
either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the indemnity set forth in
Section 3.5 from the Company to Selling Holders, but only with
respect to information relating to such Selling Holder furnished
in writing by such Selling Holder or on such Selling Holder's
behalf expressly for use in any Resale Registration Statement or
Resale Prospectus or any amendment or supplement thereto. Each
Holder also agrees severally, and not jointly with other Selling
Holders, to indemnify and hold harmless underwriters of the
Registrable Securities, their officers and directors and each
Person who controls such underwriters within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange
Act on substantially the same basis as that of the
indemnification of the Company provided in this Section 3.6. The
foregoing indemnification obligations shall be limited as to each
Selling Holder to the amount of the gross proceeds from the sale
by the respective Selling Holder of Resale Registrable Securities
covered by the Resale Registration Statement.
SECTION 3.7. Conduct of Indemnification Proceedings.
Each indemnified party shall give reasonably prompt
notice to each indemnifying party of any action or proceeding
commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify the indemnifying party (i)
shall not relieve it from any liability which it may have under
the indemnity agreement provided in Section 3.5 or 3.6 above,
unless and to the extent it did not otherwise learn of such
action and the lack of notice by the indemnified party results in
the forfeiture by the indemnifying party of substantial rights
and defenses and (ii) shall not, in any event, relieve the
indemnifying party from any obligations to the indemnified party
other than the indemnification obligation provided under Section
3.5 or 3.6 above. If the indemnifying party so elects within a
reasonable time after receipt of notice, the indemnifying party
may assume the defense of the action or proceeding at the
indemnifying party's own expense with counsel chosen by the
indemnifying party and approved by the indemnified party, which
approval shall not be unreasonably withheld; provided, however,
that if the defendants in any such action or proceeding include
both the indemnified party and the indemnifying party and the
indemnified party reasonably determines based upon advice of
legal counsel experienced in such matters, that there may be
legal defenses available to it which are different from or in
addition to those available to the indemnifying party, then the
indemnified party shall be entitled to separate counsel at the
indemnifying party's expense, which counsel shall be chosen by
the indemnified party and approved by the indemnifying party,
which approval shall not be unreasonably withheld; provided
further, that it is understood that the indemnifying party; shall
not be liable for the fees, charges and disbursements of more
than one separate firm. If the indemnifying party does not
assume the defense, after having received the notice referred to
in the first sentence of this Section, the indemnifying party
will pay the reasonable fees and expenses of counsel for the
indemnified party; in that event, however, the indemnifying party
will not be liable for any settlement effected without the
written consent of the indemnifying party. If an indemnifying
party assumes the defense of an action or proceeding in
accordance with this Section, the indemnifying party shall not be
liable for any fees and expenses of counsel for the indemnified
party incurred thereafter in connection with that action or
proceeding except as set forth in the proviso in the second
sentence of this Section 3.7. Unless and until a final judgment
is rendered that an indemnified party is not entitled to the
costs of defense under the provisions of this Section, the
indemnifying party shall reimburse, promptly as they are
incurred, the indemnified party's costs of defense.
SECTION 3.8. Contribution.
(a) If the indemnification provided for in Section 3.5
or 3.6 hereof is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or
liabilities referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to
the amount paid or payable by indemnified party as a result of
such losses, claims, damages or liabilities as between the
Company on the one hand and each Selling Holder on the other, in
such proportion as is appropriate to reflect the relative fault
of the Company and of each Selling Holder in connection with such
statements or omissions which resulted in such losses, claims,
damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company on the one
hand and of each Selling Holder on the other shall be determined
by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information
supplied by the Company or such Selling Holder, and the Company's
and the Selling Holder's relative intent, knowledge, access to
information and opportunity to correct or prevent such statement
or omission.
(b) The Company and the Selling Holders agree that it
would not be just and equitable if contribution pursuant to this
Section 3.8 were determined by pro rata allocation or by any
other method of allocation which does not take account of the
equitable considerations referred to in Section 3.8(a). The
amount paid or payable by an indemnifying party as a result of
the losses, claims, damages or liabilities referred to in
Sections 3.5 and 3.6 hereof shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses
reasonably incurred by the indemnified party in connection with
investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 3.8, no Selling
Holder shall be required to contribute any amount in excess of
the amount by which the total price at which the securities of
such Selling Holder were offered to the public exceeds the amount
of any damages which such Selling Holder has otherwise been
required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
SECTION 3.9. Participation in Underwritten
Registrations.
No Holder may participate in any underwritten
registration hereunder unless the Holder (a) agrees to sell his
or its Registrable Securities on the basis provided in the
applicable underwriting arrangements and (b) completes and
executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents in customary form as
reasonably required under the terms of such underwriting
arrangements.
SECTION 3.10. Holdback Agreements.
Each Holder whose securities are included in a Demand
Registration Statement or Piggyback Registration Statement agrees
not to effect any sale or distribution of the securities
registered or any similar security of the Company, or any
securities convertible into or exchangeable or exercisable for
such securities, including a sale pursuant to Rule 144 under the
Securities Act, during the 14 days prior to, and during the 90-
day period beginning on, the effective date of such registration
statement (except as part of such registration), if and to the
extent requested in writing by the Company in the case of a non-
underwritten public offering or if and to the extent requested in
writing by the managing underwriter or underwriters in the case
of an underwritten public offering.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. Specific Performance; Costs of
Enforcement.
The parties hereto acknowledge that there would be no
adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in
addition to any other remedy to which it may be entitled at law
or in equity, shall be entitled to compel specific performance of
the obligation of any other party under this Agreement in
accordance with the terms and conditions of this Agreement in any
court of the United States or any State thereof having
jurisdiction. The reasonable costs and expenses (including
reasonable attorneys fees) of the prevailing party in proceedings
commenced to enforce the provisions of this Agreement shall be
paid by the non-prevailing party in the proceedings.
SECTION 4.2. Amendments and Waivers.
The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the
provisions hereof may not be given without the prior written
consent of the Company and the Holders holding at least two-
thirds (2/3) of the then outstanding Registrable Securities and
Exchangeable LLC Units (other than Exchangeable LLC Units held by
the Company). No failure or delay by any party to insist upon
the strict performance of any covenant, duty, agreement or
condition of this Agreement or to exercise any right or remedy
consequent upon any breach thereof shall constitute a waiver of
any such breach or any other covenant, duty, agreement or
condition.
SECTION 4.3. Notices.
Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been
given (a) when delivered by hand or upon transmission by
telecopier or similar facsimile transmission device, (b) on the
date delivered by a courier service, or (c) on the third Business
Day after mailing by registered or certified mail, postage
prepaid, return receipt requested, in any case addressed as
follows:
(1) if to any Holder, to c/o Bremner & Wiley, Inc.,
250 E. 96th St., Suite 150, Indianapolis, IN 46240, or to such
other address and to such other Persons as the Holders may
hereafter notify the Company in writing; and
(2) if to the Company, to Health Care Property
Investors, Inc., 4675 MacArthur Court, Suite 900, Newport Beach,
California 92660 (Attention: Edward J. Henning), or to such
other address as the Company may hereafter specify in writing.
SECTION 4.4. Successors and Assigns.
The rights and obligations of the Holders under this
Agreement shall not be assignable by any Holder to any Person
that is not a Holder. This Agreement shall be binding upon the
parties hereto, the Holders and their respective successors and
assigns.
SECTION 4.5. Counterparts.
This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same
agreement.
SECTION 4.6. Governing Law
This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California
without regard to the conflicts of law provisions thereof.
SECTION 4.7. Severability.
In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance,
is held invalid, illegal or unenforceable, the validity, legality
and enforceability of any such provision in every other respect
and of the remaining provisions contained herein shall not be
affected or impaired thereby.
SECTION 4.8. Entire Agreement.
This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein.
This Agreement supersedes all prior agreements and understandings
between the parties with respect to the subject matter of this
Agreement.
SECTION 4.9. Headings.
The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the
meaning of any provision of this Agreement.
SECTION 4.10. Selling Holders Become Party to this
Agreement.
By asserting or participating in the benefits of
registration of Registrable Securities pursuant to this
Agreement, each Holder agrees that it or he will be deemed a
party to this Agreement and be bound by each of its terms.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first written above.
HEALTH CARE PROPERTY INVESTORS, INC.,
a Maryland corporation
By: /s/ Edward J. Henning
-----------------------
Name: Edward J. Henning
---------------------
Title: Senior Vice President
General Counsel and
Corporate Secretary
UNITHOLDER
/s/ James D. Bremner
------------------------------
James D. Bremner, an individual
Exhibit 4.9
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of January
20, 1999, is entered into by and between Health Care Property
Investors, Inc., a Maryland corporation (the "Company"), and the
parties identified on the signature page hereof as "Unitholders"
(collectively, the "Unitholders").
RECITALS
WHEREAS, the Company, the Unitholders and HCPI/Utah,
LLC, a Delaware limited liability company (the "Operating LLC")
have entered into that certain Contribution Agreement dated as of
the date hereof (the "Contribution Agreement") providing, among
other things, for the contribution of certain property by the
Unitholders to the Operating LLC and the contribution of cash by
the Company to the Operating LLC; and
WHEREAS, it is a condition to the closing of the
transactions contemplated by the Contribution Agreement that the
parties hereto enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and
the mutual agreements herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions.
The following capitalized terms, as used in this
Agreement, have the following meanings:
"Agreement" means this Registration Rights Agreement,
as it may be amended, supplemented or restated from time to time.
"Business Day" means any day except a Saturday, Sunday
or other day on which commercial banks in New York, New York, Los
Angeles, California or Salt Lake City, Utah are authorized by law
to close.
"Closing Price" means (i) the closing price of a share
of Common Stock on the principal exchange on which shares of
Common Stock are then trading, if any, or (ii) if the Common
Stock is not traded on an exchange but is quoted on NASDAQ or a
successor quotation system, (1) the last sales price (if the
Common Stock is then listed as a National Market Issue under the
NASD National Market System) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the
Common Stock as reported by NASDAQ or such successor quotation
system or (iii) if the Common Stock is not publicly traded on an
exchange and not quoted on NASDAQ or a successor quotation
system, the mean between the closing bid and asked prices for the
Common Stock.
"Commission" means the Securities and Exchange
Commission.
"Common Stock" means the Common Stock, par value $1.00
per share, of the Company.
"Contribution Agreement" has the meaning set forth in
the recitals to this Agreement.
"Demand Registration" has the meaning set forth in
Section 3.1 (a) hereof.
"Demand Registration Statement" has the meaning set
forth in Section 3.1 (a) hereof.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Exchangeable LLC Units" means LLC Units which may be
exchanged for Common Stock pursuant to the LLC Agreement.
"Filing Date" has the meaning set forth in Section 2.1
hereof.
"Full Conversion Date" has the meaning set forth in
Section 2.1 hereof.
"Holder" means any Person (including a Unitholder) who
is the record or beneficial owner of any Registrable Security or
any assignee or transferee of such Registrable Security
(including assignments or transfers of Registrable Securities to
such assignees or transferees as a result of the foreclosure on
any loans secured by such Registrable Securities) unless such
Registrable Security is acquired in a sale pursuant to a
registration statement under the Securities Act or pursuant to a
transaction exempt from registration under the Securities Act, in
each such case where the security sold in such transaction may be
resold without subsequent registration under the Securities Act.
"Issuance Registration Statement" has the meaning set
forth in Section 2.1.
"LLC Agreement" means the Limited Liability Company
Agreement of the Operating LLC dated as of the date of this
Agreement, as the same may be amended, modified or restated from
time to time.
"LLC Units" has the meaning set forth in the LLC
Agreement.
"Person" means an individual or a corporation,
partnership, limited liability company, association, trust, or
any other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"Piggy-Back Registration Statement" means any
registration statement of the Company in which Registrable
Securities are included pursuant to Section 3.1 hereof.
"Registrable Securities" means shares of Common Stock
of the Company issued upon exchange of Exchangeable LLC Units
pursuant to the terms of the LLC Agreement at any time owned,
either of record or beneficially, by any Holder unless and until
(i) a registration statement covering such shares has been
declared effective by the Commission and the shares have been
issued by the Company to Holder upon exchange of Exchangeable LLC
Units pursuant to the effective registration statement or have
been sold or transferred by Holder to another Person pursuant to
the effective registration statement, (ii) such shares are sold
pursuant to the provisions of Rule 144 under the Securities Act
(or any similar provisions then in force) ("Rule 144"), (iii)
such shares are held by a Holder who is not an affiliate of the
Company within the meaning of Rule 144 (a "Rule 144 Affiliate")
and may be sold pursuant to Rule 144(k) under the Securities Act,
(iv) such shares are held by a Holder who is a Rule 144 Affiliate
and all such shares may be sold pursuant to Rule 144 within a
period of three months in accordance with the volume limitations
set forth in Rule 144(e)(1), or (iv) such shares have been
otherwise transferred in a transaction that would constitute a
sale under the Securities Act and such shares may be resold
without subsequent registration under the Securities Act.
"Resale Prospectus" has the meaning set forth in
Section 3.5.
"Resale Registration Statement" has the meaning set
forth in Section 3.5.
"Reinstatement Period" has the meaning set forth in
Section 3.1.
"S-3 Expiration Date" means the date on which Form S-3
(or a similar successor form of registration statement) is not
available to the Company for the registration of Registrable
Securities pursuant to the Securities Act.
"Securities Act" means the Securities Act of 1933, as
amended.
"Selling Holder" means a Holder who is selling
Registrable Securities pursuant to a Demand Registration
Statement or a Piggyback Registration Statement.
"Supplemental Rights Period" has the meaning set forth
in Section 3.1.
ARTICLE 2
REGISTRATION
Section 2.1 Registration Statement Covering Issuance
of Common Stock. Subject to the provisions of Article III
hereof, the Company will file with the Commission a registration
statement on Form S-3 (the "Issuance Registration Statement")
under Rule 415 under the Securities Act covering the issuance to
Holders of shares of Common Stock in exchange for Exchangeable
LLC Units, such filing to be made within the two (2) week period
following the date (the "Filing Date") which is the later of (i)
a date which is fourteen (14) days prior to the first date on
which the Exchangeable LLC Units issued pursuant to the
Contribution Agreement may be exchanged for shares of Common
Stock pursuant to the provisions of the LLC Agreement or (ii)
such other date as may be required by the Commission pursuant to
its interpretation of applicable federal securities laws and the
rules and regulations promulgated thereunder. The Company shall
use its reasonable efforts to cause the Issuance Registration
Statement filed with the Commission to be declared effective by
the Commission as soon as practicable following the filing, and
within sixty (60) days after filing. In the event the Company is
unable to cause the Issuance Registration Statement to be
declared effective by the Commission, then the rights of the
Holders set forth in Sections 3.1 and 3.2 hereof shall apply to
Common Stock received by Holders upon exchange of the
Exchangeable LLC Units for shares of Common Stock.
Notwithstanding the availability of rights under Section 3.1
hereof, the Company shall continue to use its reasonable efforts
to cause the Issuance Registration Statement to be declared
effective by the Commission and if it shall be declared effective
by the Commission, the obligations of the Company under Section
3.1 hereof shall cease. The Company agrees to use its reasonable
efforts to keep the Issuance Registration Statement continuously
effective (a) until the earlier of (i) the S-3 Expiration Date,
or (ii) the first date (the "Full Conversion Date") on which no
Exchangeable LLC Units (other than those held by the Company)
remain outstanding, and (b) during any Reinstatement Period.
ARTICLE 3
REGISTRATION RIGHTS
Section 3.1 Registration Rights if Form S-3 is Not
Available.
The following provisions shall apply with respect to
Registrable Securities during the period, if any, beginning on
the S-3 Expiration Date (or, if the S-3 Expiration Date shall
occur before the 30th day prior to the first date on which the
Exchangeable LLC Units issued pursuant to the Contribution
Agreement may be exchanged for shares of Common Stock, beginning
on such 30th prior day) and ending on the date when the Company
would no longer be obligated to maintain the applicable
registration statement in effect pursuant to the terms of Section
2.1 if the S-3 Expiration Date had not occurred (the
"Supplemental Rights Period"); provided, however, that the
Supplemental Rights Period shall not include any period following
the S-3 Expiration Date and prior to the Full Conversion Date if
during that period (the "Reinstatement Period") the Company shall
again be entitled to use Form S-3 or a similar successor form of
registration statement) for registration of the Registrable
Securities. During the Supplemental Rights Period, the Holders
shall have the following rights:
(a) Demand Right. Holders may make a written demand
for registration under the Securities Act of all or part of the
Registrable Securities (a "Demand Registration"); provided,
however, that (i) the Company shall not be obligated to effect
more than one Demand Registration for Holders in any twelve month
period, and (ii) the number of Registrable Securities proposed to
be sold by the Holders making such written demand either (x)
shall be all the Registrable Securities owned by all Holders of
all Registrable Securities or (y) shall have an estimated market
value at the time of such demand (based upon the then market
price of a share of Common Stock) of at least $1,000,000. The
Company shall file any registration statement required by this
Section 3.1(a) (a "Demand Registration Statement") with the SEC
within thirty (30) days of receipt of the requisite Holder demand
and shall use its reasonable efforts to cause the Demand
Registration Statement to be declared effective by the SEC as
soon as practicable thereafter. The Company shall give written
notice of the proposed filing of the Demand Registration
Statement to the Holders of Registrable Securities as soon as
practicable (but in no event less than ten (10) days before the
anticipated filing date), and such notice shall offer such
Holders the opportunity to participate in such Demand
Registration and to register such number of shares of Registrable
Securities as each such Holder may request. The Company shall
use its reasonable efforts to keep each such Demand Registration
Statement continuously effective for a period of forty five (45)
days, unless the offering pursuant to the Demand Registration
Statement is an underwritten offering and the managing
underwriter requires that the Demand Registration Statement be
kept effective for a longer period of time, in which event the
Company shall maintain the effectiveness of the Demand
Registration Statement for such longer period up to one hundred
twenty (120) days (such period, in each case, to be extended by
the number of days, if any, during which Holders were not
permitted to make offers or sales under the Demand Registration
Statement by reason of Section 3.3 hereof). The Company may
elect to include in any Demand Registration Statement additional
shares of Common Stock to be issued by the Company, subject, in
the case of an underwritten secondary Demand Registration, to
cutback by the managing underwriters. A registration shall not
constitute a Demand Registration under this Section 3.1(a) until
the Demand Registration Statement has been declared effective.
(b) Piggyback Rights. If the Company at any time
during the Supplemental Rights Period proposes to file a
registration statement under the Securities Act with respect to
an offering of shares of Common Stock for its own account or for
the account of any holders of shares of its Common Stock, in each
case solely for cash (other than an Issuance Registration
Statement or a registration statement (i) on Form S-8 or any
successor form to Form S-8 or in connection with any employee or
director welfare, benefit or compensation plan, (ii) in
connection with an exchange offer or an offering of securities
exclusively to existing security holders of the Company or its
subsidiaries or (iii) relating to a transaction pursuant to Rule
145 of the Securities Act), the Company shall give written notice
of the proposed registration to the record owners of Registrable
Securities at least twenty (20) days prior to the filing of the
registration statement. The Holders of Registrable Securities
shall have the right to request that all or any part of the
Registrable Securities be included in the registration by giving
written notice to the Company within ten (10) days after the
giving of the foregoing notice by the Company; provided, however,
(A) if the registration relates to an underwritten primary
offering on behalf of the Company and the managing underwriters
of the offering determine in good faith that the aggregate amount
of securities of the Company which the Company, Holders of
Registrable Securities and holders of other piggyback
registration rights propose to include in the registration
statement exceeds the maximum amount of securities that could
practicably be included therein, the Company will include in the
registration, up to such maximum amount, first, the securities
which the Company proposes to sell, and second, pro rata, the
Registrable Securities and the securities proposed to be included
by any holders of other piggyback registration rights, and (B) if
the registration is an underwritten secondary registration on
behalf of any of the other security holders of the Company (the
"Secondary Offering Security Holders") and the managing
underwriters determine in good faith that the aggregate amount of
securities which the Holders of Registrable Securities, the
Secondary Offering Security Holders and the holders of other
piggyback registration rights propose to include in the
registration exceeds the maximum amount of securities that could
practicably be included therein, the Company will include in the
registration, up to such maximum amount, first, the securities to
be sold for the account of the Secondary Offering Security
Holders, and second, pro rata, the Registrable Securities and the
securities proposed to be included by any holders of other
piggyback registration rights. The Company shall use its
commercially reasonable efforts to cause, but shall not be
obligated to cause, the managing Underwriter or Underwriters of a
proposed underwritten offering to permit the Registrable
Securities requested to be included in a piggy-back registration
to be included on the same terms and conditions as any similar
securities of the Company included therein. (It is understood,
however, that the underwriters shall have the right to terminate
entirely the participation of the Holders of Registrable
Securities if the underwriters eliminate entirely the
participation in the registration of all the other holders
electing to include securities in the registration (other than
the Company and the Secondary Offering Security Holders) because
it is not practicable to include such securities in the
registration.) If the registration is not an underwritten
registration, then all of the Registrable Securities requested to
be included in the registration shall be included. Registrable
Securities proposed to be registered and sold pursuant to an
underwritten offering for the account of the Holders of
Registrable Securities shall be sold to prospective underwriters
selected by such Holders and approved by the Company and on the
terms and subject to the conditions of one or more underwriting
agreements negotiated between the Company, the Secondary Offering
Security Holders, the Holders of Registrable Securities and any
other holders demanding registration and the prospective
underwriters. Registrable Securities need not be included in any
registration statement pursuant to this provision if in the
opinion of counsel to the Company (a copy of which opinion is
delivered to the record owners of Registrable Securities)
registration under the Securities Act is not required for public
distribution of the Registrable Securities. The Company shall
have the right to terminate or withdraw any registration
initiated by it under this Section 3.1(b) prior to the
effectiveness of the registration statement whether or not any
holder has elected to include any Registrable Securities in the
registration statement.
(c) Company Repurchase. Upon receipt by the Company
of a registration demand pursuant to Section 3.1(a), the Company
may, but will not be obligated to, purchase for cash from any
Holder so requesting registration all, but not less than all, of
the Registrable Securities which are the subject of the request
at a price per share equal to the average of the Closing Prices
of a share of Common Stock for the ten (10) trading days
immediately preceding the date of receipt by the Company of the
registration request. In the event the Company elects to
purchase the Registrable Securities which are the subject of a
registration request, the Company shall notify the Holder within
five Business Days of the date of receipt of the request by the
Company, which notice shall indicate (i) that the Company will
purchase for cash the Registrable Securities held by the Holder
which are the subject of the request, (ii) the price per share,
calculated in accordance with the preceding sentence, which the
Company will pay the Holder and (iii) the date upon which the
Company shall purchase the Registrable Securities, which date
shall not be later than the tenth business day after receipt of
the registration request. If the Company so elects to purchase
the Registrable Securities which are the subject of a
registration request, then upon such purchase the Company shall
be relieved of its obligations under this Section 3.1 with
respect to such Registrable Securities.
Section 3.2 Additional Registration Procedures.
In connection with any registration statement covering
Registrable Securities filed by the Company pursuant to Section
2.1 or 3.1 hereof:
(a) Each Holder agrees to provide in a timely manner
information requested by the Company regarding the proposed
distribution by that Holder of the Registrable Securities and all
other information reasonably requested by the Company in
connection with the preparation of the registration statement
covering the Registrable Securities.
(b) The Company will, if requested by any of the
Holders, prior to filing a registration statement or prospectus,
or any amendment or supplement thereto in connection with any
Demand Registration Statement or Piggyback Registration
Statement, furnish to each Selling Holder and each Underwriter,
if any, of the Registrable Securities covered by such
registration statement or prospectus copies of such registration
statement or prospectus or any amendment or supplement thereto as
proposed to be filed, and thereafter furnish to such Selling
Holder and Underwriter, if any, such number of conformed copies
of such registration statement, each amendment and supplement
thereto (in each case including all exhibits thereto and
documents incorporated by reference therein), the prospectus
included in such registration statement (including each
preliminary prospectus) and such other documents as such Selling
Holder or Underwriter may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by
such Selling Holder.
(c) After the filing of the registration statement,
the Company will promptly notify each Selling Holder of
Registrable Securities covered by the registration statement of
any stop order issued or threatened by the Commission and take
all reasonable actions required to prevent the entry of such stop
order or to remove it if entered.
(d) In connection with any Demand Registration
Statement or Piggyback Registration Statement, the Company will
use reasonable efforts to register or qualify the Registrable
Securities under such securities or blue sky laws of those
jurisdictions in the United States (where an exemption is not
available) as any Selling Holder or managing underwriter or
underwriters, if any, reasonably (in light of the Selling
Holder's intended plan of distribution) requests; provided,
however, that the Company will not be required to (i) qualify
generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (d), (ii)
subject itself to taxation in any such jurisdiction or (iii)
consent to general service of process in any such jurisdiction.
(e) In connection with any Demand Registration
Statement or Piggyback Registration Statement, the Company will
enter into customary agreements (including an underwriting
agreement, if any, in customary form) as are reasonably required
in order to expedite or facilitate the disposition of Registrable
Securities pursuant to the Demand Registration Statement or
Piggyback Registration Statement. Each Selling Holder
participating in an underwritten offering shall also enter into
and perform its or his obligations under the underwriting
agreement.
(f) The Company shall cause all such Registrable
Securities to be listed on each securities exchange on which
similar securities issued by the Company are then listed.
(g) The Company will immediately notify each Selling
Holder of such Registrable Securities, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, of the occurrence of an event requiring the
preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statement therein, in light of the circumstances then existing,
not misleading and promptly make available to each Selling Holder
a reasonable number of copies of any such supplement or
amendment.
(h) The Company will make available for inspection by
any Selling Holder of such Registrable Securities, any
Underwriter participating in any disposition pursuant to such
Registrable Securities, any Underwriter participating in any
disposition pursuant to such registration statement and any
attorney, accountant or other professional retained by any such
Selling Holder or Underwriter (collectively, the "Inspectors"),
all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records") as
shall be reasonably necessary to enable them to discharge their
due diligence responsibility under the Securities Act, and cause
the Company's officers, directors and employees to supply all
information reasonably requested by any Inspectors in connection
with the discharge of their due diligence responsibility.
Records which the Company determines, in good faith, to be
confidential and which it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless the
release of such Records is ordered pursuant to a subpoena or
other order from a court of competent jurisdiction. Each Selling
Holder of such Registrable Securities agrees that information
obtained by it as a result of such inspections shall be deemed
confidential and shall not be used by it as the basis for any
market transactions in the securities of the Company or its
Affiliates or otherwise disclosed by it unless and until such is
made generally available to the public. Each Selling Holder of
such Registrable Securities further agrees that it will, upon
learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the
Company, at its expense, to undertake appropriate action to
prevent disclosure of the Records deemed confidential.
(i) In connection with a disposition of the
Registrable Securities in which there is a participating
Underwriter or Underwriters, the Company will furnish to each
Selling Holder and to each Underwriter, a signed counterpart,
addressed to such Selling Holder or Underwriter, of (i) an
opinion or opinions of counsel to the Company and (ii) a comfort
letter or comfort letters from the Company's independent public
accountants (to the extent permitted by the standards of the
American Institute of Certified Public Accountants), each in
customary form and covering such matters of the type customarily
covered by opinions or comfort letters, as the case may be, as
the Holders of a majority of the Registrable Securities included
in such offering or the managing Underwriter or Underwriters
therefor reasonably requests.
(j) The Company will otherwise use its best efforts to
comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon
as reasonably practicable, an earnings statement covering a
period of twelve (12) months, beginning within three (3) months
after the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a)
of the Securities Act and Rule 158 of the Commission promulgated
thereunder (or any successor rule or regulation hereafter adopted
by the Commission).
Section 3.3 Material Developments; Suspension of
Offering.
(a) Notwithstanding the provisions of Sections 2.1 or
3.1 hereof or any other provisions of this Agreement to the
contrary, the Company shall not be required to file a
registration statement or to keep any registration statement
effective if the negotiation or consummation of a transaction by
the Company or any of its subsidiaries is pending or an event has
occurred, which negotiation, consummation or event would require
additional disclosure by the Company in the registration
statement of material information which the Company (in the
judgment of management of the Company) has a bona fide business
purpose for keeping confidential and the nondisclosure of which
in the registration statement might cause the registration
statement to fail to comply with applicable disclosure
requirements; provided, however, that the Company (i) will
promptly notify the Holders of Registrable Securities otherwise
entitled to registration of the foregoing and (ii) may not delay,
suspend or withdraw the registration statement for such reason
more than twice in any twelve (12) month period or three times in
any twenty-four (24) month period or for more than ninety (90)
days at any time. Upon receipt of any notice from the Company of
the happening of any event during the period the registration
statement is effective which is of a type specified in the
preceding sentence or as a result of which the registration
statement or related prospectus contains any untrue statement of
a material fact or omits to state any material fact required to
be stated therein or necessary to make the statement therein, in
light of the circumstances under which they were made not
misleading, Holders agree that they will immediately discontinue
offers and sales of the Registrable Securities under the
registration statement (until they receive copies of a
supplemental or amended prospectus that corrects the
misstatements or omissions and receive notice that any post-
effective amendment has become effective). If so directed by the
Company, Holders will deliver to the Company any copies of the
prospectus covering the Registrable Securities in their
possession at the time of receipt of such notice. In the event
the Company shall give notice of the happening of an event of the
kind described in this Section 3.3(a), the Company shall extend
the period during which the affected registration statement is
required to be maintained pursuant to this Agreement by the
number of days during the period from and including the date of
the giving of notice pursuant to this Section 3.3(a) to the date
when the Company shall make available a prospectus supplemented
or amended to conform with the requirements of the Securities
Act.
(b) If all reports required to be filed by the Company
pursuant to the Exchange Act have not been filed by the required
date without regard to any extension, or if the consummation of
any business combination by the Company has occurred or is
probable for purposes of Rule 3-05 or Article 11 of
Regulation S-X under the Securities Act, upon written notice
thereof by the Company to the Holders, the rights of the Holders
to acquire Registrable Securities pursuant to the Issuance
Registration Statement or to offer, sell or distribute any
Registrable Securities pursuant to any Demand Registration
Statement or Piggyback Registration Statement or to require the
Company to take action with respect to the registration of any
Registrable Securities pursuant to this Agreement shall be
suspended until the date on which the Company has filed such
reports or obtained and filed the financial information required
by Rule 3-05 or Article 11 of Regulation S-X to be included or
incorporated by reference, as applicable, in the Issuance
Registration Statement, the Demand Registration Statement or the
Piggyback Registration Statement and the Company shall notify the
Holders as promptly as practicable when such suspension is no
longer required.
Section 3.4. Registration Expenses. In connection
with any registration statement required to be filed hereunder,
the Company shall pay the following registration expenses
incurred in connection with the registration (the "Registration
Expenses"): (i) all registration and filing fees, (ii) fees and
expenses of compliance with securities or blue sky laws
(including the reasonable fees and expenses of counsel to the
Company), (iii) printing expenses, (iv) internal expenses
(including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties),
(v) the fees and expenses incurred in connection with the listing
of the Registrable Securities on each securities exchange on
which similar securities issued by the Company are then listed,
(vi) fees and disbursements of counsel for the Company and the
independent public accountants of the Company, and (vii) the fees
and expenses of any experts retained by the Company in connection
with such registration. The Holders shall be responsible for the
payment of any and all other expenses incurred by them in
connection with the registration and sale of Registrable
Securities, including, without limitation, brokerage and sales
commissions, underwriting fees, discounts and commissions
attributable to the Registrable Securities, fees and
disbursements of counsel representing the Holders, and any
transfer taxes relating to the sale or disposition of the
Registrable Securities.
Section 3.5.Indemnification by the Company. The Company
agrees to indemnify and hold harmless each Selling Holder, its
officers, directors, employees, representatives, and agents, and
each Person, if any, who controls such Selling Holder within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims,
actions, damages, liabilities, costs and expenses (including,
without limitation, but subject to the provisions of Section 3.7
hereof, reasonable attorneys' fees and disbursements caused by
any untrue statement or alleged untrue statement of a material
fact contained in any Demand Registration Statement or Piggyback
Registration Statement (individually, a "Resale Registration
Statement") or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in
which they were made, not misleading, or arising out of any
untrue statement or alleged untrue statement of a material fact
contained in any prospectus contained in a Resale Registration
Statement at the time it became effective (a "Resale
Prospectus"), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein,
in light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission
or alleged untrue statement or omission based upon information
furnished in writing to the Company by such Selling Holder or on
such Selling Holder's behalf expressly for inclusion therein;
provided, however, that the Company will not be liable in any
case to the extent that any such claim, loss, damage, liability
or expense arises out of or is based upon any untrue statement or
omission contained in a Resale Prospectus which was corrected in
a supplement or amendment thereto if such claim is brought by a
purchaser of Registrable Securities from the Selling Holder and
the Selling Holder failed to deliver to such purchaser the
supplement or amendment to the Resale Prospectus in a timely
manner.
Section 3.6. Indemnification by Holders of
Registrable Securities. Each Selling Holder of Resale Registrable
Securities covered by a Registration Statement agrees to
indemnify and hold harmless the Company, its officers, directors
and agents and each Person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent as the
indemnity set forth in Section 3.5 from the Company to Selling
Holders, but only with respect to information relating to such
Selling Holder furnished in writing by such Selling Holder or on
such Selling Holder's behalf expressly for use in any Resale
Registration Statement or Resale Prospectus or any amendment or
supplement thereto. Each Holder also agrees to indemnify and
hold harmless underwriters of the Registrable Securities, their
officers and directors and each Person who controls such
underwriters within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act on substantially the same
basis as that of the indemnification of the Company provided in
this Section 3.6.
Section 3.7. Conduct of Indemnification Proceedings.
Each indemnified party shall give reasonably prompt notice to
each indemnifying party of any action or proceeding commenced
against it in respect of which indemnity may be sought hereunder,
but failure to so notify the indemnifying party (i) shall not
relieve it from any liability which it may have under the
indemnity agreement provided in Section 3.5 or 3.6 above, unless
and to the extent it did not otherwise learn of such action and
the lack of notice by the indemnified party results in the
forfeiture by the indemnifying party of substantial rights and
defenses and (ii) shall not, in any event, relieve the
indemnifying party from any obligations to the indemnified party
other than the indemnification obligation provided under Section
3.5 or 3.6 above. If the indemnifying party so elects within a
reasonable time after receipt of notice, the indemnifying party
may assume the defense of the action or proceeding at the
indemnifying party's own expense with counsel chosen by the
indemnifying party and approved by the indemnified party, which
approval shall not be unreasonably withheld; provided, however,
that if the defendants in any such action or proceeding include
both the indemnified party and the indemnifying party and the
indemnified party reasonably determines based upon advice of
legal counsel experienced in such matters, that there may be
legal defenses available to it which are different from or in
addition to those available to the indemnifying party, then the
indemnified party shall be entitled to separate counsel at the
indemnifying party's expense, which counsel shall be chosen by
the indemnified party and approved by the indemnifying party,
which approval shall not be unreasonably withheld; provided
further, that it is understood that the indemnifying party; shall
not be liable for the fees, charges and disbursements of more
than one separate firm. If the indemnifying party does not
assume the defense, after having received the notice referred to
in the first sentence of this Section, the indemnifying party
will pay the reasonable fees and expenses of counsel for the
indemnified party; in that event, however, the indemnifying party
will not be liable for any settlement effected without the
written consent of the indemnifying party. If an indemnifying
party assumes the defense of an action or proceeding in
accordance with this Section, the indemnifying party shall not be
liable for any fees and expenses of counsel for the indemnified
party incurred thereafter in connection with that action or
proceeding except as set forth in the proviso in the second
sentence of this Section 3.7. Unless and until a final judgment
is rendered that an indemnified party is not entitled to the
costs of defense under the provisions of this Section, the
indemnifying party shall reimburse, promptly as they are
incurred, the indemnified party's costs of defense.
Section 3.8. Contribution.
(a) If the indemnification provided for in Section 3.5
or 3.6 hereof is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or
liabilities referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to
the amount paid or payable by indemnified party as a result of
such losses, claims, damages or liabilities as between the
Company on the one hand and each Selling Holder on the other, in
such proportion as is appropriate to reflect the relative fault
of the Company and of each Selling Holder in connection with such
statements or omissions which resulted in such losses, claims,
damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company on the one
hand and of each Selling Holder on the other shall be determined
by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information
supplied by the Company or such Selling Holder, and the Company's
and the Selling Holder's relative intent, knowledge, access to
information and opportunity to correct or prevent such statement
or omission.
(b) The Company and the Selling Holders agree that it
would not be just and equitable if contribution pursuant to this
Section 3.8 were determined by pro rata allocation or by any
other method of allocation which does not take account of the
equitable considerations referred to in Section 3.8(a). The
amount paid or payable by an indemnifying party as a result of
the losses, claims, damages or liabilities referred to in
Sections 3.5 and 3.6 hereof shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses
reasonably incurred by the indemnified party in connection with
investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 3.8, no Selling
Holder shall be required to contribute any amount in excess of
the amount by which the total price at which the securities of
such Selling Holder were offered to the public exceeds the amount
of any damages which such Selling Holder has otherwise been
required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
Section 3.9. Participation in Underwritten
Registrations. No Holder may participate in any underwritten
registration hereunder unless the Holder (a) agrees to sell his
or its Registrable Securities on the basis provided in the
applicable underwriting arrangements and (b) completes and
executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents in customary form as
reasonably required under the terms of such underwriting
arrangements.
Section 3.10. Holdback Agreements. Each Holder whose
securities are included in a Demand Registration Statement or
Piggyback Registration Statement agrees not to effect any sale or
distribution of the securities registered or any similar security
of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, including a sale
pursuant to Rule 144 under the Securities Act, during the 14 days
prior to, and during the 90-day period beginning on, the
effective date of such registration statement (except as part of
such registration), if and to the extent requested in writing by
the Company in the case of a non-underwritten public offering or
if and to the extent requested in writing by the managing
underwriter or underwriters in the case of an underwritten public
offering.
ARTICLE 4. MISCELLANEOUS
Section 4.1. Specific Performance. The parties
hereto acknowledge that there would be no adequate remedy at law
if any party fails to perform any of its obligations hereunder,
and accordingly agree that each party, in addition to any other
remedy to which it may be entitled at law or in equity, shall be
entitled to compel specific performance of the obligation of any
other party under this Agreement in accordance with the terms and
conditions of this Agreement in any court of the United States or
any State thereof having jurisdiction,
Section 4.2. Amendments and Waivers. The provisions
of this Agreement, including the provisions of this sentence, may
not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given without
the prior written consent of the Company and the Holders holding
at least two-thirds (2/3) of the then outstanding Registrable
Securities and Exchangeable LLC Units (other than Exchangeable
LLC Units held by the Company). No failure or delay by any party
to insist upon the strict performance of any covenant, duty,
agreement or condition of this Agreement or to exercise any right
or remedy consequent upon any breach thereof shall constitute a
waiver of any such breach or any other covenant, duty, agreement
or condition.
Section 4.3. Notices. Any notice required or
permitted to be given under this Agreement shall be in writing
and shall be deemed to have been given (a) when delivered by hand
or upon transmission by telecopier or similar facsimile
transmission device, (b) on the date delivered by a courier
service, or (c) on the third Business Day after mailing by
registered or certified mail, postage prepaid, return receipt
requested, in any case addressed as follows:
(a) if to any Holder, to c/o The Boyer Company, L.C.,
127 South 500 East, Suite 310, Salt Lake City, Utah 84102, or to
such other address and to such other Persons as the Holders may
hereafter notify the Company in writing; and
(b) if to the Company, to Health Care Property
Investors, Inc., 4675 MacArthur Court, Suite 900, Newport Beach,
California 92660 (Attention: Edward J. Henning), or to such
other address as the Company may hereafter specify in writing.
Section 4.4 Successors and Assigns. The rights and
obligations of the Holders under this Agreement shall not be
assignable by any Holder to any Person that is not a Holder.
This Agreement shall be binding upon the parties hereto, the
Holders and their respective successors and assigns (including
lenders in foreclosure).
Section 4.5. Counterparts. This Agreement may be
executed in any number of counterparts and by the parties hereto
in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall
constitute one and the same agreement.
Section 4.6. Governing Law. This Agreement shall be
governed by and construed in accordance with the internal laws of
the State of California without regard to the conflicts of law
provisions thereof.
Section 4.7. Severability. In the event that any one
or more of the provisions contained herein, or the application
thereof in any circumstance, is held invalid, illegal or
unenforceable, the validity, legality and enforceability of any
such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired
thereby.
Section 4.8. Entire Agreement. This Agreement is
intended by the parties as a final expression of their agreement
and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes
all prior agreements and understandings between the parties with
respect to the subject matter of this Agreement.
Section 4.9. Headings. The headings in this Agreement
are for convenience of reference only and shall not limit or
otherwise affect the meaning of any provision of this Agreement.
Section 4.10. Selling Holders Become Party to this
Agreement. By asserting or participating in the benefits of
registration of Registrable Securities pursuant to this
Agreement, each Holder agrees that it or he will be deemed a
party to this Agreement and be bound by each of its terms.
Section 4.11 Rule 144. The Company covenants that it
will file any reports required to be filed by it under the
Securities Act and the Exchange Act to the extent required from
time to time to enable Holders to sell Registrable Securities
without registration under the Securities Act within the
limitations of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or
(b) any similar rule or regulation hereafter adopted by the
Commission. Upon the request of any Holder, the Company will
deliver to such Holder a written statement as to whether it has
filed such reports.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first written above.
HEALTH CARE PROPERTY INVESTORS, INC.,
a Maryland corporation
By: /s/ Edward J. Henning
------------------------------
Name: Edward J. Henning
Title: Senior Vice President,
General Counsel and
Corporate Secretary
UNITHOLDER
BOYER CASTLE DALE MEDICAL CLINIC,
L.L.C., a Utah limited liability
company
By: THE BOYER COMPANY, L.C.,
a Utah limited liability
company, its Managing Member
By: /s/ H. Roger Boyer
------------------------
H. Roger Boyer
Chairman and Manager
Exhibit 10.15
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
HCPI INDIANA, LLC,
a Delaware limited liability company
Dated as of November 20, 1998
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINED TERMS 1
ARTICLE 2. ORGANIZATIONAL MATTERS 18
Section 2.1. Formation 18
Section 2.2. Name 18
Section 2.3. Registered Office and Agent;
Principal Place of Business; Other Places of
Business 18
Section 2.4. Power of Attorney 19
Section 2.5. Term 20
ARTICLE 3. PURPOSE 20
Section 3.1. Purpose and Business 20
Section 3.2. Powers 20
Section 3.3. Specified Purposes 21
Section 3.4. Representations and Warranties by the
Members; Disclaimer of Certain
Representations 21
ARTICLE 4. CAPITAL CONTRIBUTIONS 23
Section 4.1. Capital Contributions of the Initial Members 23
Section 4.2. Additional Members 23
Section 4.3. Incurrence and Payment of Debt 24
Section 4.4. Additional Funding and Capital Contributions 24
Section 4.5. No Interest; No Return 25
ARTICLE 5. DISTRIBUTIONS 25
Section 5.1. Requirement and Characterization of
Distributions 25
Section 5.2. Distributions in Kind 26
Section 5.3. Amounts Withheld 26
Section 5.4. Distributions Upon Liquidation 27
Section 5.5. Restricted Distributions 27
Section 5.6. Distributions of Proceeds from Sale of
Properties and Refinancing Debt 27
ARTICLE 6. ALLOCATIONS 28
Section 6.1. Timing and Amount of Allocations of Net
Income and Net Loss 28
Section 6.2. General Allocations 29
Section 6.3. Additional Allocation Provisions 30
Section 6.4. Tax Allocations 32
Section 6.5. Other Provisions 32
Section 6.6. Amendments to Allocation to Reflect Issuance
of Additional Membership Interests 33
ARTICLE 7. MANAGEMENT AND OPERATION OF BUSINESS 33
Section 7.1. Management 33
Section 7.2. Certificate of Formation 37
Section 7.3. Restrictions on Managing Member's Authority 38
Section 7.4. Compensation of the Managing Member 40
Section 7.5. Other Business of Managing Member 41
Section 7.6. Contracts with Affiliates 42
Section 7.7. Indemnification 42
Section 7.8. Liability of the Managing Member 44
Section 7.9. Other Matters Concerning the Managing Member 44
Section 7.10. Title to Company Assets 45
Section 7.11. Reliance by Third Parties 45
ARTICLE 8. RIGHTS AND OBLIGATIONS OF MEMBERS 46
Section 8.1. Limitation of Liability 46
Section 8.2. Managing of Business 46
Section 8.3. Outside Activities of Members 46
Section 8.4. Return of Capital 47
Section 8.5. Rights of Non-Managing Members Relating to
the Company 47
Section 8.6. Exchange Rights 48
ARTICLE 9. BOOKS, RECORDS, ACCOUNTING AND REPORTS 50
Section 9.1. Records and Accounting 50
Section 9.2. Fiscal Year 50
Section 9.3. Reports 50
Section 9.4. Cooperation Regarding Tax Matters Relating
to Transferred Properties 50
ARTICLE 10. TAX MATTERS 52
Section 10.1. Preparation of Tax Returns 52
Section 10.2. Tax Elections 52
Section 10.3. Tax Matters Partner 52
Section 10.4. Organizational Expenses 52
ARTICLE 11. TRANSFERS AND WITHDRAWALS 52
Section 11.1. Transfer 52
Section 11.2. Transfer of Managing Member's Membership
Interest 53
Section 11.3. Non-Managing Members' Rights to Transfer 54
Section 11.4. Substituted Members 55
Section 11.5. Assignees 55
Section 11.6. General Provisions 56
ARTICLE 12. ADMISSION OF MEMBERS 58
Section 12.1. Admission of Initial Non-Managing Members 58
Section 12.2. Admission of Successor Managing Member 58
Section 12.3. Admission of Additional Members 58
Section 12.4. Amendment of Agreement and Certificate 59
Section 12.5. Limitation on Admission of Members 59
ARTICLE 13. DISSOLUTION, LIQUIDATION AND TERMINATION 59
Section 13.1. Dissolution 59
Section 13.2. Exchange of Non-Managing Member Units 60
Section 13.3. Winding Up 61
Section 13.4. Deemed Distribution and Recontribution 62
Section 13.5. Rights of Members 62
Section 13.6. Notice of Dissolution 63
Section 13.7. Cancellation of Certificate 63
Section 13.8. Reasonable Time for Winding-Up 63
Section 13.9. Liability of Liquidator 63
ARTICLE 14. PROCEDURES FOR ACTIONS AND CONSENTS OF
MEMBERS; AMENDMENTS; MEETINGS 64
Section 14.1. Procedures for Actions and Consents of
Members 64
Section 14.2. Amendments 64
Section 14.3. Meetings of the Members 64
ARTICLE 15. GENERAL PROVISIONS 65
Section 15.1. Addresses and Notice 65
Section 15.2. Titles and Captions 65
Section 15.3. Pronouns and Plurals 65
Section 15.4. Further Action 66
Section 15.5. Binding Effect 66
Section 15.6. Creditors 66
Section 15.7. Waiver 66
Section 15.8. Counterparts 66
Section 15.9. Applicable Law 66
Section 15.10. Entire Agreement 66
Section 15.11. Invalidity of Provisions 67
Section 15.12. Limitation to Preserve REIT Status 67
Section 15.13. No Partition 68
Section 15.14. Non-Managing Member Representative 68
Exhibit A Member Information A-1
Exhibit B Notice of Exchange B-1
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
HCPI INDIANA, LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT (this
"Agreement") is made and entered into as of November 20, 1998, by
and among Health Care Property Investors, Inc., a Maryland
corporation (the "Managing Member"), and the Persons whose names
are set forth on Exhibit A as attached hereto (the "Non-Managing
Members" and together with the Managing Member, the "Members"),
for the purpose of forming HCPI INDIANA, LLC, a Delaware limited
liability company (the "Company").
WHEREAS, the Managing Member, the Company, and each of
the parties identified on the signature page (each, a
"Contributor") of that certain Contribution Agreement dated as of
the date hereof (the "Contribution Agreement"), have entered into
the Contribution Agreement, providing for the contribution of
certain assets to, and the acquisition of certain interests in,
the Company;
WHEREAS, each Contributor may, in accordance with the
limited partnership agreement of such Contributor, distribute to
its constituent partners its right to receive Non-Managing Member
Units pursuant to Section 4.1 hereof;
WHEREAS, it is a condition to the closing of the
transactions contemplated by the Contribution Agreement that the
parties hereto enter into this Agreement;
NOW THEREFORE, in consideration of the foregoing and
the mutual covenants and agreements contained herein and for
other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree
as follows:
ARTICLE 1.
DEFINED TERMS
The following definitions shall be for all purposes,
unless otherwise clearly indicated to the contrary, applied to
the terms used in this Agreement.
"Act" means the Delaware Limited Liability Company Act,
as it may be amended from time to time, and any successor to such
statute.
"Actions" has the meaning set forth in Section 7.7
hereof.
"Additional Funds" has the meaning set forth in Section
4.4.A hereof.
"Additional Member" means a Person admitted to the Company
as a Member pursuant to Section 4.2.
"Adjusted Capital Account Deficit" means, with respect to
any Member, the deficit balance, if any, in such Member's Capital
Account as of the end of the relevant Fiscal Year, after giving
effect to the following adjustments:
(a) decrease such deficit by any amounts
that such Member is obligated to restore pursuant to this
Agreement or by operation of law upon liquidation of such
Member's Membership Interest or is deemed to be obligated to
restore pursuant to Regulation Section 1.704-1(b) (2)(ii)(c)
or the penultimate sentence of each of Regulations Sections
1.704-2(g)(1) and 1.704-2(i)(5); and
(b) increase such deficit by the items
described in Regulations Section 1.704-1(b) (2)(ii)(d)(4),
(5) and (6).
The foregoing definition of "Adjusted Capital Account
Deficit" is intended to comply with the provisions of Regulations
Section 1.704-1(b) (2)(ii)(d) and shall be interpreted
consistently therewith.
"Adjustment Factor" means 1.0; provided, however, that
in the event that: the Managing Member (i) declares or pays a
dividend on its outstanding REIT Shares in REIT Shares or makes a
distribution to all Members of its outstanding REIT Shares in
REIT Shares, (ii) splits or subdivides its outstanding REIT
Shares or (iii) effects a reverse stock split or otherwise
combines its outstanding REIT Shares into a smaller number of
REIT Shares, the Adjustment Factor shall be adjusted by
multiplying the Adjustment Factor in effect immediately prior to
such adjustment by a fraction, (1) the numerator of which shall
be the number of REIT Shares issued and outstanding on the record
date for such dividend, distribution, split, subdivision, reverse
split or combination (assuming for such purposes that such
dividend, distribution, split, subdivision, reverse split or
combination has occurred as of such time) and (2) the denominator
of which shall be the actual number of REIT Shares issued and
outstanding on the record date for such dividend, distribution,
split, subdivision, reverse split or combination (assuming for
such purposes that such dividend, distribution, split,
subdivision, reverse split or combination has not occurred as of
such time). Any adjustments to the Adjustment Factor shall
become effective immediately after the effective date of such
event, retroactive to the record date, if any, for such event.
"Affiliate" means, with respect to any Person, any
Person directly or indirectly Controlling or Controlled by or
under common Control with such Person.
"Agreement" means this Amended and Restated Limited
Liability Company Agreement of HCPI INDIANA, LLC, as it may be
amended, supplemented or restated from time to time.
"Appraisal" means, with respect to any assets, the
written opinion of an independent third party experienced in the
valuation of similar assets in the general location of the
property being appraised, selected by the Managing Member in good
faith. Such opinion may be in the form of an opinion by such
independent third party that the value for such property or asset
as set by the Managing Member is fair, from a financial point of
view, to the Company.
"Appraised Value" means, with respect to any asset,
including any Transferred Property, the value of such asset as
determined by Appraisal.
"Assignee" means a Person to whom one or more LLC Units
have been Transferred in a manner permitted under this Agreement,
but who has not become a Substituted Member, and who has the
rights set forth in Section 11.5 hereof.
"Available Cash" means, with respect to any period for
which such calculation is being made:
A. For automatic numbering purposes only -- will not
print
(a) the sum, without duplication, of:
(1) the Company's net income or net loss (as the case
may be) for such period determined in accordance with GAAP,
(2) depreciation and all other noncash charges to the
extent deducted in determining net income or net loss for such
period pursuant to the foregoing clause (a)(1),
(3) the amount of any reduction in reserves of the
Company (including, without limitation, reductions resulting
because the Managing Member determines such amounts are no longer
necessary), and
(4) any amount deducted in determining net income for
such period pursuant to the foregoing clause (a)(1) that was not
paid by the Company during such period;
(b) less the sum, without duplication, of:
(1) all regularly scheduled principal debt payments
made during such period by the Company, to the extent not funded
with additional Capital Contributions made by the Managing
Member, but not including any Debt prepayment,
(2) capital expenditures made by the Company during
such period which have not been funded with additional Capital
Contributions made by the Managing Member, but not in excess of
an amount equal to seven and one-half percent (7.5%) of the sum
of the foregoing clause (a)(1) and (a)(2),
(3) any amount included in determining net income or
net loss for such period pursuant to the foregoing clause (a)(1)
that was not received by the Company during such period, and
(4) the amount of any increase in reserves (including,
without limitation, working capital reserves) established during
such period that the Managing Member determines are necessary or
appropriate in its sole but reasonable discretion.
Notwithstanding the foregoing, Available Cash shall not
include (i) any cash received or reductions in reserves, or take
into account any disbursements made, or reserves established,
after dissolution and the commencement of the liquidation and
winding up of the Company, (ii) any of the items described in the
foregoing clauses (a) or (b) arising out of or resulting from the
taxable disposition of any of the Properties or (iii) the
proceeds of Refinancing Debt.
"Bankruptcy Law" means Title II, U.S. Code or any
similar federal or state law for the relief of debtors.
"Beneficial Ownership" means ownership of REIT Shares
by a Person who is or would be treated as an owner of such REIT
Shares either actually or constructively through the application
of Section 544 of the Code, as modified by Section 856(h)(1)(B)
of the Code. The terms "Beneficially Own," "Beneficially Owned,"
"Beneficially Owns" and "Beneficial Owner" shall have the
correlative meanings.
"Built-in Gain" means the excess of (i) the gross fair
market value of one or more of the Properties over (ii) the
adjusted tax basis of such Property or Properties (as the case
may be) for federal income tax purposes, as determined as of the
Effective Date and as reduced from time to time in accordance
with applicable provisions of the Code and Regulations.
"Business Day" means any day except a Saturday, Sunday
or other day on which commercial banks in Los Angeles, California
are authorized or required by law to close.
"Call Notice" means a written notice to the Non-
Managing Members informing them of the Managing Member's election
to call their Non-Managing Member Units pursuant to Section 13.2
hereof.
"Capital Account" means, with respect to any Member,
the Capital Account maintained for such Member on the Company's
books and records in accordance with the following provisions:
(a) To each Member's Capital Account, there shall be
added such Member's Capital Contributions, such Member's
allocable share of Net Income and any items of income or gain
specially allocated pursuant to Section 6.3 hereof, and the
principal amount of any Company liabilities assumed by such
Member or that are secured by any property distributed to such
Member.
(b) From each Member's Capital Account, there shall be
subtracted the amount of cash and the Gross Asset Value of any
property distributed to such Member pursuant to any provision of
this Agreement, such Member's allocable share of Net Loss and any
items of loss or deductions specially allocated pursuant to
Section 6.3 hereof, and the principal amount of any liabilities
of such Member assumed by the Company or that are secured by any
property contributed by such Member to the Company.
(c) In the event any interest in the Company is
Transferred in accordance with the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor
to the extent that it relates to the Transferred interest.
(d) In determining the principal amount of any
liability for purposes of subsections (a) and (b) above there
shall be taken into account Code Section 752(c) and any other
applicable provisions of the Code and Regulations.
(e) The provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with
Regulations Sections 1.704-1(b) and 1.704-2, and shall be
interpreted and applied in a manner consistent with such
Regulations. If the Managing Member shall determine that it is
prudent to modify the manner in which the Capital Accounts are
maintained in order to comply with such Regulations, the Managing
Member may make such modification provided that such modification
will not have a material effect on the amounts distributable to
any Member without such Member's Consent. The Managing Member
also shall (i) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of
the Members and the amount of Company capital reflected on the
Company's balance sheet, as computed for book purposes, in
accordance with Regulations Section 1.704-1(b) (2)(iv)(q) and
(ii) make any appropriate modifications in the event that
unanticipated events might otherwise cause this Agreement not to
comply with Regulations Section 1.704-1(b) or Section 1.704-2.
"Capital Contribution" means, with respect to any
Member, the amount of money and the initial Gross Asset Value of
any Transferred Property that such Member contributes to the
Company pursuant to Section 4.1, Section 4.2 or Section 4.4
hereof.
"Cash Amount" means an amount of cash equal to the
product of (a) the Value of a REIT Share and (b) the REIT Shares
Amount determined as of the applicable Valuation Date.
"Certificate" means the Certificate of Formation of the
Company filed in the office of the Secretary of State of the
State of Delaware, as amended from time to time in accordance
with the terms hereof and the Act.
"Charter" means the Articles of Incorporation of the
Managing Member, as amended, supplemented or restated from time
to time.
"Closing Price" means the closing price of a REIT Share
on the New York Stock Exchange.
"Code" means the Internal Revenue Code of 1986, as
amended and in effect from time to time or any successor statute
thereto, as interpreted by the applicable Regulations thereunder.
Any reference herein to a specific section or sections of the
Code shall be deemed to include a reference to any corresponding
provision of future law.
"Company" means the limited liability company formed
under the Act and pursuant to this Agreement, and any successor
thereto.
"Company Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(b) (2) for the phrase "partnership
minimum gain," and the amount of Company Minimum Gain, as well as
any net increase or decrease in Company Minimum Gain, for a
Fiscal Year shall be determined in accordance with the rules of
Regulations Section 1.704-2(d).
"Consent" means the consent to, approval of, or vote on
a proposed action by a Member given in accordance with Article 14
hereof.
"Consent of the Non-Managing Members" means the Consent
of a Majority in Interest of the Non-Managing Members, which
Consent shall be obtained prior to the taking of any action for
which it is required by this Agreement and, except as otherwise
provided in this Agreement, may be given or withheld by a
Majority in Interest of the Non-Managing Members, in their
reasonable discretion.
"Constructive Ownership" means ownership of REIT
Shares, or any other interest in an entity, by a Person who is or
would be treated as an owner thereof either actually or
constructively through the application of Section 318 of the
Code, as modified by Section 856(d)(5) of the Code. The terms
"Constructively Own," "Constructively Owned," "Constructively
Owns" and "Constructive Owner" shall have the correlative
meanings.
"Contribution Agreement" means the Contribution
Agreement of even date herewith by and between the Managing
Member, the Company and the parties identified on the signature
page thereto.
"Contributor" means any contributor of property to the
Company.
"Contributor's Partners" means, as to any Contributor
the constituent partners of such Contributor to whom such
Contributor has distributed, in accordance with the limited
partnership agreement of such Contributor, the right of such
Contributor to receive Non-Managing Member Units pursuant to
Section 4.1 hereof.
"Control" means, when used with respect to any Person,
the possession directly or indirectly, of the power to direct or
cause the direction of the management and policies of that
Person, whether through the ownership of voting securities, by
contract or otherwise, and the terms "controlling" and
"controlled" have correlative meanings.
"Custodian" means any receiver, trustee, assignee,
liquidator or other similar official under any Bankruptcy Law.
"Debt" means, as to any Person, as of any date of
determination, (i) all indebtedness of such Person for borrowed
money or for the deferred purchase price of property or services;
(ii) all amounts owed by such Person to banks or other Persons in
respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment
or other performance of obligations by such Person; (iii) all
indebtedness for borrowed money or for the deferred purchase
price of property or services secured by any lien on any property
owned by such Person, to the extent attributable to such Person's
interest in such property, even though such Person has not
assumed or become liable for the payment thereof; and (iv) lease
obligations of such Person that, in accordance with GAAP, should
be capitalized.
"Debt Coverage Ratio" means a number determined by
dividing (A) an amount equal to (i) the Company's net income
determined in accordance with GAAP during the Measurement Period,
plus (ii) interest expense, depreciation and all other noncash
charges to the extent deducted in determining such net income,
less (iii) the amount of capital expenditures made during the
Measurement Period that were not funded by the Managing Member
through additional Capital Contributions, by (B) the sum of (i)
the amount of the Proforma Debt Service for the Measurement
Period and (ii) the Preferred Return Per Unit payable during the
Measurement Period.
"Debt Service Contribution Amount" has the meaning set
forth in Section 4.3.C hereof.
"Depreciation" means, for each Fiscal Year or other
applicable period, an amount equal to the federal income tax
depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such year or other period,
except that, if the Gross Asset Value of an asset differs from
its adjusted basis for federal income tax purposes at the
beginning of such year or period, Depreciation shall be in an
amount that bears the same ratio to such beginning Gross Asset
Value as the federal income tax depreciation, amortization or
other cost recovery deduction for such year or other period bears
to such beginning adjusted tax basis; provided, however, that, if
the federal income tax depreciation, amortization or other cost
recovery deduction for such year or period is zero, Depreciation
shall be determined with reference to such beginning Gross Asset
Value using any reasonable method selected by the Managing
Member.
"Disposition Proceeds" means the net proceeds (after
the repayment of any Debt and the payment of all costs related to
the disposition) received by the Company upon the taxable
disposition of some, but not all, of the Transferred Properties
or Successor Properties.
"Effective Date" means the date on which the
transactions contemplated by the Contribution Agreement are
consummated at which time the contributions set forth on
Exhibit A that are to be effective on the Effective Date shall
become effective. With respect to any future contributions, the
Effective Date shall be the date that such contributions are
completed.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
"Excess LLC Units" means any LLC Units held by a Non-
Managing Member to the extent that, if such LLC Units were
exchanged for the REIT Shares Amount pursuant to Section 8.6
hereof, such Non-Managing Member would Beneficially Own or
Constructively Own REIT Shares in excess of the Ownership Limit
or otherwise in violation of the Charter.
"Exchange" has the meaning set forth in Section 8.6.A
hereof.
"Exchange Act" means the Securities Exchange Act of
1934, as amended, and the rules and regulations of the SEC
promulgated thereunder.
"Fiscal Year" means the fiscal year of the Company,
which shall be the calendar year.
"Flip-Over Event" means the occurrence of a merger of
the Managing Member with and into another Person or the
consolidation of the Managing Member with another Person, or the
merger of another Person with and into the Managing Member or the
sale or transfer of assets of the Managing Member to another
Person if, as a result of such merger, consolidation or transfer
of assets the holder of Rights issued under the Rights Agreement
would be entitled under Section 13 of the Rights Agreement (or a
comparable provision in the event the Rights Agreement is
amended) to purchase shares of common stock of such other Person
(including the Managing Member as the successor to such other
Person or as the surviving corporation) (the "Successor Person").
"GAAP" means generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the accounting
profession), or in such other statements by such entity as may be
in general use by significant segments of the United States
accounting profession, which are applicable to the facts and
circumstances on the date of determination.
"Gross Asset Value" means, with respect to any asset,
the asset's adjusted basis for federal income tax purposes,
except as follows:
(a) The initial Gross Asset Value of any asset
contributed by a Member to the Company shall be its fair market
value, as agreed to by such Member and the Managing Member, and
set forth on Exhibit A with respect to that Member.
(b) The Gross Asset Values of all Company assets
immediately prior to the occurrence of any event described in
clause (1), clause (2), clause (3), or clause (4) hereof shall be
adjusted to equal their respective gross fair market values, as
determined by the Managing Member using such reasonable method of
valuation as it may adopt, as of the following times:
(1) the acquisition of an additional interest in the
Company (other than in connection with the execution of this
Agreement but including, without limitation, acquisitions
pursuant to Section 4.2 hereof or contributions or deemed
contributions by the Managing Member pursuant to Section 4.4
hereof) by a new or existing Member in exchange for more than a
de minimis Capital Contribution, if the Managing Member
reasonably determines that such adjustment is necessary or
appropriate to reflect the relative economic interests of the
Members in the Company;
(2) the distribution by the Company to a Member of
more than a de minimis amount of Company property as
consideration for an interest in the Company, if the Managing
Member reasonably determines that such adjustment is necessary or
appropriate to reflect the relative economic interests of the
Members in the Company;
(3) the liquidation of the Company within the meaning
of Regulations Section 1.704-1(b) (2)(ii)(g); and
(4) at such other times as the Managing Member shall
reasonably determine necessary or advisable in order to comply
with Regulations Sections 1.704-1(b) and 1.704-2.
(c) The Gross Asset Value of any Company asset
distributed to a Member shall be the gross fair market value of
such asset on the date of distribution as determined by the
distributee and the Managing Member, provided that, if the
distributee is the Managing Member or if the distributee and the
Managing Member cannot agree on such a determination, such gross
fair market value shall be determined by Appraisal.
(d) At the election of the Managing Member, the Gross
Asset Values of Company assets shall be increased (or decreased)
to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b), but only to the extent that such
adjustments are taken into account in determining Capital
Accounts pursuant to Regulations Section 1.704-1(b) (2)(iv)(m);
provided, however, that Gross Asset Values shall not be adjusted
pursuant to this subsection (d) to the extent that the Managing
Member reasonably determines that an adjustment pursuant to
subsection (b) above is necessary or appropriate in connection
with a transaction that would otherwise result in an adjustment
pursuant to this subsection (d).
(e) If the Gross Asset Value of a Company asset has
been determined or adjusted pursuant to subsection (a),
subsection (b) or subsection (d) above, such Gross Asset Value
shall thereafter be adjusted by the Depreciation taken into
account with respect to such asset for purposes of computing Net
Income and Net Loss.
"Guaranty" shall have the meaning set forth in the
Contribution Agreement.
"Incapacity" or "Incapacitated" means, (i) as to any
Member who is an individual, death, total physical disability or
entry by a court of competent jurisdiction adjudicating such
Member incompetent to manage his or her person or his or her
estate; (ii) as to any Member that is a corporation or limited
liability company, the filing of a certificate of dissolution, or
its equivalent, for the corporation or limited liability company
or the revocation of its charter; (iii) as to any Member that is
a partnership, the dissolution and commencement of winding up of
the partnership; (iv) as to any Member that is an estate, the
distribution by the fiduciary of the estate's entire interest in
the Company; (v) as to any trustee of a trust that is a Member,
the termination of the trust (but not the substitution of a new
trustee); or (vi) as to any Member, the bankruptcy of such
Member. For purposes of this definition, bankruptcy of a Member
shall be deemed to have occurred when (a) the Member commences a
voluntary proceeding seeking liquidation, reorganization or other
relief of or against such Member under any bankruptcy, insolvency
or other similar law now or hereafter in effect, (b) the Member
is adjudged as bankrupt or insolvent, or a final and non-
appealable order for relief under any bankruptcy, insolvency or
similar law now or hereafter in effect has been entered against
the Member, (c) the Member executes and delivers a general
assignment for the benefit of the Member's creditors, (d) the
Member files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against the
Member in any proceeding of the nature described in clause
(b) above, (e) the Member seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator for the Member
or for all or any substantial part of the Member's properties,
(f) any proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now
or hereafter in effect has not been dismissed within 120 days
after the commencement thereof, (g) the appointment without the
Member's consent or acquiescence of a trustee, receiver or
liquidator has not been vacated or stayed within 90 days of such
appointment, or (h) an appointment referred to in clause (g)
above is not vacated within 90 days after the expiration of any
such stay.
"Indemnitee" means (i) any Person made a party to a
proceeding by reason of its status as (a) the Managing Member or
(b) a director of the Managing Member or an officer or employee
of the Company or the Managing Member and (ii) such other Persons
(including Affiliates of the Managing Member or the Company) as
the Managing Member may designate from time to time (whether
before or after the event giving rise to potential liability), in
its sole and absolute discretion.
"Initial Non-Managing Members" means the Non-Managing
Members (or successors in interest thereof) who acquired their
Non-Managing Member Units in exchange for the Transferred
Properties on the Effective Date.
"IRS" means the Internal Revenue Service, which
administers the internal revenue laws of the United States.
"Liquidating Event" has the meaning set forth in
Section 13.1 hereof.
"Liquidator" has the meaning set forth in
Section 13.3.A hereof.
"LLC Distribution Date" means the date established by
the Managing Member for the payment of actual distributions
declared by the Managing Member pursuant to Sections 5.1 and 5.2,
which date shall be the same as the date established by the
Managing Member for the payment of dividends to holders of REIT
Shares.
"LLC Record Date" means the record date established by
the Managing Member for the distribution of Available Cash
pursuant to Section 5.1 hereof, which record date shall be the
same as the record date established by the Managing Member for a
dividend to holders of REIT Shares.
"LLC Units" means the Managing Member Units and the Non-
Managing Member Units, collectively.
"Majority in Interest of the Non-Managing Members"
means those Non-Managing Members (other than the Managing Member
in its capacity as a holder of Non-Managing Member Units) holding
in the aggregate more than 50% of the aggregate outstanding Non-
Managing Member Units (other than those held by the Managing
Member).
"Majority of Remaining Members" means Non-Managing
Members owning a majority of the Non-Managing Member Units held
by Non-Managing Members.
"Managing Member" means Health Care Property Investors,
Inc., a Maryland corporation, in its capacity as a Member, or any
successor Managing Member designated pursuant to the terms of
this Agreement.
"Managing Member Unit" means a single unit of
Membership Interest of the Managing Member issued pursuant to
Article 4 hereof, as the same may be modified from time to time
as provided in this Agreement. The ownership of Managing Member
Units may (but need not in the sole and absolute discretion of
the Managing Member) be evidenced in the form of a certificate
for Managing Member Units.
"Measurement Period" means, with respect to the
calculation of the Debt Coverage Ratio at any time as provided
herein, the twelve month period ending on the last day of the
most recently completed calendar quarter.
"Member Minimum Gain" means an amount, with respect to
each Member Nonrecourse Debt, equal to the Company Minimum Gain
that would result if such Member Nonrecourse Debt were treated as
a Nonrecourse Liability, determined in accordance with
Regulations Section 1.704-2(i) with respect to "partner
nonrecourse debt minimum gain."
"Member Nonrecourse Debt" has the meaning set forth in
Regulations Section 1.704-2(b) (4) for the phrase "partner
nonrecourse debt."
"Member Nonrecourse Deductions" has the meaning set
forth in Regulations Section 1.704-2(i)(2) for the phrase
"partner nonrecourse deductions," and the amount of Member
Nonrecourse Deductions with respect to a Member Nonrecourse Debt
for a Fiscal Year shall be determined in accordance with the
rules of Regulations Section 1.704-2(i)(2).
"Members" means the Persons owning Membership
Interests, including the Managing Member, Non-Managing Members
and any Additional and Substitute Members, named as Members in
Exhibit A attached hereto, which Exhibit A may be amended from
time to time.
"Membership Interest" means an ownership interest in
the Company representing a Capital Contribution by a Person and
includes any and all benefits to which the holder of such
Membership Interest may be entitled as provided in this
Agreement, together with all obligations of such Person to comply
with the terms and provisions of this Agreement. A Membership
Interest may be expressed as a number of Managing Member Units or
Non-Managing Member Units, as applicable.
"Minimum Unit Number" has the meaning set forth in
Section 7.3 hereof.
"Net Income" or "Net Loss" means, for each Fiscal Year
of the Company, an amount equal to the Company's taxable income
or loss for such year, determined in accordance with Code Section
703(a) (for this purpose, all items of income, gain, loss or
deduction required to be stated separately pursuant to Code
Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:
(a) Any income of the Company that is exempt from
federal income tax and not otherwise taken into account in
computing Net Income (or Net Loss) pursuant to this definition of
"Net Income" or "Net Loss" shall be added to (or subtracted from,
as the case may be) such taxable income (or loss);
(b) Any expenditure of the Company described in Code
Section 705(a)(2)(b) or treated as a Code Section 705(a)(2)(b)
expenditure pursuant to Regulations Section 1.704-1(b)(2)(iv)(i),
and not otherwise taken into account in computing Net Income (or
Net Loss) pursuant to this definition of "Net Income" or "Net
Loss," shall be subtracted from (or added to, as the case may be)
such taxable income (or loss);
(c) In the event that the Gross Asset Value of any
Company asset is adjusted pursuant to subsection (b) or
subsection (c) of the definition of "Gross Asset Value," the
amount of such adjustment shall be taken into account as gain or
loss from the disposition of such asset for purposes of computing
Net Income or Net Loss;
(d) In lieu of the depreciation, amortization and
other cost recovery deductions that would otherwise be taken into
account in computing such taxable income or loss, there shall be
taken into account Depreciation for such Fiscal Year;
(e) To the extent that an adjustment to the adjusted
tax basis of any Company asset pursuant to Code Section 734(b) or
Code Section 743(b) is required pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining
Capital Accounts as a result of a distribution other than in
liquidation of a Member's interest in the Company, the amount of
such adjustment shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition
of the asset and shall be taken into account for purposes of
computing Net Income or Net Loss; and
(f) Notwithstanding any other provision of this
definition of "Net Income" or "Net Loss," any item allocated
pursuant to Section 6.3.A hereof shall not be taken into account
in computing Net Income or Net Loss. The amounts of the items of
Company income, gain, loss or deduction available to be allocated
pursuant to Section 6.3.A hereof shall be determined by applying
rules analogous to those set forth in this definition of "Net
Income" or "Net Loss."
"New Loan" shall have the meaning set forth in the
Contribution Agreement.
"Non-Managing Member" means any Member other than the
Managing Member (except to the extent the Managing Member holds
Non-Managing Member Units).
"Non-Managing Member Representative" means James D.
Bremner until a successor Non-Managing Member Representative
shall have been appointed pursuant to Section 15.14 hereof and,
thereafter, shall mean the person appointed and then acting as
the Non-Managing Member Representative hereunder.
"Non-Managing Member Unit" means a single unit of
Membership Interest issued to a Non-Managing Member pursuant to
Section 4.1 hereof, as the same may be modified from time to time
as provided in this Agreement. The ownership of Non-Managing
Member Units shall be evidenced in the form of a certificate for
Non-Managing Member Units.
"Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(b) (1), and the amount of Nonrecourse
Deductions for a Fiscal Year shall be determined in accordance
with the rules of Regulations Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in
Regulations Section 1.752-1(a)(2).
"Notice of Exchange" means the Notice of Exchange
substantially in the form of Exhibit B attached to this
Agreement.
"One Hundred Member Limit" has the meaning set forth in
Section 11.6.E hereof.
"Ownership Limit" means 9.9% of the number or value
(whichever is more restrictive) of outstanding REIT Shares. The
number and value of REIT Shares shall be determined by the Board
of Directors of the Managing Member, in good faith, which
determination shall be conclusive for all purposes hereof.
"Payment Quarter" has the meaning set forth in Section
5.1.A hereof.
"Percentage Interest" means, as to a Member holding a
Membership Interest, its interest in the Company as determined by
dividing the LLC Units owned by such Member by the total number
of LLC Units then outstanding as specified in Exhibit A attached
hereto, as it may be modified or supplemented from time to time.
"Person" means an individual or a corporation,
partnership, trust, unincorporated organization, association,
limited liability company or other entity.
"Preferred Return Per Unit" means with respect to each
Non-Managing Member Unit outstanding on a LLC Record Date an
amount initially equal to zero, and increased cumulatively on
each LLC Record Date by an amount equal to the product of (i) the
cash dividend per REIT Share declared by the Managing Member for
holders of REIT Shares on that LLC Record Date, multiplied by
(ii) the Adjustment Factor in effect on that LLC Record Date;
provided, however, that the increase that shall occur in
accordance with the foregoing on the first LLC Record Date
subsequent to December 31, 1998 shall be the foregoing product of
(i) and (ii) above multiplied by a fraction, the numerator of
which shall be the number of days in the period commencing on the
Effective Date and ending on December 31, 1998, and the
denominator of which shall be the number of days in the period
commencing on October 1, 1998 and ending on December 31, 1998.
"Preferred Return Shortfall" means, for any holder of
Non-Managing Member Units, the amount (if any) by which (i) the
Preferred Return Per Unit with respect to all Non-Managing Member
Units held by such holder exceeds (ii) the aggregate amount
previously distributed with respect to such Non-Managing Member
Units pursuant to Section 5.1.A(1) Section 5.6.A(1) or Section
5.6.B(1) hereof, together with cumulative interest accruing
thereon at the Prime Rate from the applicable LLC Record Date to
the date of distribution.
"Prime Rate" means on any date, a rate equal to the
annual rate on such date announced by the Bank of New York to be
its prime, base or reference rate for 90-day unsecured loans to
its corporate borrowers of the highest credit standing but in no
event greater than the maximum rate then permitted under
applicable law. If the Bank of New York discontinues its use of
such prime, base or reference rate or ceases to exist, the
Managing Member shall designate the prime, base or reference rate
of another state or federally chartered bank based in New York to
be used for the purpose of calculating the Prime Rate hereunder
(which rate shall be subject to limitation by all applicable
usury laws).
"Proforma Debt Service" means the aggregate amount of
the principal and interest payments on all Debt paid by the
Company during the Measurement Period adjusted on a proforma
basis to reflect the incurrence of Refinancing Debt and the
application of the Refinancing Debt Proceeds as if the
Refinancing Debt had been incurred and such proceeds applied on
the first day of the Measurement Period.
"Properties" means any assets and property of the
Company such as, but not limited to, interests in real property
(including the Transferred Properties and Successor Properties)
and personal property, including, without limitation, fee
interests, interests in ground leases, interests in limited
liability companies, joint ventures or partnerships, interests in
mortgages, and Debt instruments as the Company may hold from time
to time.
"Reduction" has the meaning set forth in Section 5.6.C
hereof.
"Reduction Date" has the meaning set forth in
Section 5.6.C hereof.
"Reduction Units" has the meaning set forth in
Section 5.6.C hereof.
"Refinancing Debt" means any Debt (other than
indebtedness to the Managing Member or any Affiliate of the
Managing Member), the repayment of which is secured by all or any
portion of the Properties.
"Refinancing Debt Proceeds" means the net proceeds from
any Refinancing Debt incurred by the Company which remain after
the repayment of any Debt with proceeds of the Refinancing Debt
and the payment of all costs related to the Refinancing Debt.
"Regulations" means the applicable income tax
regulations under the Code, whether such regulations are in
proposed, temporary or final form, as such regulations may be
amended from time to time (including corresponding provisions of
succeeding regulations).
"Regulatory Allocations" has the meaning set forth in
Section 6.3.A(7) hereof.
"REIT" means a real estate investment trust qualifying
under Code Section 856, et seq.
"REIT Member" means a Member or Assignee that is, or
has made an election to qualify as, a REIT.
"REIT Payment" has the meaning set forth in
Section 15.12 hereof.
"REIT Requirements" has the meaning set forth in
Section 5.1.B hereof.
"REIT Share" means a share of the Common Stock of the
Managing Member, par value $1.00 per share.
"REIT Shares Amount" means a number of REIT Shares
equal to the product of (a) the number of Tendered Units and
(b) the Adjustment Factor; provided, however, that, in the event
that the Managing Member issues Rights to all holders of REIT
Shares as of a certain record date, with the record date for such
Rights issuance falling within the period starting on the date of
the Notice of Exchange and ending on the day immediately
preceding the Specified Exchange Date, which Rights will not be
distributed before the relevant Specified Exchange Date, then the
REIT Shares Amount shall also include such Rights that a holder
of that number of REIT Shares would be entitled to receive,
expressed, where relevant hereunder, in a number of REIT Shares
determined by the Managing Member in good faith. So long as the
holder of Tendered Units is not an Acquiring Person or an
Affiliate or Associate of an Acquiring Person (as those terms are
defined in the Rights Agreement), the number of REIT Shares
referenced in the preceding sentence shall be adjusted for the
issuance, distribution and triggering of exercisability of the
Rights governed by the Rights Agreement (so long as the Rights
shall not previously have been redeemed or expired pursuant to
the Rights Agreement) which adjustment shall be satisfied by
issuing, together with the REIT Shares Amount, either (i) if
Rights may be issued under the Rights Agreement, the aggregate
number of Rights issuable under the Rights Agreement with respect
to a number of REIT Shares equal to the REIT Shares Amount, or
(ii) in the event Rights may no longer be issued under the Rights
Agreement, a number of REIT Shares necessary to reflect equitably
the dilution in REIT Shares resulting from the exercise of Rights
(but only if the REIT Shares Amount is issued subsequent to the
occurrence of an event that results in a reduction in the
purchase price attributable to the Rights in the manner provided
in Section 11(a)(ii) of the Rights Agreement (or any comparable
provision in the event the Rights Agreement is amended), and
prior to a Flip-Over Event, or (iii) if the REIT Shares Amount is
issued concurrently with or subsequent to a Flip-Over Event, the
number of shares of common stock of the Successor Person
necessary to reflect equitably the dilution in REIT Shares
resulting from the exercise of Rights.
"Related Party" means, with respect to any Person, any
other Person whose actual ownership, Beneficial Ownership or
Constructive Ownership of shares of the Managing Member's capital
stock would be attributed to the first such Person under either
(i) Code Section 544 (as modified by Code Section 856(h)(1)(b) )
or (ii) Code Section 318 (as modified by Code Section 856(d)(5)).
"Rights" means rights, options, warrants or convertible
or exchangeable securities entitling the Managing Member's
shareholders to subscribe for or purchase REIT Shares, or any
other securities or property.
"Rights Agreement" means the Rights Agreement, dated as
of July 5, 1990, by and between the Managing Member and
Manufacturers Hanover Trust Company of California, as the same
may be supplemented or amended from time to time.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated
thereunder.
"Specified Exchange Date" means (A) in the case of an
Exchange pursuant to Section 8.6.A, the 30th calendar day (or, if
such day is not a Business Day, the next following Business Day)
after the receipt by the Managing Member of a Notice of Exchange;
provided, however, that no Specified Exchange Date shall occur
prior to the first anniversary of the Effective Date; provided,
further, that the Specified Exchange Date, as well as the closing
of an Exchange on any Specified Exchange Date, may be deferred,
in the Managing Member's sole and absolute discretion, for such
time (but in any event not more than 150 days in the aggregate)
as may reasonably be required to effect, as applicable, (i)
necessary funding arrangements, (ii) compliance with the
Securities Act or other law (including, but not limited to, state
"blue sky" or other securities laws), and (iii) satisfaction or
waiver of other commercially reasonable and customary closing
conditions and requirements for a transaction of such nature, and
(B) in the case of the delivery of a Call Notice pursuant to
Section 13.2, the 10th calendar day (or, if such day is not a
Business Day, the next following Business Day) after the mailing
to the applicable Non-Managing Members of a Call Notice.
"Subsidiary" means, with respect to any Person other
than the Company, 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 is owned, directly or
indirectly, by such Person; provided, however, that, with respect
to the Company, "Subsidiary" means solely a partnership or
limited liability company (taxed, for federal income tax
purposes, as a partnership and not as an association or publicly
traded partnership taxable as a corporation) of which the Company
is a member unless the Managing Member has received an
unqualified opinion from independent counsel of recognized
standing, or a ruling from the IRS, that the ownership of shares
of stock of a corporation or other entity will not jeopardize the
Managing Member's status as a REIT, in which event the term
"Subsidiary" shall include the corporation or other entity which
is the subject of such opinion or ruling.
"Substituted Member" means an Assignee who is admitted
as a Member to the Company pursuant to Section 11.4 hereof. The
term "Substituted Member" shall not include any Additional
Member.
"Successor Person" has the meaning set forth in the
definition of Flip-Over Event.
"Successor Properties" means real properties acquired
by the Company in connection with a Tax-Free Disposition of any
Transferred Property or Successor Property.
"Tax-Free Disposition" means the disposition of
property in a transaction that is not subject to tax under the
Code, including, without limitation, by virtue of the provisions
of Section 1031 of the Code.
"Tax Items" has the meaning set forth in Section 6.1
hereof.
"Tax Protection Period" means the period of time
beginning on the Effective Date and ending on the first to occur
of (i) the tenth (10th) anniversary of the Effective Date or (ii)
the date on which eighty percent (80%) or more of the aggregate
number of LLC Units issued on the Effective Date to the Initial
Non-Managing Members either (a) have been disposed of in a
taxable transaction (including, without limitation, any Exchange
pursuant 8.6.A hereof) or (b) have otherwise received a "step up"
in tax basis to their fair market value at the time of such "step
up" (e.g., as a result of the death of a holder of LLC Units who
is an individual).
"Tendered Units" has the meaning set forth in
Section 8.6.A hereof.
"Tendering Party" has the meaning set forth in
Section 8.6.A hereof.
"Termination Transaction" has the meaning set forth in
Section 11.2.B hereof.
"Terminating Capital Transaction" means any sale or
other disposition of all or substantially all of the assets of
the Company or a related series of transactions that, taken
together, result in the sale or other disposition of all or
substantially all of the assets of the Company.
"Transfer," when used with respect to an LLC Unit or
all or any portion of a Membership Interest, means any sale,
assignment, bequest, conveyance, devise, gift (outright or in
trust), pledge, encumbrance, hypothecation, mortgage, exchange,
transfer or other disposition or act of alienation, whether
voluntary or involuntary or by operation of law. The terms
"Transferred" and "Transferring" have correlative meanings.
"Transferred Properties" means the "Properties" as that
term is defined in the Contribution Agreement.
"Valuation Date" means (a) in the case of a tender of
LLC Units for Exchange, the date of the receipt by the Managing
Member of the Notice of Exchange with respect to those LLC Units
or, if such date is not a Business Day, the immediately preceding
Business Day or (b) for purposes of Section 5.6.C, the Reduction
Date or, if the Reduction Date is not a Business Day, the
immediately preceding Business Day, (c) for purposes of
Section 13.2 the date the Call Notice is delivered or, if such
day is not a Business Day, the immediately preceding Business
Day, or (d) in any other case, the date specified in this
Agreement or, if such date is not a Business Day, the immediately
preceding Business Day.
"Value" means, on any Valuation Date, the average of
the Closing Prices for the ten (10) consecutive trading days
ending on the third trading day immediately prior to the
Valuation Date.
ARTICLE 2.
ORGANIZATIONAL MATTERS
Section 2.1 Formation
The Company is a limited liability company formed
pursuant to the provisions of the Act for the purposes and upon
the terms and subject to the conditions set forth in this
Agreement. Except as expressly provided herein, the rights and
obligations of the Members and the administration and termination
of the Company shall be governed by the Act.
Section 2.2 Name
The name of the Company is HCPI Indiana, LLC. The
Company's business may be conducted under any other name or names
deemed advisable by the Managing Member, including the name of
the Managing Member or any Affiliate thereof. The Managing
Member in its sole and absolute discretion may change the name of
the Company at any time and from time to time in accordance with
applicable law and shall notify the Members of such change in the
next regular communication to the Members.
Section 2.3. Registered Office and Agent; Principal
Place of Business; Other Places of Business
The address of the registered office of the Company in
the State of Delaware is located at c/o The Corporation Trust
Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, County of New Castle, Delaware 19801, and the
registered agent for service of process on the Company in the
State of Delaware at such registered office is The Corporation
Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801. The principal office of the Company
is located at 4675 MacArthur Court, Suite 900, Newport Beach,
California 92660, or such other place as the Managing Member may
from time to time designate by notice to the Members. The
Company may maintain offices at such other place or places within
or outside the State of Delaware as the Managing Member deems
advisable.
Section 2.4 Power of Attorney
A. Each Member (other than the Managing Member) and
each Assignee hereby irrevocably constitutes and appoints the
Managing Member, any Liquidator, and authorized officers and
attorneys in fact of each, and each of those acting singly, in
each case with full power of substitution, as its true and lawful
agent and attorney-in-fact, with full power and authority in its
name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and
record in the appropriate public offices (a) all certificates,
documents and other instruments (including, without limitation,
this Agreement and the Certificate and all amendments or
restatements thereof) that the Managing Member or any Liquidator
deems appropriate or necessary to form, qualify or continue the
existence or qualification of the Company as a limited liability
company in the State of Delaware and in all other jurisdictions
in which the Company may conduct business or own property; (b)
all instruments that the Managing Member or any Liquidator deems
appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with
its terms; (c) all conveyances and other instruments or documents
that the Managing Member or any Liquidator deems appropriate or
necessary to reflect the dissolution and liquidation of the
Company pursuant to the terms of this Agreement, including,
without limitation, a certificate of cancellation; (d) all
instruments relating to the admission, withdrawal, removal or
substitution of any Member pursuant to, or other events described
in, Articles 11, 12 or 13 hereof or the Capital Contribution of
any Member; and (e) all certificates, documents and other
instruments relating to the determination of the rights,
preferences and privileges of Membership Interests; and
(2) execute, swear to, acknowledge and file all
ballots, consents, approvals, waivers, certificates and other
instruments appropriate or necessary, in the sole and absolute
discretion of the Managing Member or any Liquidator, to make,
evidence, give, confirm or ratify any vote, consent, approval,
agreement or other action which is made or given by the Members
hereunder or is consistent with the terms of this Agreement or
appropriate or necessary, in the sole discretion of the Managing
Member or any Liquidator, to effectuate the terms or intent of
this Agreement.
Nothing contained in this Section 2.4 shall be
construed as authorizing the Managing Member or any Liquidator to
amend this Agreement except in accordance with Article 14 hereof
or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared
to be irrevocable and a special power coupled with an interest,
in recognition of the fact that each of the Members and Assignees
will be relying upon the power of the Managing Member to act as
contemplated by this Agreement, and it shall survive and not be
affected by the subsequent Incapacity of any Member or Assignee
and the Transfer of all or any portion of such Member's or
Assignee's LLC Units or Membership Interest and shall extend to
such Member's or Assignee's heirs, successors, assigns and
personal representatives. Each such Member or Assignee hereby
agrees to be bound by any representation made by the Managing
Member or any Liquidator, acting in good faith pursuant to such
power of attorney; and each such Member or Assignee hereby waives
any and all defenses which may be available to contest, negate or
disaffirm the action of the Managing Member or any Liquidator,
taken in good faith under such power of attorney. Each Member or
Assignee shall execute and deliver to the Managing Member or any
Liquidator, within 15 days after receipt of the Managing Member's
or Liquidator's request therefor, such further designation,
powers of attorney and other instruments as the Managing Member
or the Liquidator, as the case may be, deems necessary to
effectuate this Agreement and the purposes of the Company.
Section 2.5 Term
The term of the Company commenced on October 27, 1998,
the date that the original Certificate was filed in the office of
the Secretary of State of Delaware in accordance with the Act,
and shall continue until December 31, 2028 unless extended by
mutual agreement of the Members or earlier terminated pursuant
the provisions of Article 13 hereof or as otherwise provided by
law.
ARTICLE 3.
PURPOSE
Section 3.1 Purpose and Business
The sole purposes of the Company are (i) to acquire,
own, manage, operate, maintain, improve, expand, redevelop,
encumber, sell or otherwise dispose of, in accordance with the
terms of this Agreement, the Properties and any other Properties
acquired by the Company, and to invest and ultimately distribute
funds, including, without limitation, funds obtained from owning
or otherwise operating the Properties and any other Properties
acquired by the Company and the proceeds from the sale or other
disposition of the Properties and any other Properties acquired
by the Company, all in the manner permitted by this Agreement,
and (ii) subject to and in accordance with the terms of this
Agreement, to do anything necessary or incidental to the
foregoing.
Section 3.2 Powers
The Company is empowered to do any and all acts and
things necessary, appropriate, proper, advisable, incidental to
or convenient for the furtherance and accomplishment of the
purposes and business described herein and for the protection and
benefit of the Company including, without limitation, full power
and authority, directly or through its ownership interest in
other entities, to enter into, perform and carry out contracts of
any kind, borrow money and issue evidences of indebtedness,
whether or not secured by mortgage, deed of trust, pledge or
other lien, acquire, own, manage, improve and develop real
property, and lease, sell, transfer and dispose of real property;
provided, however, that notwithstanding any other provision in
this Agreement, the Managing Member may in the judgment of the
Managing Member in its sole and absolute discretion, (A) cause
the Company to refrain from taking any action that (i) could
adversely affect the ability of the Managing Member to continue
to qualify as a REIT, (ii) could subject the Managing Member to
any additional taxes under Code Section 857 or Code Section 4981
(provided that the Company shall not be disproportionately
burdened by this provision relative to the other assets and
activities of the Managing Member), or (iii) could violate any
law or regulation of any governmental body or agency having
jurisdiction over the Managing Member, its securities or the
Company, unless such action under clause (i), clause (ii) or
clause (iii) above shall have been specifically consented to by
the Managing Member in writing, or (B) cause the Company to take
an action which is necessary to avoid the events set forth in
(i), (ii) or (iii) above.
Section 3.3 Specified Purposes
The Company shall be a limited liability company only
for the purposes specified in Section 3.1 hereof, and this
Agreement shall not be deemed to create a company, venture or
partnership between or among the Members with respect to any
activities whatsoever other than the activities within the
purposes of the Company as specified in Section 3.1 hereof.
Except as otherwise provided in this Agreement, no Member shall
have any authority to act for, bind, commit or assume any
obligation or responsibility on behalf of the Company, its
properties or any other Member. No Member, in its capacity as a
Member under this Agreement, shall be responsible or liable for
any indebtedness or obligation of another Member, nor shall the
Company be responsible or liable for any indebtedness or
obligation of any Member, incurred either before or after the
execution and delivery of this Agreement by such Member, except
as to those responsibilities, liabilities, indebtedness or
obligations incurred pursuant to and as limited by the terms of
this Agreement and the Act.
Section 3.4 Representations and Warranties by the
Members; Disclaimer of Certain Representations
A. Each Member that is an individual (including,
without limitation, each Additional Member or Substituted Member
as a condition to becoming an Additional Member or a Substituted
Member) represents and warrants to the Company, the Managing
Member and each other Member that (i) such Member has the legal
capacity to enter into this Agreement and perform such Member's
obligations hereunder, (ii) the consummation of the transactions
contemplated by this Agreement to be performed by such Member
will not result in a breach or violation of, or a default under,
any material agreement by which such Member or any of such
Member's property is bound, or any statute, regulation, order or
other law to which such Member is subject, (iii) such Member is
neither a "foreign person" within the meaning of Code Section
1445(f) nor a "foreign partner" within the meaning of Code
Section 1446(e), (iv) such Member (other than the Managing
Member) either (a) does not Constructively Own more than 25% of
the interests in capital or profits of the Company or (b) does
not Constructively Own any interest in any entity that is a
tenant of either the Managing Member, the Company or any
partnership, venture or limited liability company of which the
Managing Member or the Company is a member, and (vi) this
Agreement is binding upon, and enforceable against, such Member
in accordance with its terms.
B. Each Member that is not an individual (including,
without limitation, each Additional Member or Substituted Member
as a condition to becoming an Additional Member or a Substituted
Member) represents and warrants to the Company, the Managing
Member and each other Member that (i) all transactions
contemplated by this Agreement to be performed by it have been
duly authorized by all necessary action, including, without
limitation, that of its managing member(s) (or, if there is no
managing member, a majority in interest of all members),
committee(s), trustee(s), general partner(s), beneficiaries,
directors and shareholder(s), as the case may be, as required,
(ii) the consummation of such transactions will not result in a
breach or violation of, or a default under, its partnership or
operating agreement, trust agreement, charter or bylaws, as the
case may be, any material agreement by which such Member or any
of such Member's properties or any of its partners, members,
beneficiaries, trustees or shareholders, as the case may be, is
or are bound, or any statute, regulation, order or other law to
which such Member or any of its partners, members, trustees,
beneficiaries or shareholders, as the case may be, is or are
subject, (iii) such Member is neither a "foreign person" within
the meaning of Code Section 1445(f) nor a "foreign partner"
within the meaning of Code Section 1446(e), (iv) such Member
(other than the Managing Member) either (a) does not
Constructively Own more than 25% of the interests in capital of
profits of the Company or (b) does not Constructively Own any
interest in any entity that is a tenant of either the Managing
Member, the Company or any partnership, venture or limited
liability company of which the Managing Member or the Company is
a member, (vi) this Agreement is binding upon, and enforceable
against, such Member in accordance with its terms.
C. Each Member (including, without limitation, each
Additional Member or Substituted Member as a condition to
becoming an Additional Member or a Substituted Member)
represents, warrants and agrees that it has acquired and
continues to hold its interest in the Company for its own account
for investment only and not for the purpose of, or with a view
toward, the resale or distribution of all or any part thereof,
nor with a view toward selling or otherwise distributing such
interest or any part thereof at any particular time or under any
predetermined circumstances. Each Member further represents and
warrants that it is an "accredited investor" as defined in Rule
501 promulgated under the Securities Act and is a sophisticated
investor, able and accustomed to handling sophisticated financial
matters for itself, particularly real estate investments, and
that it has a sufficiently high net worth that it does not
anticipate a need for the funds that it has invested in the
Company in what it understands to be a highly speculative and
illiquid investment.
D. The representations and warranties contained in
Sections 3.4.A, 3.4.B and 3.4.C hereof shall survive the
execution and delivery of this Agreement by each Member (and, in
the case of an Additional Member or a Substituted Member, the
admission of such Additional Member or Substituted Member as a
Member in the Company) and the dissolution, liquidation and
termination of the Company.
E. Each Member (including, without limitation, each
Additional Member or Substituted Member as a condition to
becoming an Additional Member or a Substituted Member) hereby
represents that it has consulted and been advised by its legal
counsel and tax advisor in connection with, and acknowledges that
no representations as to potential profit, tax consequences of
any sort (including, without limitation, the tax consequences
resulting from forming or operating the Company, conducting the
business of the Company, executing this Agreement, consummating
the transaction provided for in or contemplated by the
Contribution Agreement, making a Capital Contribution, being
admitted to the Company, receiving or not receiving distributions
from the Company, exchanging LLC Units or being allocated Tax
Items), cash flows, funds from operations or yield, if any, in
respect of the Company or the Managing Member have been made by
the Company, any Member or any employee or representative or
Affiliate of the Company or any Member, and that projections and
any other information, including, without limitation, financial
and descriptive information and documentation, that may have been
in any manner submitted to such Member shall not constitute any
representation or warranty of any kind or nature, express or
implied.
ARTICLE 4.
CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Initial
Members
At the time of their respective execution of this
Agreement, the Members (or, in the event a Member shall be one of
a Contributor's Partners, the Contributor) shall make Capital
Contributions as set forth in Exhibit A to this Agreement. The
Members (including each of Contributor's Partners) shall own
Managing Member Units and Non-Managing Member Units, as
applicable, in the amounts set forth on Exhibit A. Except as
required by law or as otherwise provided in Sections 4.1, 4.2 and
4.4, no Member shall be required or permitted to make any
additional Capital Contributions or loans to the Company.
Section 4.2 Additional Members
Subject to the receipt of any Consent of the Non-
Managing Members required by Section 7.3.B(4), the Managing
Member is authorized to admit one or more Additional Members to
the Company from time to time, in accordance with the provisions
of Section 12.3 hereof, on terms and conditions and for such
Capital Contributions as may be established by the Managing
Member in its reasonable discretion. In the sole and absolute
discretion of the Managing Member, the Company may acquire in the
future additional Properties by means of Capital Contributions by
other Persons, which Capital Contributions shall be set forth in
Exhibit A. As a condition to being admitted to the Company, each
Additional Member shall execute an agreement to be bound by the
terms and conditions of this Agreement.
Section 4.3 Incurrence and Payment of Debt
A. Subject to the receipt of the Consent of any Non-
Managing Members required by Section 7.3.B(5), the Company may
incur or assume Debt, or enter into other similar credit,
guarantee, financing or refinancing arrangements, for any purpose
(including, without limitation, in connection with any further
acquisition of Properties from any Person), upon such terms as
the Managing Member determines appropriate; provided, however,
that any Debt shall be nonrecourse to the Managing Member unless
the Managing Member otherwise agrees.
B. Subject to the provisions of Section 8.5.D, the
Managing Member is authorized, in its sole and absolute
discretion, to cause the Company to repay or prepay any Debt.
C. If on the day following an LLC Distribution Date
there exists a Preferred Return Shortfall and a Debt Coverage
Ratio of less than 1.1, the Managing Member shall either (i)
cause the Company, within 45 days following such LLC Distribution
Date but subject to the provisions of Section 8.5.D, to refinance
the Debt or otherwise cause the terms relating to the repayment
of the Debt to be modified or (ii) for the period of time that
there remains a Preferred Return Shortfall, make additional
Capital Contributions in an amount sufficient to pay that portion
of the principal and interest payments that become due and
payable under the Company's Debt (the "Debt Service Contribution
Amount"), such that following the taking of such action described
in the foregoing (i) or (ii), the Debt Coverage Ratio,
recalculated to give effect to such action as of the first day of
the Measurement Period, shall be not less than 1.1. In the event
the Managing Member elects to take the action described in clause
(ii) of the foregoing sentence, the Managing Member shall cause
the Debt Service Contribution Amount to be applied to the payment
of principal and interest amounts that become due and payable
under the Company's Debt.
Section 4.4 Additional Funding and Capital
Contributions
A. General. The Managing Member may, at any time and
from time to time, determine that the Company requires additional
funds ("Additional Funds") for the operation of the Company.
Additional Funds may be raised by the Company in accordance with
the terms of this Section 4.4 or the terms of Section 4.3 hereof.
No Person, including, without limitation, any Member or Assignee,
shall have any preemptive, preferential, participation or similar
right or rights to subscribe for or acquire any Membership
Interest.
B. Additional Contributions. The Managing Member on
behalf of the Company may raise all or any portion of the
Additional Funds by making additional Capital Contributions.
Subject to the terms of this Section 4.4 and to the definition of
"Gross Asset Value," the Managing Member shall determine in good
faith the amount, terms and conditions of such additional Capital
Contributions. In addition, the Managing Member shall be solely
responsible for making additional Capital Contributions to the
Company in amounts sufficient to (i) fund all necessary capital
additions, tenant improvements and any leasing commissions
relating to the Properties; (ii) fund all capital expenditures
not included in the foregoing clause (i) that exceed seven and
one-half percent (7.5%) of the sum of the amounts described in
clause a(1) and a(2) of the definition of Available Cash in any
calendar year; and (iii) so long as the Company is in compliance
with the provisions of Section 8.5.D, repay or prepay any
mortgage Debt which encumbers any of the Properties as of the
date of this Agreement and which the Managing Member elects to
cause the Company to repay or prepay. The Managing Member shall
receive that number of additional Managing Member Units in
consideration for additional Capital Contributions made by the
Managing Member equal to the initial Gross Asset Value of the
additional Capital Contribution (or, in the event of a
contribution of cash, the amount of cash so contributed) divided
by the Value as of the date of such Capital Contribution.
C. Timing of Additional Capital Contributions. If
additional Capital Contributions are made by a Member on any day
other than the first day of a Fiscal Year, then Net Income, Net
Loss, each item thereof and all other items of income, gain,
loss, deduction and credit allocable among Members for such
Fiscal Year, if necessary, shall be allocated among such Members
by taking into account their varying interests during the Fiscal
Year in accordance with Code Section 706(d), using the "interim
closing of the books" or "daily proration" method or another
permissible method selected by the Managing Member.
Section 4.5. No Interest; No Return
Except as provided herein, no Member shall be entitled
to interest on its Capital Contribution or on such Member's
Capital Account. Except as provided herein or by law, no Member
shall have any right to demand or receive the return of its
Capital Contribution from the Company.
ARTICLE 5.
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of
Distributions
A. The Managing Member shall cause the Company to
distribute quarterly on the LLC Distribution Date all Available
Cash generated by the Company during the quarter most recently
ended prior to the LLC Distribution Date (the "Payment Quarter")
as follows:
(1) First, to the holders of the Non-Managing Member
Units, in accordance with their relative Preferred Return
Shortfalls at the end of the Payment Quarter, until the Preferred
Return Shortfall for each holder of Non-Managing Member Units at
the end of the Payment Quarter is zero, provided, however, that
in the event a Reduction Date occurs during any Payment Quarter,
a distribution shall be made under this Section 5.1.A(1) on the
LLC Distribution Date associated with such Payment Quarter to the
holder or holders of the Reduction Units in an amount determined
by multiplying the amount that would have been distributed on the
LLC Distribution Date under Section 5.1.A(1) in respect of the
Reduction Units had they been outstanding on the last day of such
Payment Quarter by a fraction, the numerator of which shall be
the number of days beginning on the first day of the Payment
Quarter relating to the LLC Distribution Date and ending on the
Reduction Date and the denominator of which shall be the number
of days in the Payment Quarter in which the Reduction Date
occurs.
(2) Second, all Available Cash remaining after the
distribution provided for in Section 5.1.A(1) above shall be
distributed to the Managing Member.
B. The Managing Member shall take such reasonable
efforts, as determined by it in its sole and absolute discretion
and consistent with its qualification as a REIT, to cause the
Company to distribute sufficient amounts to enable the Managing
Member to pay stockholder dividends that will (a) satisfy the
requirements for qualifying as a REIT under the Code and
Regulations ("REIT Requirements"), and (b) except to the extent
the Managing Member elects, in its sole discretion, not to make
such distributions, avoid any federal income or excise tax
liability of the Managing Member (provided that the Company shall
not be disproportionately burdened by this provision relative to
the other assets and activities of the Managing Member).
Section 5.2. Distributions in Kind
No right is given to any Member to demand and receive
property other than cash. The Managing Member may determine, in
its sole and absolute discretion, to make a distribution in kind
to the Members of Company assets, and such assets shall be
distributed in such a fashion as to ensure that the fair market
value is distributed and allocated in accordance with Articles 5
and 6 hereof.
Section 5.3. Amounts Withheld
Each Member hereby authorizes the Company to withhold
from or pay on behalf of or with respect to such Member any
amount of federal, state, local or foreign taxes that the
Managing Member determines that the Company is required to
withhold or pay with respect to any amount distributable or
allocable to such Member pursuant to this Agreement, including,
without limitation, any taxes required to be withheld or paid by
the Company pursuant to Code Section 1441, Code Section 1442,
Code Section 1445 or Code Section 1446. Any amount paid on
behalf of or with respect to a Member shall constitute a loan by
the Company to such Member, which loan shall be repaid by such
Member within 15 days after notice from the Managing Member that
such payment must be made unless (i) the Company withholds such
payment from a distribution that would otherwise be made to the
Member or (ii) the Managing Member determines, in its sole and
absolute discretion, that such payment may be satisfied out of
the Available Cash of the Company that would, but for such
payment, be distributed to the Member. Any amounts withheld
pursuant to the foregoing clauses (i) or (ii) shall be treated as
having been distributed to such Member. Each Member hereby
unconditionally and irrevocably grants to the Company a security
interest in such Member's Membership Interest to secure such
Member's obligation to pay to the Company any amounts required to
be paid pursuant to this Section 5.3. In the event that a Member
fails to pay any amounts owed to the Company pursuant to this
Section 5.3 when due, the Managing Member may, in its sole and
absolute discretion, elect to make the payment to the Company on
behalf of such defaulting Member, and in such event shall be
deemed to have loaned such amount to such defaulting Member and
shall succeed to all rights and remedies of the Company as
against such defaulting Member (including, without limitation,
the right to receive distributions). Any amounts payable by a
Member hereunder shall bear interest at the base rate on
corporate loans at large United States money center commercial
banks, as published from time to time in the Wall Street Journal,
plus four (4) percentage points (but not higher than the maximum
lawful rate) from the date such amount is due (i.e., 15 days
after demand) until such amount is paid in full. Each Member
shall take such actions as the Company or the Managing Member
shall request in order to perfect or enforce the security
interest created hereunder.
Section 5.4. Distributions Upon Liquidation
Notwithstanding the other provisions of this Article 5,
net proceeds from a Terminating Capital Transaction and any other
cash received or reductions in reserves made after commencement
of the liquidation of the Company shall be distributed to the
Members in accordance with Section 13.3 hereof.
Section 5.5. Restricted Distributions
Notwithstanding any provision to the contrary contained
in this Agreement, neither the Company nor the Managing Member,
on behalf of the Company, shall make a distribution to any Member
on account of its Membership Interest or interest in LLC Units if
such distribution would violate Section 18-607 of the Act or
other applicable law.
Section 5.6. Distributions of Proceeds from Sale of
Properties and Refinancing Debt
A. In the event of a taxable disposition of some, but
not all, of the Properties, the Managing Member shall cause the
Company to (i) reinvest the Disposition Proceeds to the extent
the Managing Member elects to do so and in the amount determined
by the Managing Member to be appropriate (and to hold the
Disposition Proceeds in an interest bearing account pending such
reinvestment) and (ii) if the Managing Member elects to
distribute all or any portion of the Distribution Proceeds,
distribute such portion of the Disposition Proceeds, to the
extent thereof, as follows:
(1) First, to the holders of the Non-Managing Member
Units in accordance with their Preferred Return Shortfalls until
the Preferred Return Shortfall for each holder of Non-Managing
Member Units is zero;
(2) Second, to the holders of LLC Units pro rata to
their holdings of LLC Units until the number of LLC Units held by
the Non-Managing Members has been reduced to zero pursuant to the
provisions of Section 5.6.C hereof; and
(3) Third, the remaining balance of the Disposition
Proceeds, if any, to the Managing Member.
B. Upon the incurrence of Refinancing Debt, the
Managing Member shall cause the Company to (i) reinvest the
Refinancing Debt Proceeds to the extent the Managing Member
elects to do so and in the amount determined by the Managing
Member to be appropriate (and to hold the Refinancing Debt
Proceeds in an interest bearing account pending such
reinvestment) and (ii) if the Managing Member elects to
distribute all or any portion of the Refinancing Debt Proceeds,
distribute such portion of the Refinancing Debt Proceeds, to the
extent thereof, as follows:
(1) First, to the holders of the Non-Managing Member
Units in accordance with their Preferred Return Shortfalls until
the Preferred Return Shortfall for each holder of Non-Managing
Member Units is zero;
(2) Second, the remaining balance of the Refinancing
Debt Proceeds, if any, to the Managing Member.
C. The number of LLC Units outstanding on the date of
a distribution pursuant to Section 5.6.A(2) above will be reduced
on the date of the distribution (the "Reduction Date") by the
aggregate number of LLC Units (the "Total Units") determined by
dividing the aggregate amount of the distributions so made
pursuant to Section 5.6.A(2) by the Value on the Reduction Date.
The Non-Managing Member Units shall be reduced (each such
reduction a "Reduction") by a number of LLC Units (rounded down
to the nearest whole unit) (the "Reduction Units") determined by
multiplying the number of Total Units by a fraction, the
numerator of which is the total number of Non-Managing Member
Units outstanding and the denominator of which is the total
number of Non-Managing Member Units and Managing Member Units
outstanding. The Reduction Units shall be allocated (as closely
as practicable in whole units) among the holders of Non-Managing
Member Units in accordance with their respective holdings of Non-
Managing Member Units. The Managing Member Units shall be
reduced by a number of Managing Member Units equal to the
difference between the number of Total Units and the number of
Reduction Units. To reflect the foregoing reduction, each Member
shall return to the Managing Member the certificate evidencing
the Reduction Units allocated to him or it or the Managing Member
Units so reduced which will be canceled and a new certificate
evidencing the reduced number of Managing Member Units or Non-
Managing Member Units shall be immediately issued to such Member
by the Managing Member on behalf of the Company. In the event
the number of outstanding Non-Managing Member Units held by a Non-
Managing Member or Assignee is reduced (pursuant to this Section
5.6.C or otherwise) to zero, such Non-Managing Member or Assignee
shall cease to have an interest in the Company (other than the
right to receive final distributions and allocations resulting
from the liquidation of their interest).
D. The Managing Member shall have no obligation to
incur Refinancing Debt for the purpose of making distributions
pursuant to this Section 5.6 or for any other purpose.
ARTICLE 6.
ALLOCATIONS
Section 6.1. Timing and Amount of Allocations of Net
Income and Net Loss
Net Income and Net Loss of the Company shall be
determined and allocated with respect to each Fiscal Year of the
Company as of the end of each such year. Except as otherwise
provided in this Article 6, an allocation to a Member of a share
of Net Income or Net Loss shall be treated as an allocation of
the same share of each item of income, gain, loss or deduction
(collectively "Tax Items") that is taken into account in
computing Net Income or Net Loss.
Section 6.2. General Allocations
A. Operating Net Income, Depreciation, and Net Loss.
Except as otherwise provided in Sections 6.2.B, 6.2.C or 6.3:
(1) Net Income, other than Net Income attributable to
a disposition of any or all of the Real Properties, and other
than Net Income attributable to a Liquidating Event, shall first
be allocated to each Non-Managing Member or Assignee in an amount
equal to the cumulative distributions received by such Member or
Assignee pursuant to Section 5.1.A(1), Section 5.6.A(1) or
Section 5.6.B(1) for the current and all prior Fiscal Years, less
any amounts of Net Income previously allocated to such Member or
Assignee pursuant to this Section 6.2.A(1) or Section
6.2.B(2)(b).
(2) All remaining Net Income and Net Loss, other than
Net Income or Net Loss attributable to a disposition of any or
all of the Real Properties, and other than Net Income or Net Loss
attributable to a Liquidating Event, shall be allocated to the
Managing Member.
B. Net Income and Net Loss from the Disposition of
Real Properties. Except as otherwise provided in Sections 6.2.C
or 6.3:
(1) Net Loss attributable to a disposition of any or
all of the Real Properties shall be allocated to each Member or
Assignee pro rata to such Member's or Assignee's Percentage
Interest.
(2) Net Income attributable to a disposition of any or
all of the Real Properties shall be allocated as follows:
(a) First, to each Member or Assignee in proportion
to, and to the extent of, the cumulative amount of any Net Loss
previously allocated to such Member or Assignee pursuant to
Section 6.2.B(1) exceeds the cumulative amount of Net Income
previously allocated to such Member or Assignee pursuant to this
Section 6.2.B(2)(a);
(b) Second, after taking into account any allocations
described in Section 6.2.A(1) for such Fiscal Year, to each Non-
Managing Member or Assignee in an amount equal to the cumulative
distributions received by such Member or Assignee pursuant to
Section 5.1.A(1), Section 5.6.A(1) or Section 5.6.B(1) for the
current and all prior Fiscal Years less any amounts of Net Income
previously allocated to such Member or Assignee pursuant to
Section 6.2.A(1) or this Section 6.2.B(2)(b); and
(c) Thereafter, to each Member or Assignee pro rata to
such Member's or Assignee's Percentage Interest.
C. Net Income and Net Loss Upon Liquidation. If a
Liquidating Event occurs in a Fiscal Year, or if the number of
LLC Units held by the Non-Managing Members have been reduced
(pursuant to Section 5.6.C or otherwise) to zero, Net Income or
Net Loss (or, if necessary, separate items of income, gain, loss
and deduction) for such Fiscal Year and any Fiscal Years
thereafter shall, subject to Section 6.3, be allocated among the
Members, as follows:
(1) First, to holders of Non-Managing Member Units,
pro rata to their Percentage Interests, in such amounts as will
cause, to the greatest extent possible, each such holder's
Capital Account per Non-Managing Member Unit (if any) to be equal
to the sum of (a) such holder's Preferred Return Shortfall per
unit, and (b) the product of (i) the Value of a REIT Share (with
the date of the liquidating distribution being the Valuation
Date), and (ii) the Adjustment Factor (with the product set forth
in (b) being equal to zero if the number of outstanding Non-
Managing Member Units has been reduced (pursuant to Section
5.6.C, or otherwise) to zero; and
(2) Thereafter, to the Managing Member.
Section 6.3. Additional Allocation Provisions
A. Regulatory Allocations.
(1) Minimum Gain Chargeback.
Except as otherwise provided in Regulations Section
1.704-2(f), notwithstanding the provisions of Section 6.2 hereof,
or any other provision of this Article 6, if there is a net
decrease in Company Minimum Gain during any Fiscal Year, each
Member shall be specially allocated items of Company income and
gain for such year (and, if necessary, subsequent years) in an
amount equal to such Member's share of the net decrease in
Company Minimum Gain, as determined under Regulations Section
1.704-2(g). Allocations pursuant to the previous sentence shall
be made in proportion to the respective amounts required to be
allocated to each Member pursuant thereto. The items to be
allocated shall be determined in accordance with Regulations
Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 6.3.A(1)
is intended to qualify as a "minimum gain chargeback" within the
meaning of Regulations Section 1.704-2(f) and shall be
interpreted consistently therewith.
(2) Member Minimum Gain Chargeback.
Except as otherwise provided in Regulations Section
1.704-2(i)(4) or in Section 6.3.A(1) hereof, if there is a net
decrease in Member Minimum Gain attributable to a Member
Nonrecourse Debt during any Fiscal Year, each Member who has a
share of the Member Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Regulations
Section 1.704-2(i)(5), shall be specially allocated items of
Company income and gain for such year (and, if necessary,
subsequent years) in an amount equal to such Member's share of
the net decrease in Member Minimum Gain attributable to such
Member Nonrecourse Debt, determined in accordance with
Regulations Section 1.704-2(i)(4). Allocations pursuant to the
previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Member pursuant thereto.
The items to be so allocated shall be determined in accordance
with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This
Section 6.3.A(2) is intended to qualify as a "chargeback of
partner nonrecourse debt minimum gain" within the meaning of
Regulations Section 1.704-2(i) and shall be interpreted
consistently therewith.
(3) Member Nonrecourse Deductions.
Any Member Nonrecourse Deductions for any Fiscal Year
shall be specially allocated to the Member(s) who bears the
economic risk of loss with respect to the Member Nonrecourse Debt
to which such Member Nonrecourse Deductions are attributable, in
accordance with Regulations Section 1.704-2(i).
(4) Qualified Income Offset.
If any Member unexpectedly receives an adjustment,
allocation or distribution described in Regulations Section 1.704-
1(b) (2)(ii)(d)(4), (5) or (6), items of Company income and gain
shall be allocated, in accordance with Regulations Section 1.704-
1(b) (2)(ii)(d), to such Member in an amount and manner
sufficient to eliminate, to the extent required by such
Regulations, the Adjusted Capital Account Deficit of such Member
as quickly as possible, provided that an allocation pursuant to
this Section 6.3.A(4) shall be made if and only to the extent
that such Member would have an Adjusted Capital Account Deficit
after all other allocations provided in this Article 6 have been
tentatively made as if this Section 6.3.A(4) were not in the
Agreement. It is intended that this Section 6.3.A(4) qualify and
be construed as a "qualified income offset" within the meaning of
Regulations Section 1.704-1(b) (2)(ii)(d) and shall be
interpreted consistently therewith.
(5) Limitation on Allocation of Net Loss.
To the extent that any allocation of Net Loss would
cause or increase an Adjusted Capital Account Deficit as to any
Member, such allocation of Net Loss shall be reallocated among
the other Members in accordance with their respective LLC Units,
subject to the limitations of this Section 6.3.A(5).
(6) Section 754 Adjustment.
To the extent that an adjustment to the adjusted tax
basis of any Company asset pursuant to Code Section 734(b) or
Code Section 743(b) is required, pursuant to Regulations Section
1.704-1(b) (2)(iv)(m)(2) or Regulations Section 1.704-
1(b) (2)(iv)(m)(4), to be taken into account in determining
Capital Accounts as the result of a distribution to a Member in
complete liquidation of its interest in the Company, the amount
of such adjustment to the Capital Accounts shall be treated as an
item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases such basis), and such gain
or loss shall be specially allocated to the Members in accordance
with their LLC Units in the event that Regulations Section 1.704-
1(b) (2)(iv)(m)(2) applies, or to the Members to whom such
distribution was made in the event that Regulations Section 1.704-
1(b) (2)(iv)(m)(4) applies.
(7) Curative Allocations.
The allocations set forth in Sections 6.3.A(1) through
(6) hereof (the "Regulatory Allocations") are intended to comply
with certain regulatory requirements, including the requirements
of Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding
the provisions of Sections 6.1 and 6.2 hereof, the Regulatory
Allocations shall be taken into account in allocating other items
of income, gain, loss and deduction among the Members so that, to
the extent possible without violating the requirements giving
rise to the Regulatory Allocations, the net amount of such
allocations of other items and the Regulatory Allocations to each
Member shall be equal to the net amount that would have been
allocated to each such Member if the Regulatory Allocations had
not occurred.
B. Allocation of Excess Nonrecourse Liabilities.
For purposes of determining a Member's proportional
share of the "excess nonrecourse liabilities" of the Company
within the meaning of Regulations Section 1.752-3(a)(3), each
Member's interest in Company profits shall be such Member's
Percentage Interest.
Section 6.4. Tax Allocations
A. In General. Except as otherwise provided in this
Section 6.4, for income tax purposes under the Code and the
Regulations each of the Company's Tax Items shall be allocated
among the Members in the same manner as its correlative item of
"book" income, gain, loss or deduction is allocated pursuant to
Sections 6.2 and 6.3 hereof.
B. Allocations Respecting Section 704(c)
Revaluations. Notwithstanding Section 6.4.A hereof, Tax Items
with respect to Property that is contributed to the Company with
a Gross Asset Value that varies from its basis in the hands of
the contributing Member immediately preceding the date of
contribution shall be allocated among the Members for income tax
purposes pursuant to the "traditional method" as described in
Regulations Section 1.704-3(d). In the event that the Gross
Asset Value of any Company asset is adjusted pursuant to
subsection (b) of the definition of "Gross Asset Value" (provided
in Article 1 hereof), subsequent allocations of Tax Items with
respect to such asset shall take account of the variation, if
any, between the adjusted basis of such asset and its Gross Asset
Value in the same manner as under Code Section 704(c) and the
applicable Regulations and this Section 6.4.B., pursuant to any
method permitted under Regulations Section 1.704-3 as selected by
the Managing Member
Section 6.5. Other Provisions
A. Other Allocations. In the event that (i) any
modifications are made to the Code or any Regulations, (ii) any
changes occur in any case law applying or interpreting the Code
or any Regulations, (iii) the IRS changes or clarifies the manner
in which it applies or interprets the Code or any Regulations or
any case law applying or interpreting the Code or any Regulations
or (iv) the IRS adjusts the reporting of any of the transactions
contemplated by this Agreement which, in each case, either
(a) requires allocations of items of income, gain, loss,
deduction or credit or (b) requires reporting of any of the
transactions contemplated by this Agreement in a manner different
from that set forth in this Article 6, the Managing Member is
hereby authorized to make new allocations or report any such
transactions (as the case may be) in reliance of the foregoing,
and such new allocations and reporting shall be deemed to be made
pursuant to the fiduciary duty of the Managing Member to the
Company and the other Members, and no such new allocation or
reporting shall give rise to any claim or cause of action by any
Member.
B. Consistent Tax Reporting. The Members acknowledge
and are aware of the income tax consequences of the allocations
made by this Article 6 and hereby agree to be bound by the
provisions of this Article 6 in reporting their shares of Net
Income, Net Loss and other items of income, gain, loss, deduction
and credit for federal, state and local income tax purposes.
Section 6.6 Amendments to Allocation to Reflect
Issuance of Additional Membership Interests
In the event that the Company issues additional
Membership Interests to the Managing or any Additional Member
pursuant to Article 4 hereof, the Managing Member shall make such
revisions to this Article 6 as it determines are necessary to
reflect the terms of the issuance of such additional Membership
Interests, including making preferential allocations to certain
classes of Membership Interests.
ARTICLE 7.
MANAGEMENT AND OPERATION OF BUSINESS
Section 7.1. Management
A. Except as otherwise expressly provided in this
Agreement, the Managing Member, in its capacity as a Member of
the Company under the Act, shall have sole and complete charge
and management over the business and affairs of the Company, in
all respects and in all matters. The Managing Member shall at
all times act in good faith in exercising its powers hereunder.
The Managing Member shall be an agent of the Company's business,
and the actions of the Managing Member taken in such capacity and
in accordance with this Agreement shall bind the Company. The
Managing Member shall at all times be a Member of the Company.
Except as otherwise expressly provided in this Agreement or
required by any non-waivable provisions of applicable law, the
Non-Managing Members shall not participate in the control of the
Company, shall have no right, power or authority to act for or on
behalf of, or otherwise bind, the Company and shall have no right
to vote on or consent to any other matter, act, decision or
document involving the Company or its business. The Managing
Member may not be removed by the Members with or without cause,
except with the consent of the Managing Member. In addition to
the powers now or hereafter granted a manager of a limited
liability company under applicable law or that are granted to the
Managing Member under any other provision of this Agreement, the
Managing Member, subject to the other provisions hereof including
the limitations on the authority of the Managing Member set forth
in Section 7.3, shall have full power and authority to do all
things deemed necessary or desirable by it to conduct the
business of the Company, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in
Section 3.1 hereof, including, without limitation:
(1) the making of any expenditures, the lending or
borrowing of money (including, without limitation, making
payments and prepayments on loans and borrowing money to permit
the Company to make distributions to its Members in such amounts
as will permit the Managing Member (so long as the Managing
Member qualifies as a REIT) to avoid the payment of any federal
income tax including, for this purpose, any excise tax pursuant
to Code Section 4981 (provided that the Company shall not be
disproportionately burdened by this provision relative to the
other assets and activities of the Managing Member) and to make
distributions to its shareholders sufficient to permit the
Managing Member to maintain REIT status or otherwise to satisfy
the REIT Requirements), the assumption or guarantee of, or other
contracting for, indebtedness and other liabilities, the issuance
of evidences of indebtedness (including the securing of the same
by deed to secure debt, mortgage, deed of trust or other lien or
encumbrance on the Company's assets) and the incurring of any
obligations that it deems necessary for the conduct of the
activities of the Company;
(2) the making of tax, regulatory and other filings,
or rendering of periodic or other reports to governmental or
other agencies having jurisdiction over the business or assets of
the Company;
(3) except as restricted pursuant to Section 7.3.E(2)
hereof, the acquisition, sale, transfer, exchange or other
disposition of any assets of the Company (including, but not
limited to, the exercise or grant of any conversion, option,
privilege or subscription right or any other right available in
connection with any assets at any time held by the Company);
(4) except as restricted in this Agreement, the
mortgage, pledge, encumbrance or hypothecation of any assets of
the Company (including, without limitation, any Transferred
Property), the use of the assets of the Company (including,
without limitation, cash on hand) for any purpose consistent with
the terms of this Agreement which the Managing Member believes
will directly benefit the Company and on any terms that the
Managing Member sees fit, including, without limitation, the
financing of the conduct or the operations of the Company, the
lending of funds to other Persons (including, without limitation,
the Managing Member (if necessary to permit the financing or
capitalization of a subsidiary of the Managing Member or the
Company)) and the repayment of obligations of the Company;
(5) the management, operation, leasing, landscaping,
repair, alteration, demolition, replacement or improvement of any
Property, including, without limitation, any Transferred
Property, or other asset of the Company or any Subsidiary;
(6) the negotiation, execution and performance of any
contracts, leases, conveyances or other instruments that the
Managing Member considers useful or necessary to the conduct of
the Company's operations or the implementation of the Managing
Member's powers under this Agreement, including, without
limitation, (i) contracting with property managers (including,
without limitation, as to any Transferred Property or other
Property, contracting with the contributing or any other Member
or its Affiliates for property management services), contractors,
developers, consultants, accountants, legal counsel, other
professional advisors and other agents and the payment of their
expenses and compensation out of the Company's assets, and
(ii) the execution, delivery and performance of the Contribution
Agreement and the agreements and instruments referred to therein
or contemplated thereby, including the Management Agreement (as
defined in the Contribution Agreement) and the Future Projects
Rights Agreement (as defined in the Contribution Agreement) and
the Registration Rights Agreement (as defined on the Contribution
Agreement);
(7) the distribution of Company cash or other Company
assets in accordance with this Agreement, the holding,
management, investment and reinvestment of cash and other assets
of the Company, and the collection and receipt of revenues, rents
and income of the Company;
(8) the selection and dismissal of employees of the
Company or the Managing Member (including, without limitation,
employees having titles or offices such as "president," "vice
president," "secretary" and "treasurer"), and agents, outside
attorneys, accountants, consultants and contractors of the
Company or the Managing Member and the determination of their
compensation and other terms of employment or hiring;
(9) the maintenance of such insurance including (i)
liability insurance for the Indemnitees hereunder and (ii)
casualty, liability, earthquake and other insurance on the
Properties of the Company for the benefit of the Company and the
Members comparable in coverage to that maintained by the Managing
Member with respect to the properties it owns and otherwise as it
deems necessary or appropriate;
(10) the control of any matters affecting the rights
and obligations of the Company, including the settlement,
compromise, submission to arbitration or any other form of
dispute resolution, or abandonment, of any claim, cause of
action, liability, debt or damages, due or owing to or from the
Company, the commencement or defense of suits, legal proceedings,
administrative proceedings, arbitrations or other forms of
dispute resolution, and the representation of the Company in all
suits or legal proceedings, administrative proceedings,
arbitrations or other forms of dispute resolution, the incurring
of legal expense, and the indemnification of any Person against
liabilities and contingencies to the extent permitted by law;
(11) the determination of the fair market value of any
Company property distributed in kind using such reasonable method
of valuation as it may adopt; provided that such methods are
otherwise consistent with the requirements of this Agreement;
(12) the enforcement of any rights against any Member
pursuant to representations, warranties, covenants and
indemnities relating to such Member's contribution of property or
assets to the Company;
(13) holding, managing, investing and reinvesting cash
and other assets of the Company;
(14) the collection and receipt of revenues and income
of the Company;
(15) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of
attorney, of any right, including the right to vote, appurtenant
to any asset or investment held by the Company;
(16) the exercise of any of the powers of the Managing
Member enumerated in this Agreement on behalf of or in connection
with any Subsidiary of the Company or any other Person in which
the Company has a direct or indirect interest, or jointly with
any such Subsidiary or other Person;
(17) the exercise of any of the powers of the Managing
Member enumerated in this Agreement on behalf of any Person in
which the Company does not have an interest pursuant to
contractual or other arrangements with such Person;
(18) the maintenance of working capital and other
reserves in such amounts as the Managing Member deems appropriate
and reasonable from time to time;
(19) the making, execution and delivery of any and all
deeds, leases, notes, deeds to secure debt, mortgages, deeds of
trust, security agreements, conveyances, contracts, guarantees,
warranties, indemnities, waivers, releases or legal instruments
or agreements in writing necessary or appropriate in the judgment
of the Managing Member for the accomplishment of any of the
powers of the Managing Member enumerated in this Agreement;
(20) the distribution of cash to acquire LLC Units held
by a Member in connection with a Member's exercise of its
Exchange Right under Section 8.6 hereof; and
(21) the amendment and restatement of Exhibit A hereto
to reflect accurately at all times the Capital Accounts, LLC
Units, and Percentage Interests of the Members as the same are
adjusted from time to time to the extent necessary to reflect
redemptions, Capital Contributions, the issuance of or reduction
in the number of LLC Units, the admission of any Additional
Member or any Substituted Member or otherwise, as long as the
matter or event being reflected in Exhibit A hereto otherwise is
authorized by this Agreement;
(22) make a general assignment for the benefit of
creditors or appoint or acquiesce in the appointment of a
Custodian for all or any part of the assets of the Company;
(23) institute any proceeding for bankruptcy on behalf
of the Company; and
(24) confess a judgment against the Company.
B. Each of the Non-Managing Members agrees that,
except as provided in Section 7.3 hereof, the Managing Member is
authorized to execute, deliver and perform the above-mentioned
agreements and transactions on behalf of the Company without any
further act, approval or vote of the Non-Managing Members,
notwithstanding any other provision of this Agreement (except as
provided in Section 7.3 hereof), the Act or any applicable law,
rule or regulation. The execution, delivery or performance by
the Managing Member or the Company of any agreement authorized or
permitted under this Agreement shall not constitute a breach by
the Managing Member of any duty that the Managing Member may owe
the Company or the Members or any other Persons under this
Agreement or of any duty stated or implied by law or equity.
C. At all times from and after the date hereof, the
Managing Member may cause the Company to establish and maintain
working capital reserves in such amounts as the Managing Member,
in its sole and absolute discretion, deems appropriate and
reasonable from time to time.
D. In exercising its permitted authority under this
Agreement, the Managing Member may, but shall be under no
obligation to, take into account the tax consequences to any
Member (including the Managing Member) of any action taken by it.
The Managing Member and the Company shall not have liability to a
Member under any circumstances as a result of an income tax
liability incurred by such Member as a result of an action (or
inaction) by the Managing Member pursuant to its authority under
this Agreement so long as the action or inaction is taken in good
faith.
Section 7.2. Certificate of Formation
To the extent that such action is determined by the
Managing Member to be reasonable and necessary or appropriate,
the Managing Member shall file amendments to and restatements of
the Certificate and do all the things to maintain the Company as
a limited liability company under the laws of the State of
Delaware and each other state, the District of Columbia or any
other jurisdiction in which the Company may elect to do business
or own property. Subject to the terms of Section 8.5.A(4)
hereof, the Managing Member shall not be required, before or
after filing, to deliver or mail a copy of the Certificate or any
amendment thereto to any Member. The Managing Member shall use
all reasonable efforts to cause to be filed such other
certificates or documents as may be commercially reasonable and
necessary or appropriate for the formation, continuation,
qualification and operation of a limited liability company in the
State of Delaware and any other state, or the District of
Columbia or other jurisdiction in which the Company may elect to
do business or own property.
Section 7.3. Restrictions on Managing Member's
Authority
A. The Managing Member may not take any action in
contravention of an express prohibition or limitation of this
Agreement, including, without limitation:
(1) take any action that would make it impossible to
carry on the ordinary business of the Company, except as
otherwise provided in this Agreement;
(2) possess Company property, or assign any rights in
specific Company property, for other than a Company purpose
except as otherwise provided in this Agreement;
(3) perform any act that would subject a Member to
liability as a Managing Member in any jurisdiction or any other
liability except as provided herein or under the Act; or
(4) enter into any contract, mortgage, loan or other
agreement that expressly prohibits or restricts, or has the
effect of prohibiting or restricting, the ability of (a) the
Managing Member or the Company from satisfying its obligations
under Section 8.6 hereof in full or (b) a Member from exercising
its rights to an Exchange in full, except, in either case, with
the written consent of such Member affected by the prohibition.
B. Subject to the provisions of Section 11.2 hereof,
the Managing Member shall not, without the prior Consent of the
Non-Managing Members undertake or have the authority to do or
undertake, on behalf of the Company, any of the following actions
or enter into any transaction which would have the effect of such
transactions:
(1) except as provided in Section 7.3.C and except in
connection with a dissolution or termination of the Company
permitted by Section 7.3.E, amend, modify or terminate this
Agreement other than to reflect the admission, substitution,
termination or withdrawal of Members pursuant to Article 11 or
Article 12 hereof;
(2) approve or acquiesce to the Transfer of the
Membership Interest of the Managing Member to any Person other
than the Company;
(3) admit into the Company any Additional or
Substituted Managing Member;
(4) admit into the Company any Additional Member; or
(5) cause the Company to incur any additional Debt;
provided, however the Managing Member may cause the Company, in
its sole and absolute discretion and without the consent of any
Non-Managing Member, to incur Refinancing Debt so long as:
(a) the aggregate principal balance, together with all
accrued and unpaid interest thereon, of all Debt outstanding
immediately following the incurrence of such Refinancing Debt and
the payment of Debt with the proceeds of such Refinancing Debt
does not exceed seventy percent (70%) of the then Appraised Value
of the Properties securing the repayment of any Refinancing Debt;
and
(b) the Debt Coverage Ratio is not less than 1.1.
C. Notwithstanding Section 7.3.B, the Managing Member
shall have the exclusive power to amend this Agreement as may be
required to facilitate or implement any of the following
purposes:
(1) to reflect the issuance of additional Membership
Interests pursuant to Section 4.4, to reflect the admission,
substitution, termination, or withdrawal of Members in accordance
with this Agreement and to amend Exhibit A in connection
therewith and to reflect the redemption or other reduction in the
number of LLC Units outstanding pursuant to Section 5.6 hereof
and as otherwise permitted by this Agreement;
(2) to reflect a change that is of an inconsequential
nature and does not adversely affect the Non-Managing Members in
any material respect, or to cure any ambiguity, correct or
supplement any provision in this Agreement not inconsistent with
law or with other provisions, or make other changes with respect
to matters arising under this Agreement that will not be
inconsistent with law or with the provisions of this Agreement;
(3) to satisfy any requirements, conditions, or
guidelines contained in any order, directive, opinion, ruling or
regulation of a federal or state agency or contained in federal
or state law;
(4) to reflect such changes as are reasonably
necessary for the Managing Member to maintain its status as a
REIT or to satisfy the REIT Requirements; and
(5) to modify, as set forth in the definition of
"Capital Account," the manner in which Capital Accounts are
computed.
D. Notwithstanding Section 7.3.B and 7.3.C hereof,
this Agreement shall not be amended with respect to any Member
adversely affected, and no action may be taken by the Managing
Member, without the Consent of such Member adversely affected if
such amendment or action would (i) convert a Non-Managing
Member's interest in the Company into a Managing Member's
interest, (ii) modify the limited liability of a Non-Managing
Member, (iii) alter rights of the Member to receive distributions
pursuant to Article 5 or Section 13.3.A(4), or the allocations
specified in Article 6 (except as permitted pursuant to Section
4.2, Section 4.4 and Section 7.3.C(1) hereof), (iv) materially
alter or modify the rights to an Exchange as set forth in
Section 8.6, and related definitions hereof or (v) amend this
Section 7.3.D. Further, no amendment may alter the restrictions
on the Managing Member's authority set forth elsewhere in this
Section 7.3 without the Consent specified in such section. Any
such amendment or action consented to by any Member shall be
effective as to that Member, notwithstanding the absence of such
consent by any other Member.
E. The Managing Member shall not, on behalf of the
Company, take any of the following actions during the Tax
Protection Period without the prior Consent of the Non-Managing
Members:
(1) dissolve or otherwise terminate the Company; or
(2) sell, dispose, convey or otherwise transfer any of
the Transferred Properties, or any Successor Properties, in a
transaction that causes holders of Non-Managing Member Units to
recognize taxable income under the Code on account of a Built-in
Gain, other than a casualty loss or taking by eminent domain;
provided that the Company shall apply the proceeds of any such
casualty or taking to the restoration or replacement of such
Transferred Properties or Successor Properties.
In the event that the prior Consent of the Non-Managing
Members is not required for the Managing Member, on behalf of the
Company, to take or engage in any of the actions described in the
foregoing subparagraphs (1) and (2), the Managing Member may take
such action only after providing the Non-Managing Members with
not less than 30 days notice of its intention to do so. In the
event the Managing Member provides the Non-Managing Members
notice of its intent to dissolve or otherwise terminate the
Company after June 30th of any year, the closing of the
termination or dissolution shall not occur prior to January 1 of
the subsequent year. Upon engaging in any of the transactions
described in the foregoing subparagraphs (1) and (2), the
Managing Member shall use reasonable commercial efforts (at no
economic detriment to itself or the Company) to minimize the
adverse effect of any tax applicable to the Non-Managing Members;
provided that the Managing Member shall have no liability for any
adverse tax effect on the Non-Managing Members resulting from the
actions described in the foregoing subparagraphs (1) and (2)
unless the Managing Member fails to act in good faith in
discharging its obligations under this sentence.
Section 7.4. Compensation of the Managing Member
A. The Managing Member shall not be compensated for
its services as the manager of the Company. Distributions,
payments and allocations to which the Managing Member may be
entitled in its capacity as the Managing Member shall not
constitute compensation for services rendered by the Managing
Member as provided in this Agreement (including the provisions of
Articles 5 and 6 hereof).
B. Subject to Sections 7.4.C and 15.12 hereof, the
Company shall be liable, and shall reimburse the Managing Member
on a monthly basis (or such other basis as the Managing Member
may determine in its sole and absolute discretion), for all sums
expended in connection with the Company's business. Any such
reimbursements shall be in addition to any reimbursement of the
Managing Member as a result of indemnification pursuant to
Section 7.7 hereof.
C. To the extent practicable, Company expenses shall
be billed directly to and paid by the Company. Subject to
Section 15.12 hereof, reimbursements to the Managing Member or
any of its Affiliates by the Company shall be allowed, however,
for the actual cost to the Managing Member or any of its
Affiliates of operating and other expenses of the Company,
including, without limitation, the actual cost of goods,
materials and administrative services related to (i) Company
operations, (ii) company accounting, (iii) communications with
Members, (iv) legal services, (v) tax services, (vi) computer
services, (vii) risk management, (viii) mileage and travel
expenses and (ix) such other related operational and
administrative expenses as are necessary for the prudent
organization and operation of the Company. "Actual cost of goods
and materials" means the actual cost to the Managing Member or
any of its Affiliates of goods and materials used for or by the
Company obtained from entities not affiliated with the Managing
Member, and "actual cost of administrative services" means the
pro rata cost of personnel (as if such persons were employees to
the Company) providing administrative services to the Company.
The cost for such services to be reimbursed to the Managing
Member or any Affiliate thereof shall be the lesser of the
Managing Member's or Affiliate's actual cost, or the amount the
Company would be required to pay to independent parties for
comparable administrative services in the same geographic
location.
D. The Managing Member shall also be reimbursed for
all expenses it incurs relating to any issuance of additional
Membership Interests, Debt of the Company, or rights, options,
warrants or convertible or exchangeable securities of the Company
pursuant to Article VIII hereof (including, without limitation,
all costs, expenses, damages and other payments resulting from or
arising in connection with litigation related to any of the
foregoing), all of such expenses are considered by the Members to
constitute expenses of, and for the benefit of, the Company.
To the extent that reimbursements to the Managing
Member or any of its Affiliates by the Company pursuant to this
Section 7.4 would constitute gross income to the Managing Member
for purposes of Code Section 856(c)(2) or 856(c)(3), then such
amounts shall be treated as "guaranteed payments" within the
meaning of Code Section 707(c).
Section 7.5. Other Business of Managing Member
The Managing Member shall devote to the Company such
time as may be necessary for the performance of its duties as
Managing Member, but the Managing Member is not required, and is
not expected, to devote its full time to the performance of such
duties. The Managing Member may engage independently or with
others in other business ventures of every nature and
description, including, without limitation, the ownership of
other properties and the making or management of other
investments. Nothing in this Agreement shall be deemed to
prohibit the Managing Member or any Affiliate of the Managing
Member from dealing, or otherwise engaging in business with,
Persons transacting business with the Company, or from providing
services related to the purchase, sale, financing, management,
development or operation of real or personal property and
receiving compensation therefor, not involving any rebate or
reciprocal arrangement that would have the effect of
circumventing any restriction set forth herein upon dealings with
the Managing Member or any Affiliate of the Managing Member.
Neither the Company nor any Member shall have any right by virtue
of this Agreement or the relationship created hereby in or to
such other ventures or activities or to the income or proceeds
derived therefrom, and the pursuit of such ventures, even if
competitive with the business of the Company, shall not be deemed
wrongful or improper.
Section 7.6. Contracts with Affiliates
A. Subject to Section 7.6.B below, the Company may
lend or contribute to Persons in which it has an equity
investment, and such Persons may borrow funds from the Company,
on terms and conditions established in the sole and absolute
discretion of the Managing Member. The foregoing authority shall
not create any right or benefit in favor of any Person.
B. Except as expressly permitted by this Agreement,
neither the Managing Member nor any of its Affiliates, directly
or indirectly, shall sell, transfer or convey any property to, or
purchase any property from, or borrow funds from, or lend funds
to, the Company or engage in any other transaction with the
Company, except upon terms determined by the Managing Member in
good faith to be fair and reasonable and comparable to terms that
could be obtained from an unaffiliated party in an arm's length
transaction.
Section 7.7 Indemnification
A. To the fullest extent permitted by applicable law,
the Company shall indemnify each Indemnitee from and against any
and all losses, claims, damages, liabilities, joint or several,
expenses (including, without limitation, attorney's fees and
other legal fees and expenses), judgments, fines, settlements and
other amounts arising from any and all claims, demands, actions,
suits or proceedings, civil, criminal, administrative or
investigative, that relate to the operations of the Company
("Actions") as set forth in this Agreement in which such
Indemnitee may be involved, or is threatened to be involved, as a
party or otherwise unless it is established that: (i) the act or
omission of the Indemnitee was material to the matter giving rise
to the proceeding and either was committed in bad faith or was
the result of active and deliberate dishonesty; (ii) the
Indemnitee actually received an improper personal benefit in
money, property or services; or (iii) in the case of any criminal
proceeding, the Indemnitee had reasonable cause to believe that
the act or omission was unlawful. Without limitation the
foregoing indemnity shall extend to any liability of any
Indemnitee, pursuant to a loan guaranty or otherwise, for any
indebtedness of the Company or any Subsidiary of the Company
(including, without limitation, any indebtedness which the
Company or any Subsidiary of the Company has assumed or taken
subject to), and the Managing Member is hereby authorized and
empowered, on behalf of the Company, to enter into one or more
indemnity agreements consistent with the provisions of this
Section 7.7 in favor of any Indemnitee having or potentially
having liability for any such indebtedness. The termination of
any proceeding by judgment, order or settlement does not create a
presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 7.7.A. The
termination of any proceeding by conviction or upon a plea of
nolo contendere or its equivalent, or an entry of an order of
probation prior to judgment, creates a rebuttable presumption
that the Indemnitee acted in a manner contrary to that specified
in this Section 7.7.A with respect to the subject matter of such
proceeding. Any indemnification pursuant to this Section 7.7
shall be made only out of the assets of the Company, and any
insurance proceeds from the liability policy covering the
Managing Member and any Indemnitees, and neither the Managing
Member nor any Non-Managing Member shall have any obligation to
contribute to the capital of the Company or otherwise provide
funds to enable the Company to fund its obligations under this
Section 7.7.
B. Reasonable expenses incurred by an Indemnitee who
is a party to a proceeding or otherwise subject to or the focus
of or is involved in any Action shall be paid or reimbursed by
the Company as incurred by the Indemnitee in advance of the final
disposition of the Action upon receipt by the Company of (i) a
written affirmation by the Indemnitee of the Indemnitee's good
faith belief that the standard of conduct necessary for
indemnification by the Company as authorized in Section 7.7.A has
been met, and (ii) a written undertaking by or on behalf of the
Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
C. The indemnification provided by this Section 7.7
shall be in addition to any other rights to which an Indemnitee
or any other Person may be entitled under any agreement, pursuant
to any vote of the Members, as a matter of law or otherwise, and
shall continue as to an Indemnitee who has ceased to serve in
such capacity unless otherwise provided in a written agreement
with such Indemnitee or in the writing pursuant to which such
Indemnitee is indemnified.
D. The Company may, but shall not be obligated to,
purchase and maintain insurance, on behalf of any of the
Indemnitees and such other Persons as the Managing Member shall
determine, against any liability that may be asserted against or
expenses that may be incurred by such Person in connection with
the Company's activities, regardless of whether the Company would
have the power to indemnify such Person against such liability
under the provisions of this Agreement.
E. In no event may an Indemnitee subject any of the
Members to personal liability by reason of the indemnification
provisions set forth in this Agreement.
F. An Indemnitee shall not be denied indemnification
in whole or in part under this Section 7.7 because the Indemnitee
had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise
permitted by the terms of this Agreement.
G. The provisions of this Section 7.7 are for the
benefit of the Indemnitees, their heirs, successors, assigns and
administrators and shall not be deemed to create any rights for
the benefit of any other Persons. Any amendment, modification or
repeal of this Section 7.7 or any provision hereof shall be
prospective only and shall not in any way affect the limitations
on the Company's liability to any Indemnitee under this
Section 7.7 as in effect immediately prior to such amendment,
modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims
may arise or be asserted.
H. If and to the extent any reimbursements to the
Managing Member pursuant to this Section 7.7 constitute gross
income to the Managing Member (as opposed to the repayment of
advances made by the Managing Member on behalf of the Company)
such amounts shall constitute guaranteed payments within the
meaning of Code Section 707(c), shall be treated consistently
therewith by the Company and all Members, and shall not be
treated as distributions for purposes of computing the Members'
Capital Accounts.
Section 7.8. Liability of the Managing Member
A. Notwithstanding anything to the contrary set forth
in this Agreement, neither the Managing Member nor any of its
directors or officers shall be liable or accountable in damages
or otherwise to the Company, any Members or any Assignees for
losses sustained, liabilities incurred or benefits not derived as
a result of errors in judgment or mistakes of fact or law or of
any act or omission if the Managing Member or such director or
officer acted in good faith.
B. The Non-Managing Members expressly acknowledge
that the Managing Member is acting for the benefit of the
Company, the Members and the Managing Member's shareholders
collectively, that the Managing Member is under no obligation to
give priority to the separate interests of the Members or the
Managing Member's shareholders (including, without limitation,
the tax consequences to Members, Assignees or the Managing
Member's shareholders) in deciding whether to cause the Company
to take (or decline to take) any actions and that the Managing
Member shall not be liable to the Company or to any Member for
monetary damages for losses sustained, liabilities incurred, or
benefits not derived by Non-Managing Members in connection with
such decisions, provided that the Managing Member has acted in
good faith and has not breached its express covenants set forth
in this Agreement.
C. Subject to its obligations and duties as Managing
Member set forth in Section 7.1.A hereof, the Managing Member may
exercise any of the powers granted to it by this Agreement and
perform any of the duties imposed upon it hereunder either
directly or by or through its employees or agents. The Managing
Member shall not be responsible for any misconduct or negligence
on the part of any such agent appointed by it in good faith.
D. Any amendment, modification or repeal of this
Section 7.8 or any provision hereof shall be prospective only and
shall not in any way affect the limitations on the Managing
Member's, and its officers' and directors', liability to the
Company and the Non-Managing Members under this Section 7.8 as in
effect immediately prior to such amendment, modification or
repeal with respect to claims arising from or relating to matters
occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise
or be asserted.
Section 7.9. Other Matters Concerning the Managing
Member
A. The Managing Member may rely and shall be
protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, debenture or other paper
or document believed by it in good faith to be genuine and to
have been signed or presented by the proper party or parties.
B. The Managing Member may consult with legal
counsel, accountants, appraisers, management consultants,
investment bankers, architects, engineers, environmental
consultants and other consultants and advisers selected by it,
and any act taken or omitted to be taken in reliance upon the
opinion of such Persons as to matters that the Managing Member
reasonably believes to be within such Person's professional or
expert competence shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such
opinion.
C. The Managing Member shall have the right, in
respect of any of its powers or obligations hereunder, to act
through any of its duly authorized officers and a duly appointed
attorney or attorneys-in-fact. Each such attorney shall, to the
extent provided by the Managing Member in the power of attorney,
have full power and authority to do and perform all and every act
and duty that is permitted or required to be done by the Managing
Member hereunder.
D. Notwithstanding any other provisions of this
Agreement or the Act, any action of the Managing Member on behalf
of the Company or any decision of the Managing Member to refrain
from acting on behalf of the Company undertaken in the good faith
belief that such action or omission is necessary or advisable in
order (i) to protect the ability of the Managing Member to
continue to qualify as a REIT, (ii) for the Managing Member
otherwise to satisfy the REIT Requirements or (iii) to allow the
Managing Member to avoid incurring any liability for taxes under
Section 857 or Section 4981 of the Code, is expressly authorized
under this Agreement and is deemed approved by all of the Non-
Managing Members.
Section 7.10. Title to Company Assets
Title to Company assets, whether real, personal or
mixed and whether tangible or intangible, shall be deemed to be
owned by the Company as an entity, and no Member, individually or
collectively with other Members or Persons, shall have any
ownership interest in such Company assets or any portion thereof.
All Company assets shall be recorded as the property of the
Company in its books and records, irrespective of the name in
which legal title to such Company assets is held.
Section 7.11. Reliance by Third Parties
Notwithstanding anything to the contrary in this
Agreement, any Person dealing with the Company shall be entitled
to assume that the Managing Member has full power and authority,
without the consent or approval of any other Member or Person, to
encumber, sell or otherwise use in any manner any and all assets
of the Company and to enter into any contracts on behalf of the
Company, and take any and all actions on behalf of the Company,
and such Person shall be entitled to deal with the Managing
Member as if it were the Company's sole party in interest, both
legally and beneficially. Each Non-Managing Member hereby waives
any and all defenses or other remedies that may be available
against such Person to contest, negate or disaffirm any action of
the Managing Member in connection with any such dealing. In no
event shall any Person dealing with the Managing Member or its
representatives be obligated to ascertain that the terms of this
Agreement have been complied with or to inquire into the
necessity or expediency of any act or action of the Managing
Member or its representatives. Each and every certificate,
document or other instrument executed on behalf of the Company by
the Managing Member or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or
claiming thereunder that (i) at the time of the execution and
delivery of such certificate, document or instrument, this
Agreement was in full force and effect, (ii) the Person executing
and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the
Company and (iii) such certificate, document or instrument was
duly executed and delivered in accordance with the terms and
provisions of this Agreement and is binding upon the Company.
ARTICLE 8.
RIGHTS AND OBLIGATIONS OF MEMBERS
Section 8.1. Limitation of Liability
The Non-Managing Members shall have no liability under
this Agreement except as expressly provided in this Agreement or
under the Act.
Section 8.2. Managing of Business
No Non-Managing Members or Assignee (other than the
Managing Member, any of its Affiliates or any officer, director,
employee, partner, agent or trustee of the Managing Member, the
Company or any of their Affiliates, in their capacity as such)
shall take part in the operations, management or control (within
the meaning of the Act) of the Company's business transact any
business in the Company's name or have the power to sign
documents for or otherwise bind the Company. The transaction of
any such business by the Managing Member, any of its Affiliates
or any officer, director, employee, partner, agent or trustee of
the Managing Member, the Company or any of their Affiliates, in
their capacity as such, shall not affect, impair or eliminate the
limitations on the liability of the Non-Managing Members or
Assignees under this Agreement.
Section 8.3. Outside Activities of Members
Subject to any agreements entered into by a Member or
its Affiliates with the Managing Member, the Company or a
Subsidiary (including, without limitation, any employment
agreement), any Member and any Assignee, officer, director,
employee, agent, trustee, Affiliate or shareholder of any Member
shall be entitled to and may have business interests and engage
in business activities in addition to those relating to the
Company, including business interests and activities that are in
direct or indirect competition with the Company or that are
enhanced by the activities of the Company. Neither the Company
nor any Member shall have any rights by virtue of this Agreement
in any business ventures of any Member or Assignee. Subject to
such agreements, none of the Members nor any other Person shall
have any rights by virtue of this Agreement or the relationship
established hereby in any business ventures of any other Person
(other than the Managing Member, to the extent expressly provided
herein), and such Person shall have no obligation pursuant to
this Agreement, subject to any agreements entered into by a
Member or its Affiliates with the Managing Member, the Company or
a Subsidiary, to offer any interest in any such business ventures
to the Company, any Member or any such other Person, even if such
opportunity is of a character that, if presented to the Company,
any Member or such other Person, could be taken by such Person.
Section 8.4. Return of Capital
Except pursuant to the rights of Exchange set forth in
Section 8.6 hereof, no Member shall be entitled to the withdrawal
or return of its Capital Contribution, except to the extent of
distributions made pursuant to this Agreement or upon termination
of the Company as provided herein. Except to the extent provided
in Article 5, Article 6 and Article 13 hereof or otherwise
expressly provided in this Agreement, no Member or Assignee shall
have priority over any other Member or Assignee either as to the
return of Capital Contributions or as to profits, losses,
distributions or credits.
Section 8.5. Rights of Non-Managing Members Relating
to the Company
A. In addition to other rights provided by this
Agreement or by the Act, and except as limited by Section 8.5.C
hereof, each Non-Managing Member shall have the right, for a
purpose reasonably related to such Non-Managing Member's
Membership Interest in the Company, upon written demand with a
statement of the purpose of such demand and at such Non-Managing
Member's own expense:
(1) to obtain a copy of (i) the most recent annual and
quarterly reports filed with the SEC by the Managing Member
pursuant to the Exchange Act and (ii) each report or other
written communication sent to the shareholders of the Managing
Member;
(2) to obtain a copy of the Company's federal, state
and local income tax returns for each Fiscal Year;
(3) to obtain a current list of the name and last
known business, residence or mailing address of each Member;
(4) to obtain a copy of this Agreement and the
Certificate and all amendments thereto, together with executed
copies of all powers of attorney pursuant to which this
Agreement, the Certificate and all amendments thereto have been
executed; and
(5) to obtain true and full information regarding the
amount of cash and a description and statement of any other
property or services contributed by each Member, and the date on
which each became a Member.
B. The Company shall notify any Non-Managing Member
of the then current Adjustment Factor or any change made to the
Adjustment Factor or to the REIT Shares Amount within 30 days
following such change or adjustment.
C. Notwithstanding any other provision of this
Section 8.5, the Managing Member may keep confidential from the
Non-Managing Members, for such period of time as the Managing
Member determines in its sole and absolute discretion to be
reasonable, any information that (i) the Managing Member believes
to be in the nature of trade secrets or other information the
disclosure of which the Managing Member in good faith believes is
not in the best interests of the Company or could damage the
Company or its business or (ii) the Company or the Managing
Member is required by law or by agreements with unaffiliated
third parties to keep confidential.
D. During the Tax Protection Period, the Company
shall maintain indebtedness, the repayment of which is secured by
all or a portion of the Properties, in an amount not less than
Seven Million Dollars ($7,000,000.00). During the Tax Protection
Period, the Company shall make available to the Non-Managing
Members the opportunity to provide guaranties as to the Company's
Debt or otherwise obligate themselves to the Company or the
Managing Member (as the case may be) for the repayment of the
Company's Debt up to the amount of Seven Million Dollars
($7,000,000.00), all on the same or similar terms as set forth in
the Guaranty.
Section 8.6. Exchange Rights
A. On or after the date one year after the Effective
Date, each Non-Managing Member shall have the right (subject to
the terms and conditions set forth herein) to require the
Managing Member to acquire all or a portion of the Non-Managing
Member Units held by such Non-Managing Member (such Non-Managing
Member Units being hereafter called "Tendered Units") in exchange
(an "Exchange") for, at the election of and in the sole and
absolute discretion of the Managing Member, either the Cash
Amount or a number of REIT Shares equal to the REIT Shares Amount
payable on the Specified Exchange Date. Any Exchange shall be
exercised pursuant to a Notice of Exchange delivered to the
Managing Member by the Non-Managing Member exercising the
Exchange right (the "Tendering Party"). On the Specified
Exchange Date, the Tendering Party shall sell the Tendered Units
to the Managing Member in exchange for, at the election of and in
the sole and absolute discretion of the Managing Member, either
the Cash Amount or a number of REIT Shares equal to the REIT
Shares Amount. Any Tendered Units so acquired by the Managing
Member pursuant to this Section 8.6.A shall be held by the
Managing Member as Non-Managing Member Units with all the rights
and preferences relating thereto as provided in this Agreement.
The Tendering Party shall submit (i) such information,
certification or affidavit as the Managing Member may reasonably
require in connection with the Ownership Limit and (ii) in the
event the REIT Shares issuable upon such Exchange are not
registered for resale under the Securities Act, such written
representations, investment letters, legal opinions or other
instruments necessary, in the Managing Member's view, to effect
compliance with the Securities Act. If a Cash Amount is to be
delivered upon the Exchange, the Cash Amount shall be delivered
as a certified check payable to the Tendering Party or, in the
Managing Member's sole discretion, in immediately available
funds. If REIT Shares are to be delivered upon the Exchange, the
REIT Shares Amount shall be delivered by the Managing Member as
duly authorized, validly issued, fully paid and nonassessable
REIT Shares (and, if applicable, Rights), free of any pledge,
lien, encumbrance or restriction, other than the Ownership Limit,
and other restrictions provided in the Charter or the Bylaws of
the Managing Member in the event the REIT Shares issuable upon
such Exchange are not registered for resale under the Securities
Act, the Securities Act and relevant state securities or "blue
sky" laws. The Tendering Party shall be deemed the owner of such
REIT Shares and Rights for all purposes, including, without
limitation, rights to vote or consent, receive dividends, and
exercise rights, as of the Specified Exchange Date. REIT Shares
issued upon an acquisition of the Tendered Units by the Managing
Member pursuant to this Section 8.6.A may contain such legends
regarding restrictions on Transfer or ownership to protect the
Managing Member's tax status as a REIT and in the event the REIT
Shares issuable upon such Exchange are not registered for resale
under the Securities Act, restrictions under the Securities Act
and applicable state securities laws as the Managing Member in
good faith determines to be necessary or advisable in order to
ensure compliance with such laws.
B. Notwithstanding the provisions of Section 8.6.A
hereof, no Non-Managing Member shall have any right to tender for
Exchange (whether for the REIT Shares Amount or the Cash Amount)
any Excess LLC Units held by such Non-Managing Member. The
Managing Member shall have no obligation to acquire Excess LLC
Units, whether for the REIT Shares Amount or the Cash Amount.
C. Notwithstanding anything herein to the contrary,
with respect to any Exchange pursuant to this Section 8.6, each
Tendering Party shall continue to own all LLC Units subject to
any Exchange, and be treated as a Member with respect to such LLC
Units for all purposes of this Agreement, until such LLC Units
are Transferred to the Managing Member and paid for or exchanged
on the Specified Exchange Date. Until a Specified Exchange Date
and an acquisition of the Tendered Units by the Managing Member
pursuant to Section 8.6.A hereof, the Tendering Party shall have
no rights as a shareholder of the Managing Member with respect to
the REIT Shares issuable in connection with such acquisition.
D. In connection with an exercise of Exchange rights
pursuant to this Section 8.6, the Tendering Party shall submit
the following to the Managing Member, in addition to the Notice
of Exchange:
(1) A written affidavit, dated the same date as, and
accompanying, the Notice of Exchange, (a) disclosing the actual
and Constructive Ownership, as determined for purposes of Code
Sections 856(a)(6), 856(h), 856(d)(2)(b) and 856(d)(5), of REIT
Shares by (i) such Tendering Party and (ii) any Related Party and
(b) representing that, after giving effect to the Exchange,
neither the Tendering Party nor any Related Party will have
actual or Constructive Ownership of a number of REIT Shares that
is in excess of the Ownership Limit;
(2) A written representation that neither the
Tendering Party nor any Related Party has any intention to
acquire any additional REIT Shares prior to the closing of the
Exchange on the Specified Exchange Date; and
(3) An undertaking to certify, at and as a condition
to the closing of the Exchange that either (a) the actual and
Constructive Ownership of REIT Shares by the Tendering Party and
any Related Party remain unchanged from that disclosed in the
affidavit required by Section 8.6.D(1) or (b) after giving effect
to the Exchange, neither the Tendering Party nor any Related
Party shall have actual or Constructive Ownership of a number of
REIT Shares that is in violation of the Ownership Limit.
ARTICLE 9.
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1. Records and Accounting
A. The Managing Member shall keep or cause to be kept
at the principal office of the Company those records and
documents required to be maintained by the Act and other books
and records deemed by the Managing Member to be appropriate with
respect to the Company's business, including, without limitation,
all books and records necessary to provide to the Members any
information, lists and copies of documents required to be
provided pursuant to Section 9.3 hereof. Any records maintained
by or on behalf of the Company in the regular course of its
business may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, micrographics or any other
information storage device, provided that the records so
maintained are convertible into clearly legible written form
within a reasonable period of time.
B. The books of the Company shall be maintained, for
financial and tax reporting purposes, on an accrual basis in
accordance with GAAP, or on such other basis as the Managing
Member determines to be necessary or appropriate. To the extent
permitted by sound accounting practices and principles, the
Company and the Managing Member may operate with integrated or
consolidated accounting records, operations and principles.
Section 9.2. Fiscal Year
The Fiscal Year of the Company shall be the calendar
year.
Section 9.3. Reports
As soon as practicable, but in no event later than 90
days after the close of each calendar quarter, the Managing
Member shall cause to be mailed to each Member of record as of
the last day of the calendar quarter, a copy of the general
ledger of the Company covering the calendar quarter.
Section 9.4. Cooperation Regarding Tax Matters
Relating to Transferred Properties
A. In connection with the issuance of Non-Managing
Member Units to any Contributor, or any of such Contributor's
Partners, including the issuance of Non-Managing Member Units to
the Initial Non-Managing Members upon the contributions of the
Transferred Properties to the Company pursuant to the
Contribution Agreement, the Non-Managing Member Representative
shall deliver, or cause to be delivered, to the Company at or
prior to the effective date of such issuance, at the Non-Managing
Members' or the Contributors' sole cost and expense, the
following information prepared as of the date of such anticipated
contribution.
(1) depreciation and amortization schedules for the
assets constituting the Transferred Properties, as kept for both
book and tax purposes, showing original basis and accumulated
depreciation or amortization;
(2) basis information (computed for both book and tax
purposes, if different) for the Transferred Properties and all
assets that are components of such Transferred Properties;
(3) the adjusted basis of each Contributor and any
constituent partners or members of each Contributor in its
interest in the Company; and
(4) calculations of the estimated amounts of gain to
be realized and recognized (if any) by each Contributor, and each
of such Contributor's Partners, as a result of the transactions
involving the Transferred Properties in accordance with this
Agreement and showing the method by which such amounts are
calculated.
B. The Company shall be permitted to rely on the
information provided or to be provided to it under this Section
9.4 as to the adjusted tax basis of the Transferred Properties
and the relevant depreciation schedules thereto in determining
the amount of Built-in Gain on a going forward basis.
C. The Non-Managing Member Representative shall
provide or cause each Contributor, and each of such Contributor's
Partners, to provide reasonable assistance to the Company to
enable the Company and the Managing Member to determine the Built-
in Gain or to prepare their tax returns. The Non-Managing Member
Representative shall deliver to the Company copies of each
Contributor's final federal, state and local tax returns
(including information returns), including associated Schedules K-
1, for the tax year in which the contribution of the Transferred
Properties occurs, including any amendments thereto, and to
notify the Company, in writing, of any audits of such return, or
of any audits for other tax years that could affect the amounts
shown on the returns for the tax year in which the Closing
occurs. Copies of such returns shall be provided to the Company
in draft form at least ten (10) days before they are filed, and
in final form upon filing. The Non-Managing Member
Representative shall also provide, or cause each Contributor to
provide, to the Company, promptly upon receipt, any notice that
it receives from any of its direct or indirect constituent
partners or members (including such Contributor's Partners) that
such partner(s) or member(s) intends to prepare its tax returns
in a manner inconsistent with the returns filed by such
Contributor. The Non-Managing Member Representative understands
and agrees that he shall cause the tax returns filed by each
Contributor, and each of such Contributor's Partners, to be
substantially consistent with the information provided to the
Company pursuant to this Section 9.4.
ARTICLE 10.
TAX MATTERS
Section 10.1. Preparation of Tax Returns
The Managing Member shall arrange for the preparation
and timely filing of all returns with respect to Company income,
gains, deductions, losses and other items required of the Company
for federal and state income tax purposes and shall use all
commercially reasonable efforts to furnish, within 90 days of the
close of each taxable year, the tax information reasonably
required by Members for federal and state income tax reporting
purposes.
Section 10.2. Tax Elections
Except as otherwise provided herein, the Managing
Member shall, in its sole and absolute discretion, determine
whether to make any available election pursuant to the Code,
including, without limitation, the election under Section 754 of
the Code. The Managing Member shall have the right to seek to
revoke any such election (including, without limitation, any
election under Code Sections 754) upon the Managing Member's
determination in its sole and absolute discretion that such
revocation is in the best interests of the Members.
Section 10.3. Tax Matters Partner
A. The Managing Member shall be designated and shall
operate as "Tax Matters Partner" (as defined in Code
Section 6231), to oversee or handle matters relating to the
taxation of the Company.
B. The Member designated as "Tax Matters Partner" may
make all elections for federal income and all other tax purposes
(including, without limitation, pursuant to Code Section 754).
C. Income tax returns of the Company shall be
prepared by such certified public accountant(s) as the Managing
Member shall retain at the expense of the Company.
Section 10.4. Organizational Expenses
The Company shall elect to deduct expenses, if any,
incurred by it in organizing the Company ratably over a 60-month
period as provided in Code Section 709.
ARTICLE 11.
TRANSFERS AND WITHDRAWALS
Section 11.1. Transfer
A. No part of the interest of a Member shall be
subject to the claims of any creditor, to any spouse for alimony
or support, or to legal process, and may not be voluntarily or
involuntarily alienated or encumbered except as may be
specifically provided for in this Agreement.
B. No Membership Interest shall be Transferred, in
whole or in part, except in accordance with the terms and
conditions set forth in this Article 11. Any Transfer or
purported Transfer of a Membership Interest not made in
accordance with this Article 11 shall be null and void ab initio.
Section 11.2. Transfer of Managing Member's Membership
Interest
A. Except in connection with a transaction described
in Section 11.2.B, the Managing Member shall not withdraw from
the Company and shall not Transfer all or any portion of its
interest in the Company without the Consent of all of the Non-
Managing Members, which may be given or withheld by each Non-
Managing Member in its sole and absolute discretion. Upon any
Transfer of the Membership Interest of the Managing Member in
accordance with the provisions of this Section 11.2, the
transferee shall become a Substitute Managing Member for all
purposes herein, and shall be vested with the powers and rights
of the transferor Managing Member, and shall be liable for all
obligations and responsible for all duties of the Managing
Member, once such transferee has executed such instruments as may
be necessary to effectuate such admission and to confirm the
agreement of such transferee to be bound by all the terms and
provisions of this Agreement with respect to the Membership
Interest so acquired. It is a condition to any Transfer
otherwise permitted hereunder that the transferee assumes, by
operation of law or express agreement, all of the obligations of
the transferor Managing Member under this Agreement with respect
to such Transferred Membership Interest, and such Transfer shall
relieve the transferor Managing Member of its obligations under
this Agreement accruing subsequent to the date of such Transfer.
In the event the Managing Member withdraws from the Company, in
violation of this Agreement or otherwise, or otherwise dissolves
or terminates, or upon the Incapacity of the Managing Member, all
of the remaining Members may elect to continue the Company
business by selecting a Substitute Managing Member in accordance
with the Act.
B. The Managing Member shall not engage in any
merger, consolidation or other combination with or into another
person, sale of all or substantially all of its assets or any
reclassification, or change of its outstanding equity interests
(a "Termination Transaction"), unless either (i) the Termination
Transaction has been approved by the Consent of the Non-Managing
Members or (ii) in connection with the Termination Transaction,
all holders of LLC Units (other than the Managing Member) either
will receive for each LLC Unit, or will be entitled to receive,
for each LLC Unit (in lieu of the REIT Shares Amount) upon an
Exchange of the LLC Unit pursuant to Section 8.6 hereof, an
amount of cash, securities, or other property equal to the amount
that would have been paid to the holder had the LLC Unit been
Exchanged for REIT Shares pursuant to Section 8.6 hereof
immediately prior to the consummation of the Termination
Transaction subject, in the event of an Exchange of the LLC Unit
pursuant to Section 8.6 hereof subsequent to the consummation of
the Termination Transaction, to further adjustment to the extent
provided in this Agreement to compensate for the dilutive effect
of certain transactions described herein; provided, however,
that, if, in connection with the Termination Transaction, a
purchase, tender or exchange offer shall have been made to and
accepted by the holders of more than fifty percent (50%) of the
outstanding REIT Shares, each Member shall receive, or shall have
the right to elect to receive, the greatest amount of cash,
securities, or other property which such Member would have
received had it exchanged its LLC Units for REIT Shares pursuant
to Section 8.6 immediately prior to the expiration of such
purchase, tender or exchange offer and had thereupon accepted
such purchase, tender or exchange offer. No provision of this
Agreement, including, without limitation, the provisions of
Section 7.3.B hereof, shall prohibit the consummation of any
Termination Transaction permitted by the provisions of this
Section 11.2.B.
Section 11.3. Non-Managing Members' Rights to Transfer
A. General. No Non-Managing Member shall Transfer
all or any portion of its Membership Interest, or any of such Non-
Managing Member's economic rights as a Non-Managing Member, to
any transferee without first offering such Membership Interest to
the Managing Member or otherwise obtaining the consent of the
Managing Member, which consent may be withheld in its sole and
absolute discretion.
B. Conditions to Transfer. It is a condition to any
Transfer otherwise permitted hereunder that the transferee assume
by operation of law or express agreement all of the obligations
of the transferor Member under this Agreement with respect to
such Transferred Membership Interest. Notwithstanding the
foregoing, any transferee of any Transferred Membership Interest
shall be subject to the Ownership Limits and any and all
ownership limitations contained in the Charter. Any transferee,
whether or not admitted as a Substituted Member, shall take
subject to the obligations of the transferor hereunder. Unless
admitted as a Substituted Member, no transferee, whether by a
voluntary Transfer, by operation of law or otherwise, shall have
any rights hereunder, other than the rights of an Assignee as
provided in Section 11.5 hereof.
C. Incapacity. If a Non-Managing Member is subject
to Incapacity, the executor, administrator, trustee, committee,
guardian, conservator or receiver of such Non-Managing Member's
estate shall have all the rights of a Non-Managing Member, but
not more rights than those enjoyed by other Non-Managing Members,
for the purpose of settling or managing the estate, and such
power as the Incapacitated Non-Managing Member possessed to
Transfer all or any part of its interest in the Company. The
Incapacity of a Non-Managing Member, in and of itself, shall not
dissolve or terminate the Company.
D. Opinion of Counsel. In connection with any
Transfer of a Membership Interest, the Managing Member shall have
the right to receive an opinion of counsel reasonably
satisfactory to it to the effect that the proposed Transfer may
be effected without registration under the Securities Act and
will not otherwise violate any federal or state securities laws
or regulations applicable to the Company or the Membership
Interests Transferred. If, in the opinion of such counsel, such
Transfer would require the filing of a registration statement
under the Securities Act or would otherwise violate any federal
or state securities laws or regulations applicable to the Company
or the LLC Units, the Managing Member may prohibit any Transfer
by a Member of Membership Interests otherwise permitted under
this Section 11.3.
E. Transfers to Lenders. No Transfer of any LLC
Units may be made to a lender to the Company or any Person who is
related (within the meaning of Section 1.752-4(b) of the
Regulations) to any lender to the Company whose loan constitutes
a Nonrecourse Liability, without the consent of the Managing
Member, in its sole and absolute discretion; provided that, as a
condition to such consent, the lender will be required to enter
into an arrangement with the Company and the Managing Member to
redeem or exchange for the REIT Shares Amount any LLC Units in
which a security interest is held simultaneously with the time at
which such lender would be deemed to be a member in the Company
for purposes of allocating liabilities to such lender under Code
Section 752.
Section 11.4. Substituted Members
A. No Member shall have the right to substitute a
transferee (including any transferees pursuant to Transfers
permitted by Section 11.3 hereof) as a Member in its place. The
Managing Member shall, however, have the right to consent to the
admission of a transferee of the interest of a Member pursuant to
this Section 11.4 as a Substituted Member, which consent may be
given or withheld by the Managing Member in its sole and absolute
discretion. The Managing Member's failure or refusal to permit a
transferee of any such interests to become a Substituted Member
shall not give rise to any cause of action against the Company or
any Member.
B. A transferee who has been admitted as a
Substituted Member in accordance with this Article 11 shall have
all the rights and powers and be subject to all the restrictions
and liabilities of a Member under this Agreement. The admission
of any transferee as a Substituted Member shall be subject to the
transferee executing and delivering to the Company an acceptance
of all of the terms and conditions of this Agreement (including
without limitation, the provisions of Section 2.4 and such other
documents or instruments as may be required to effect the
admission).
C. Upon the admission of a Substituted Member, the
Managing Member shall amend Exhibit A to reflect the name,
address, Capital Account, number of LLC Units and Percentage
Interest of such Substituted Member and to eliminate or adjust,
if necessary, the name, address, Capital Account, number of LLC
Units and Percentage Interest of the predecessor of such
Substituted Member (and any other Member, as necessary).
Section 11.5. Assignees
If the Managing Member, in its sole and absolute
discretion, does not consent to the admission of any permitted
transferee under Section 11.3 hereof as a Substituted Member, as
described in Section 11.4 hereof, such transferee shall be
considered an Assignee for purposes of this Agreement. An
Assignee shall be entitled to all the rights of an assignee of a
limited liability company interest under the Act, including the
right to receive distributions from the Company and the share of
Net Income, Net Loss and other items of income, gain, loss,
deduction and credit of the Company attributable to the LLC Units
assigned to such transferee, the rights to Transfer the LLC Units
provided in this Article 11, and the right of Exchange provided
in Section 8.6, but shall not be deemed to be a Member of LLC
Units for any other purpose under this Agreement, and shall not
be entitled to effect a Consent or vote with respect to such LLC
Units on any matter presented to the Members for approval (such
right to Consent or vote, to the extent provided in this
Agreement or under the Act, fully remaining with the transferor
Member). In the event that any such transferee desires to make a
further assignment of any such LLC Units, such transferee shall
be subject to all the provisions of this Article 11 to the same
extent and in the same manner as any Members desiring to make an
assignment of LLC Units. The Managing Member shall have no
liability under any circumstance with respect to any Assignee as
to which it does not have notice.
Section 11.6. General Provisions
A. No Non-Managing Member may withdraw from the
Company other than (i) as a result of a permitted Transfer of all
of such Non-Managing Member's LLC Units in accordance with this
Article 11 and the transferee(s) of such LLC Units being
admitting to the Company as a Substituted Member or (ii) pursuant
to an Exchange by the Non-Managing Member of all of its LLC Units
under Section 8.6 hereof.
B. Any Non-Managing Member who shall Transfer all of
its LLC Units in a Transfer (i) permitted pursuant to this
Article 11 where such transferee was admitted as a Substituted
Member; (ii) pursuant to the exercise of its rights to effect an
Exchange of all of its LLC Units under Section 8.6 hereof;
(iii) pursuant to a Reduction; or (iv) pursuant to a combination
of Transfers of the types specified in the foregoing (i) - (iii),
shall cease to be a Member.
C. Transfers pursuant to this Article 11 may only be
made on the first day of a fiscal quarter of the Company, unless
the Managing Member otherwise agrees.
D. All distributions of Available Cash attributable
to an LLC Unit with respect to which the LLC Record Date is
before the date of a Transfer or an Exchange of the LLC Unit
shall be made to the transferor Member and all distributions of
Available Cash thereafter attributable to such LLC Unit shall be
made to the transferee Member.
E. Notwithstanding anything to the contrary set forth
herein, in addition to any other restrictions on Transfer herein
contained, in no event may any Transfer or assignment of a
Membership Interest by any Member (including any redemption or
any Exchange or any other acquisition of LLC Units by the
Company) be made:
(a) to any person or entity who lacks the legal right,
power or capacity to own a Membership Interest;
(b) in violation of applicable law;
(c) without the consent of the Managing Member, which
may be granted or withheld in its sole and absolute discretion if
such Transfer would, in the opinion of counsel to the Company or
the Managing Member, cause an increased tax liability to any
other Member or Assignee as a result of the termination of the
Company, in either case for federal or state income or franchise
tax purposes (except in the case of a Terminating Capital
Transaction or as a result of the Exchange of all LLC Units held
by all Members);
(d) without the consent of the Managing Member, which
may be granted or withheld in its sole and absolute discretion if
such Transfer could, as determined in the sole discretion of the
Managing Member, (i) result in the Company being treated as an
association taxable as a corporation for federal income tax or
for state income or franchise tax purposes, (ii) adversely affect
the ability of the Managing Member to continue to qualify as a
REIT or subject the Managing Member to any additional taxes under
Code Section 857 or Code Section 4981 or (iii) such Transfer
could be treated as having been effectuated through an
"established securities market" or a "secondary market (or the
substantial equivalent thereof)" within the meaning of Code
Section 7704, or such Transfer fails to satisfy a "safe-harbor"
preventing such treatment (as set forth in Treasury Regulations
under Code Section 7704 or any successor provision);
(e) if such Transfer would cause the Company to
become, with respect to any employee benefit plan subject to
Title I of ERISA, a "party-in-interest" (as defined in ERISA
Section 3(14)) or a "disqualified person" (as defined in Code
Section 4975(c));
(f) if such Transfer would, in the opinion of legal
counsel to the Company, cause any portion of the assets of the
Company to constitute assets of any employee benefit plan
pursuant to Department of Labor Regulations Section 2510.2-101;
(g) if such Transfer causes the Company (as opposed to
the Managing Member) to become a reporting company under the
Exchange Act;
(h) if such Transfer subjects the Company to
regulation under the Investment Company Act of 1940, the
Investment Advisors Act of 1940 or ERISA, each as amended; or
(i) without the consent of the Managing Member, which
may be granted or withheld in its sole and absolute discretion,
if such Transfer would result in the Company having more than 100
Members (including as Members those persons indirectly owning an
interest in the Company through a partnership, limited liability
company, S corporation or grantor trust (such entity, a "flow
through entity"), but only if substantially all of the value of
such person's interest in the flow through entity is attributable
to the flow through entity's interest (direct or indirect) in the
Company) (the "One Hundred Member Limit").
F. No Non-Managing Member will take or allow any
Affiliate to take any action that would cause a violation of the
One Hundred Member Limit.
ARTICLE 12.
ADMISSION OF MEMBERS
Section 12.1. Admission of Initial Non-Managing
Members
Upon the contribution of the Transferred Properties to
the Company, each Contributor, to the extent it receives Non-
Managing Member Units, shall be admitted to the Company as an
Initial Non-Managing Member. Each Contributor, in lieu of
receiving the number of Non-Managing Member Units otherwise
issuable to it pursuant to the Contribution Agreement, may
instruct the Managing Member to issue the Non-Managing Member
Units to its Contributor's Partners so long as (i) the
Contributor certifies to the Managing Member that the
Contributor's right to receive the Non-Managing Member Units has
been distributed to the Contributor's Partners in accordance with
the limited partnership agreement of the Contributor, and (ii)
each of the Contributor's Partners executes this Agreement as a
Non-Managing Member.
Section 12.2. Admission of Successor Managing Member
A successor to all of the Managing Member's Membership
Interest pursuant to Section 11.2 hereof who is proposed to be
admitted as a successor Managing Member shall be admitted to the
Company as the Managing Member, effective immediately upon such
Transfer. Any such successor shall carry on the business of the
Company without dissolution. In each case, the admission shall
be subject to the successor Managing Member executing and
delivering to the Company an acceptance of all of the terms,
conditions and applicable obligations of this Agreement and such
other documents or instruments as may be required to effect the
admission.
Section 12.3. Admission of Additional Members
A. A Person (other than an existing Member) who makes
a Capital Contribution to the Company in accordance with this
Agreement shall be admitted to the Company as an Additional
Member, subject to the receipt of the Consent of the Non-Managing
Members required by Section 7.3.B(4), only upon furnishing to the
Managing Member (i) evidence of acceptance, in form and substance
satisfactory to the Managing Member, of all of the terms and
conditions of this Agreement, including, without limitation, the
power of attorney granted in Section 2.4 hereof, and (ii) such
other documents or instruments as may be required in the sole and
absolute discretion of the Managing Member in order to effect
such Person's admission as an Additional Member.
B. Notwithstanding anything to the contrary in this
Section 12.3, no Person shall be admitted as an Additional Member
without the consent of the Managing Member, which consent may be
given or withheld in the Managing Member's sole and absolute
discretion. The admission of any Person as an Additional Member
shall become effective on the date upon which the name of such
Person is recorded on the books and records of the Company,
following the consent of the Managing Member to such admission.
C. If any Additional Member is admitted to the
Company on any day other than the first day of a Fiscal Year,
then Net Income, Net Loss, each item thereof and all other items
of income, gain, loss, deduction and credit allocable among
Members and Assignees for such Fiscal Year shall be allocated
among such Additional Member and all other Members and Assignees
by taking into account their varying interests during the Fiscal
Year in accordance with Code Section 706(d), using the "interim
closing of the books" method or another permissible method
selected by the Managing Member. Solely for purposes of making
such allocations, each of such items for the calendar month in
which an admission of any Additional Member occurs shall be
allocated among all the Members and Assignees including such
Additional Member, in accordance with the principles described in
Section 11.6.C hereof. All distributions of Available Cash with
respect to which the LLC Record Date is before the date of such
admission shall be made solely to Members and Assignees other
than the Additional Member, and all distributions of Available
Cash thereafter shall be made to all the Members and Assignees
including such Additional Member.
Section 12.4. Amendment of Agreement and Certificate
For the admission to the Company of any Member, the
Managing Member shall take all steps necessary and appropriate
under the Act to amend the records of the Company and, if
necessary, to prepare as soon as practical an amendment of this
Agreement (including an amendment of Exhibit A) and, if required
by law, shall prepare and file an amendment to the Certificate
and may for this purpose exercise the power of attorney granted
pursuant to Section 2.4 hereof.
Section 12.5. Limitation on Admission of Members
No Person shall be admitted to the Company as a
Substituted Member or an Additional Member if, in the opinion of
legal counsel for the Company, it would result in the Company
being treated as a corporation for federal income tax purposes or
otherwise cause the Company to become a reporting company under
the Exchange Act.
ARTICLE 13.
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1. Dissolution
The Company shall not be dissolved by the admission of
Substituted Members or Additional Members or by the admission of
a successor Managing Member in accordance with the terms of this
Agreement. Upon the withdrawal of the Managing Member, any
successor Managing Member shall continue the business of the
Company without dissolution. However, the Company shall
dissolve, and its affairs shall be wound up, upon the first to
occur of any of the following (each a "Liquidating Event"):
A. the expiration of its term as provided in
Section 2.5 hereof, in which case the Managing Member shall have
the right to cause the holders of Non-Managing Member Units to
Exchange their Non-Managing Member Units in accordance with
Section 13.2;
B. an event of withdrawal of the Managing Member, as
defined in the Act (other than an event of bankruptcy), unless,
within 90 days after the withdrawal, a Majority of Remaining
Members agree in writing to continue the business of the Company
and to the appointment, effective as of the date of withdrawal,
of a substitute Managing Member;
C. subject to the provisions of Section 7.3.E hereof,
an election to dissolve the Company made by the Managing Member;
D. entry of a decree of judicial dissolution of the
Company pursuant to the provisions of the Act;
E. the sale of all or substantially all of the assets
and properties of the Company;
F. a final and non-appealable judgment is entered by
a court of competent jurisdiction ruling that the Managing Member
is bankrupt or insolvent, or a final and non-appealable order for
relief is entered by a court with appropriate jurisdiction
against the Managing Member, in each case under any Bankruptcy
Law as now or hereafter in effect, unless prior to or within 90
days after the entry of such order or judgment a Majority of
Remaining Members Consent in writing to continue the business of
the Company and to the appointment, effective as of a date prior
to the date of such order or judgment, of a substitute Managing
Member;
G. the Incapacity of the Managing Member, unless
prior to or within 90 days after such Incapacity a Majority of
Remaining Members agree in writing to continue the business of
the Company and to the appointment, effective as of a date prior
to the date of such Incapacity, of a substitute Managing Member;
or
H. the Exchange of all LLC Units (other than those
held by the Managing Member).
Section 13.2. Exchange of Non-Managing Member Units
Notwithstanding anything in this Agreement to the
contrary, on or after such time as the Managing Member has the
right to dissolve the Company or upon the occurrence of a
Liquidating Event, the Managing Member may, in its sole and
absolute discretion, require each Non-Managing Member (by
delivering a Call Notice to such Non-Managing Member) to tender
all or a portion of its Non-Managing Member Units to the Managing
Member in exchange for, at the election of and in the sole and
absolute discretion of the Managing Member, either the Cash
Amount or a number of REIT Shares equal to the REIT Shares Amount
payable on the Specified Exchange Date and otherwise in
accordance with the procedures and provisions set forth in
Section 8.6.A.
Section 13.3. Winding Up
A. Upon the occurrence of a Liquidating Event, the
Company shall continue solely for the purposes of winding up its
affairs in an orderly manner, liquidating its assets and
satisfying the claims of its creditors and Members. After the
occurrence of a Liquidating Event, no Member shall take any
action that is inconsistent with, or not necessary to or
appropriate for, the winding up of the Company's business and
affairs. The Managing Member (or, in the event that there is no
remaining Managing Member, any Person elected by a Majority in
Interest of the Non-Managing Members (the Managing Member or such
other Person being referred to herein as the "Liquidator")) shall
be responsible for overseeing the winding up and dissolution of
the Company and shall take full account of the Company's
liabilities and property, and the Company property shall be
liquidated as promptly as is consistent with obtaining the fair
value thereof, and the proceeds therefrom (which may, to the
extent determined by the Managing Member, include shares of stock
in the Managing Member) shall be applied and distributed in the
following order:
(1) First, to the satisfaction of all of the Company's
debts and liabilities to creditors other than the Members and
their Assignees (whether by payment or the making of reasonable
provision for payment thereof);
(2) Second, to the satisfaction of all of the
Company's debts and liabilities to the Managing Member,
including, but not limited to, the Loan (whether by payment or
the making of reasonable provision for payment thereof);
(3) Third, to the satisfaction of all of the Company's
debts and liabilities to the other Members and any Assignees
incurred with the consent of the Managing Member (whether by
payment or the making of reasonable provision for payment
thereof), pro rata based upon the amount of the debts and
liabilities owing to the respective Member or Assignee; and
(4) The balance, if any, to the Members and any
Assignees in accordance with and proportion to their positive
Capital Account balances, after giving effect to all
contributions, distributions and allocations for all periods.
The Managing Member shall not receive any additional
compensation for any services performed pursuant to this
Article 13.
B. Notwithstanding the provisions of Section 13.3.A
hereof that require liquidation of the assets of the Company, but
subject to the order of priorities set forth therein, if prior to
or upon dissolution of the Company the Liquidator determines that
an immediate sale of part or all of the Company's assets would be
impractical or would cause undue loss to the Members, the
Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those
necessary to satisfy liabilities of the Company (including to
those Members as creditors) and/or distribute to the Members, in
lieu of cash, as tenants in common and in accordance with the
provisions of Section 13.3.A hereof, undivided interests in such
Company assets as the Liquidator deems not suitable for
liquidation. Any such distributions in kind shall be made only
if, in the good faith judgment of the Liquidator, such
distributions in kind are in the best interest of the Members,
and shall be subject to such conditions relating to the
disposition and management of such properties as the Liquidator
deems reasonable and equitable and to any agreements governing
the operation of such properties at such time. The Liquidator
shall determine the fair market value of any property distributed
in kind using such reasonable method of valuation as it may
adopt.
C. In the event that the Company is "liquidated"
within the meaning of Regulations Section 1.704-1(b) (2)(ii)(g),
distributions shall be made pursuant to this Article 13 to the
Members and Assignees that have positive Capital Accounts in
compliance with Regulations Section 1.704-1(b) (2)(ii)(b) (2) to
the extent of, and in proportion to, their positive Capital
Account balances. If any Member has a deficit balance in its
Capital Account (after giving effect to all contributions,
distributions and allocations for all taxable years, including
the year during which such liquidation occurs), such Member shall
have no obligation to make any contribution to the capital of the
Company with respect to such deficit, and such deficit shall not
be considered a debt owed to the Company or to any other Person
for any purpose whatsoever. In the sole and absolute discretion
of the Managing Member or the Liquidator, a pro rata portion of
the distributions that would otherwise be made to the Members
pursuant to this Article 13 may be withheld or escrowed to
provide a reasonable reserve for Company liabilities (contingent
or otherwise) and to reflect the unrealized portion of any
installment obligations owed to the Company, provided that such
withheld or escrowed amounts shall be distributed to the Members
in the manner and order of priority set forth in Section 13.3.A
hereof as soon as practicable.
Section 13.4. Deemed Distribution and Recontribution
Notwithstanding any other provision of this Article 13,
in the event that the Company is liquidated within the meaning of
Regulations Section 1.704-1(b) (2)(ii)(g), but no Liquidating
Event has occurred, the Company's Property shall not be
liquidated, the Company's liabilities shall not be paid or
discharged and the Company's affairs shall not be wound up.
Instead, for federal and state income tax purposes, the Company
shall be deemed to have distributed its assets in kind to the
Members, who shall be deemed to have assumed and taken such
assets subject to all Company liabilities, all in accordance with
their respective Capital Accounts. Immediately thereafter, the
Members shall be deemed to have recontributed the Company assets
in kind to the Company, which shall be deemed to have assumed and
taken such assets subject to all such liabilities.
Section 13.5. Rights of Members
Except as otherwise provided in this Agreement,
(a) each Member shall look solely to the assets of the Company
for the return of its Capital Contribution, (b) no Member shall
have the right or power to demand or receive property other than
cash from the Company and (c) except as provided in this
Agreement, no Member shall have priority over any other Member as
to the return of its Capital Contributions, distributions or
allocations.
Section 13.6. Notice of Dissolution
In the event that a Liquidating Event occurs or an
event occurs that would, but for an election or objection by one
or more Members pursuant to Section 13.1 hereof, result in a
dissolution of the Company, the Managing Member shall, within 30
days thereafter, provide written notice thereof to each of the
Members and, in the Managing Member's sole and absolute
discretion or as required by the Act, to all other parties with
whom the Company regularly conducts business (as determined in
the sole and absolute discretion of the Managing Member), and the
Managing Member may, or, if required by the Act, shall, publish
notice thereof in a newspaper of general circulation in each
place in which the Company regularly conduct business (as
determined in the sole and absolute discretion of the Managing
Member).
Section 13.7. Cancellation of Certificate
Upon the completion of the liquidation of the Company's
cash and property as provided in Section 13.3 hereof, the Company
shall be terminated and the Certificate and all qualifications of
the Company as a foreign limited liability company in
jurisdictions other than the State of Delaware shall be canceled
and such other actions as may be necessary to terminate the
Company shall be taken.
Section 13.8. Reasonable Time for Winding-Up
A reasonable time shall be allowed for the orderly
winding-up of the business and affairs of the Company and the
liquidation of its assets pursuant to Section 13.3 hereof, in
order to minimize any losses otherwise attendant upon such
winding-up, and the provisions of this Agreement shall remain in
effect between the Members during the period of liquidation.
Section 13.9. Liability of Liquidator
The Liquidator shall be indemnified and held harmless
by the Company from and against any and all claims, liabilities,
costs, damages, and causes of action of any nature whatsoever
arising out of or incidental to the Liquidator's taking of any
action authorized under or within the scope of this Agreement;
provided, however, that the Liquidator shall not be entitled to
indemnification, and shall not be held harmless, where the claim,
demand, liability, cost, damage or cause of action at issue
arises out of (i) a matter entirely unrelated to the Liquidator's
action or conduct pursuant to the provisions of this Agreement or
(ii) the proven willful misconduct or gross negligence of the
Liquidator.
ARTICLE 14.
PROCEDURES FOR ACTIONS AND CONSENTS
OF MEMBERS; AMENDMENTS; MEETINGS
Section 41.1. Procedures for Actions and Consents of
Members
The actions requiring consent or approval of Non-
Managing Members pursuant to this Agreement, including
Section 7.3 hereof, or otherwise pursuant to applicable law, are
subject to the procedures set forth in this Article 14.
Section 14.2. Amendments
Except for amendments to Exhibit A as provided in
Sections 7.3.C, 11.4.C and 12.3 hereof, amendments to this
Agreement may be proposed by the Managing Member or by a Majority
in Interest of the Non-Managing Members. Following such
proposal, the Managing Member shall submit any proposed amendment
to the Members. The Managing Member shall seek the written
Consent of the Members on the proposed amendment or shall call a
meeting to vote thereon and to transact any other business that
the Managing Member may deem appropriate. The affirmative vote
or consent, as applicable, of the holders of a majority of the
outstanding LLC Units is required for the approval of a proposed
amendment. For purposes of obtaining a written consent, the
Managing Member may require a response within a reasonable
specified time, but not less than 15 days, and failure to respond
in such time period shall constitute a consent that is consistent
with the Managing Member's recommendation with respect to the
proposal; provided, however, that an action shall become
effective at such time as requisite consents are received even if
prior to such specified time.
Section 14.3. Meetings of the Members
A. Meetings of the Members may be called by the
Managing Member and shall be called upon the receipt by the
Managing Member of a written request by a Majority in Interest of
the Non-Managing Members. The call shall state the nature of the
business to be transacted. Notice of any such meeting shall be
given to all Members not less than seven days nor more than 30
days prior to the date of such meeting. The meeting shall be
held at the headquarters office of the Managing Member or at such
other location as may be designated by the Managing Member.
Members may vote in person or by proxy at such meeting. Whenever
the vote or Consent of Members is permitted or required under
this Agreement, such vote or Consent may be given at a meeting of
Members or may be given in accordance with the procedure
prescribed in Section 14.3.B hereof.
B. Any action required or permitted to be taken at a
meeting of the Members may be taken without a meeting if a
written consent setting forth the action so taken is signed by
Members holding a majority of the LLC Units (or such other
percentage as is expressly required by this Agreement for the
action in question). Such consent may be in one instrument or in
several instruments, and shall have the same force and effect as
a vote of Members holding a majority of the LLC Units (or such
other percentage as is expressly required by this Agreement).
Such consent shall be filed with the Managing Member. An action
so taken shall be deemed to have been taken at a meeting held on
the effective date so certified.
C. Each Member may authorize any Person or Persons to
act for it by proxy on all matters in which a Member is entitled
to participate, including waiving notice of any meeting, or
voting or participating at a meeting. Every proxy must be signed
by the Member or its attorney-in-fact. No proxy shall be valid
after the expiration of 11 months from the date thereof unless
otherwise provided in the proxy (or there is receipt of a proxy
authorizing a later date). Every proxy shall be revocable at the
pleasure of the Member executing it, such revocation to be
effective upon the Company's receipt of written notice of such
revocation from the Member executing such proxy.
D. Each meeting of Members shall be conducted by the
Managing Member or such other Person as the Managing Member may
appoint pursuant to such rules for the conduct of the meeting as
the Managing Member or such other Person deems appropriate in its
sole and absolute discretion. Without limitation, meetings of
Members may be conducted in the same manner as meetings of the
Managing Member's shareholders and may be held at the same time
as, and as part of, the meetings of the Managing Member's
shareholders.
ARTICLE 15.
GENERAL PROVISIONS
Section 15.1. Addresses and Notice
Any notice, demand, request or report required or
permitted to be given or made to a Member or Assignee under this
Agreement shall be in writing and shall be deemed given or made
when delivered in person or when sent by first class United
States mail or by other means of written communication (including
by telecopy, facsimile, or commercial courier service) (i) in the
case of a Member, to that Member at the address set forth in
Exhibit A or such other address of which the Member shall notify
the Managing Member in writing and (ii) in the case of an
Assignee, to the address of which such Assignee shall notify the
Managing Member in writing.
Section 15.2. Titles and Captions
All article or section titles or captions in this
Agreement are for convenience only. They shall not be deemed
part of this Agreement and in no way define, limit, extend or
describe the scope or intent of any provisions hereof. Except as
specifically provided otherwise, references to "Articles" or
"Sections" are to Articles and Sections of this Agreement.
Section 15.3. Pronouns and Plurals
Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns,
pronouns and verbs shall include the plural and vice versa.
Section 15.4. Further Action
The parties shall execute and deliver all documents,
provide all information and take or refrain from taking action as
may be necessary or appropriate to achieve the purposes of this
Agreement.
Section 15.5. Binding Effect
This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted
assigns.
Section 15.6. Creditors
Other than as expressly set forth herein with respect
to Indemnitees, none of the provisions of this Agreement shall be
for the benefit of, or shall be enforceable by, any creditor of
the Company.
Section 15.7. Waiver
No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this
Agreement or to exercise any right or remedy consequent upon a
breach thereof shall constitute waiver of any such breach or any
other covenant, duty, agreement or condition.
Section 15.8. Counterparts
This Agreement may be executed in counterparts, all of
which together shall constitute one agreement binding on all the
parties hereto, notwithstanding that all such parties are not
signatories to the original or the same counterpart.
Section 15.9. Applicable Law
This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of
Delaware, without regard to the principles of conflicts of law.
In the event of a conflict between any provision of this
Agreement and any non-mandatory provision of the Act, the
provisions of this Agreement shall control and take precedence.
Section 15.10. Entire Agreement
This Agreement, the Contribution Agreement and the
other agreements executed on the Effective Date as provided in
the Contribution Agreement contain all of the understandings and
agreements between and among the Members with respect to the
subject matter of this Agreement and the rights, interests and
obligations of the Members with respect to the Company.
Section 15.11. Invalidity of Provisions
If any provision of this Agreement is or becomes
invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained
herein shall not be affected thereby.
Section 15.12. Limitation to Preserve REIT Status
Notwithstanding anything else in this Agreement, to the
extent any amount paid, credited, distributed or reimbursed to
the Managing Member or its officers, directors, employees or
agents, whether as a reimbursement, fee, expense or indemnity (a
"REIT Payment"), would constitute gross income to the Managing
Member for purposes of Sections 856(c)(2) or 856(c)(3) of the
Code, then, notwithstanding any other provision of this
Agreement, the amount of such REIT Payments, as selected by the
Managing Member in its discretion from among items of potential
distribution, reimbursement, fees, expenses and indemnities,
shall be reduced for any Fiscal Year so that the REIT Payments,
as so reduced, to, for or with respect to such REIT Member shall
not exceed the lesser of:
(i) an amount equal to the excess, if any, of (a) four
and seventeen one-hundredths percent (4.17%) of the Managing
Member's total gross income (but not including the amount of any
REIT Payments) for the Fiscal Year that is described in
subsections (A) through (H) of Section 856(c)(2) of the Code over
(b) the amount of gross income (within the meaning of Section
856(c)(2) of the Code) derived by the Managing Member from
sources other than those described in subsections (A) through (H)
of Section 856(c)(2) of the Code (but not including the amount of
any REIT Payments); or
(ii) an amount equal to the excess, if any, of (a)
twenty-five percent (25%) of the Managing Member's total gross
income (but not including the amount of any REIT Payments) for
the Fiscal Year that is described in subsections (A) through (I)
of Section 856(c)(3) of the Code over (b) the amount of gross
income (within the meaning of Section 856(c)(3)) of the Code
derived by the Managing Member from sources other than those
described in subsections (A) through (I) of Section 856(c)(3) of
the Code (but not including the amount of any REIT Payments);
provided, however, that REIT Payments in excess of the
amounts set forth in subparagraphs (i) and (ii) above may be made
if the Managing Member, as a condition precedent, obtains an
opinion of tax counsel that the receipt of such excess amounts
would not adversely affect the Managing Member's ability to
qualify as a REIT. To the extent that REIT Payments may not be
made in a Fiscal Year as a consequence of the limitations set
forth in this Section 15.12, such REIT Payments shall carry over
and be treated as arising in the following Fiscal Year; provided,
however, that such amount shall not carry over for more than five
(5) years, and if not paid within such five (5) year period,
shall expire; provided, further, that (a) as REIT Payments are
made, such payments shall be applied first to carry over amounts
outstanding, if any, and (b) with respect to carry over amounts
for more than one Fiscal Year, such payment shall be applied to
the earliest Fiscal Year first.
Section 15.13. No Partition
No Member nor any successor-in-interest to a Member
shall have the right while this Agreement remains in effect to
have any property of the Company partitioned, or to file a
complaint or institute to any proceeding at law or in equity to
have such property of the Company partitioned, and each Member,
on behalf of itself and its successors and assigns hereby waives
any such right. It is the intention of the Members that the
rights of the parties hereto and their successors-in-interest to
Company property, as among themselves, shall be governed by the
terms of this Agreement, and that the rights of the Members and
their successors-in-interest shall be subject to the limitations
and restrictions as set forth in this Agreement.
Section 15.14. Non-Managing Member Representative
A. All actions taken by the Non-Managing Member
Representative pursuant to those provisions of this Agreement
which authorize the Non-Managing Member Representative to so act
shall be binding upon all Non-Managing Members as if they had
individually taken such action and each Non-Managing Member, by
entering into or agreeing to be bound by the provisions of this
Agreement, authorize the Non-Managing Member Representative to
take such actions on his, her or its behalf and agree that the
actions so taken shall be binding upon him, her or it to the same
extent as if he, she or it had taken the action directly.
B. The holders of a majority of the outstanding Non-
Managing Members Units shall be entitled to replace the Non-
Managing Member Representative by delivering to the Managing
Member a written notice signed by the holders of a majority of
the outstanding Non-Managing Members Units stating (i) that the
notice is being provided to the Managing Member pursuant to this
Section 15.14.B, (ii) that the Members signing the notice own of
record on the books of the Company a majority of the outstanding
Non-Managing Members Units, (iii) that the Members signing the
notice desire to replace the person then serving as the Non-
Managing Member Representative with the person named in the
notice, and (iv) specifying the date on which the appointment of
the named individual to replace the then serving Non-Managing
Member Representative shall be effective (which shall be a date
not earlier than the fourteenth day after the date on which the
notice shall have been delivered to the Managing Member). The
appointment of the new Non-Managing Member Representative
specified in the notice shall be effective on the date specified
in the notice and upon effectiveness, the individual previously
serving as the Non-Managing Member Representative shall cease to
be entitled to act in that capacity under this Agreement.
[Signatures appear on following page]
IN WITNESS WHEREOF, the parties hereto have executed
this agreement as of the date first written above.
MANAGING MEMBER:
HEALTH CARE PROPERTY INVESTORS,
INC.,
a Maryland corporation
By: /s/ Edward J. Henning
------------------------
Name: Edward J. Henning
Title:Senior Vice President,
General Counsel and
Corporate Secretary
NON-MANAGING MEMBERS:
/s/ James D. Bremner
------------------------------
James D. Bremner, an individual
/s/ Michael F. Wiley
------------------------------
Michael F. Wiley, an individual
/s / James P. Revel
-----------------------------
James P. Revel, an individual
EXHIBIT A
MEMBERS' CAPITAL CONTRIBUTIONS
MANAGING MEMBER
<TABLE>
<CAPTION>
Name Address With a copy to
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Health Care Property Investors, Inc. 4675 MacArthur Court, Suite 900 Latham & Watkins
Newport Beach, California 92660 650 Town Center Drive, 20th Floor
Attention: Legal Department Costa Mesa, California 92626
Telephone No. (949) 221-0600 Attention: David C. Meckler, Esq.
Facsimile No. (949) 221-0607 Telephone No. (714) 540-1235
Facsimile No. (714) 755-8290
Capital Contribution Number of Managing Member Units
- -----------------------------------------------------------------
$24,576,972 781,213
</TABLE>
MEMBERS
<TABLE>
<CAPTION>
Name Address With a copy to
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
James D. Bremner c/o Bremner & Wiley, Inc. Bingham, Summers, Welsh & Spilman
250 E. 96th Street, Suite 150 2700 Market Tower
Indianapolis, Indiana 48240 10 W. Market Street
Telephone No. (317) 816-8611 Indianapolis, Indiana 46204-2982
Facsimile No. (317) 816-8610 Attention: Alan Dansker, Esq.
Telephone No. (317) 635-8901
Facsimile No. (317) 236-9907
</TABLE>
<TABLE>
<CAPTION>
Capital Contribution
- -----------------------------
Gross Asset Net Asset Value
Gross Allocated to Net Allocated to Number
Property Asset Value James Bremner Asset Value James Bremner of Units
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Methodist Medical
Plaza North $13,700,000.00 $1,696,018.90 $730,928.18 $240,936.83 7,659
Methodist Medical
Plaza I $4,500,000.00 $509,940.00 $523,489.82 $174,475.95 5,546
Methodist Medical
Plaza II $6,215,000.00 $440,177.38 $314,304.24 $104,755.72 3,330
Eagle Highlands
Business Center $6,475,000.00 $1,942,500.00 $648,520.83 $216,173.73 6,871
Eagle Highlands
Office Park $3,200,000.00 $1,066,668.80 $2,376.79 $792.16 25
Acordia Small
Business Benefits $2,700,000.00 $382,590.00 $289,290.39 $96,452.77 3,066
Acordia Senior
Benefits $2,400,000.00 $720,000.00 $305,245.57 $101,748.53 3,234
- -------------------------------------------------------------------------------------------------
Totals $39,190,000.00 $6,757,895.08 $2,814,155.82 $935,335.69 29,731
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Name Address With a copy to
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Michael F. Wiley 8940 Sassafras Court Bingham, Summers, Welsh & Spilman
Indianapolis, Indiana 46260 2700 Market Tower
Telephone No. (317) 872-3494 10 W. Market Street
Facsimile No. (317) 872-3822 Indianapolis, Indiana 46204-2982
Attention: Alan Dansker, Esq.
Telephone No. (317) 635-8901
Facsimile No. (312) 236-9907
</TABLE>
<TABLE>
<CAPTION>
Capital Contribution
- -----------------------------
Gross Asset
Value Net Asset Value
Gross Allocated to Net Allocated to Number
Property Asset Value Michael Wiley Asset Value Michael Wiley of Units
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Methodist Medical
Plaza North $13,700,000.00 $2,095,894.50 $730,928.18 $297,743.24 9,464
Methodist Medical
Plaza I $4,500,000.00 $510,120.00 $523,489.82 $174,537.54 5,548
Methodist Medical
Plaza II $6,215,000.00 $440,332.75 $314,304.24 $104,792.70 3,331
Eagle Highlands
Business Center $6,475,000.00 $1,942,500.00 $648,520.83 $216,173.73 6,871
Eagle Highlands
Office Park $3,200,000.00 $1,066,668.80 $2,376.79 $792.16 25
Acordia Small
Business Benefits $2,700,000.00 $382,455.00 $289,290.39 $96,418.74 3,065
Acordia Senior
Benefits $2,400,000.00 $720,000.00 $305,245.57 $101,748.53 3,234
- -------------------------------------------------------------------------------------------------
Totals $39,190,000.00 $7,157,971.05 $2,814,155.82 $992,206.64 31,539
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Name Address With a copy to
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
James P. Revel c/o Revel Henry & Underwood Bingham, Summers, Welsh & Spilman
143 N. Pennsylvania Street #1700 2700 Market Tower
Indianapolis, Indiana 46204 10 W. Market Street
Telephone No. (317) 684-3333 Indianapolis, Indiana 46204-2982
Facsimile No. (317) 684-3347 Attention: Alan Dansker, Esq.
Telephone No. (317) 635-8901
Facsimile No. (317) 236-9907
</TABLE>
<TABLE>
<CAPTION>
Capital Contribution
- -----------------------------
Gross Asset
Value Net Asset Value
Gross Allocated to Net Allocated to Number
Property Asset Value James Revel Asset Value James Revel of Units
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Methodist Medical
Plaza North $13,700,000.00 $1,353,286.00 $730,928.18 $192,248.11 6,111
Methodist Medical
Plaza I $4,500,000.00 $509,940.00 $523,489.82 $174,475.95 5,546
Methodist Medical
Plaza II $6,215,000.00 $440,177.38 $314,304.24 $104,755.72 3,330
Eagle Highlands
Business Center $6,475,000.00 $1,942,500.00 $648,520.83 $216,173.73 6,871
Eagle Highlands
Office Park $3,200,000.00 $1,066,668.80 $2,376.79 $792.16 25
Acordia Small
Business Benefits $2,700,000.00 $382,455.00 $289,290.39 $96,418.74 3,065
Acordia Senior
Benefits $2,400,000.00 $720,000.00 $305,245.57 $101,748.53 3,234
- -------------------------------------------------------------------------------------------------
Totals $39,190,000.00 $6,415,027.18 $2,814,155.82 $886,612.95 28,182
================================================================================================
</TABLE>
EXHIBIT B
NOTICE OF EXCHANGE
To: Health Care Property Investors, Inc.
4675 MacArthur Court, Suite 900
Newport Beach, California 92660
The undersigned Member or Assignee hereby irrevocably
tenders for Exchange __________ LLC Units in ___________________,
LLC in accordance with the terms of the Amended and Restated
Limited Liability Company Agreement of __________________, LLC,
dated as of ___________, 1998 (the "Agreement"), and the Exchange
rights referred to therein. The undersigned Member or Assignee:
(a) undertakes (i) to surrender such LLC Units and any
certificate therefor at the closing of the Exchange and (ii) to
furnish to the Managing Member, prior to the Specified Exchange
Date, the documentation, instruments and information required
under Section 8.6.D of the Agreement;
(b) directs that, at the sole discretion of the
Managing Member, either (i) a certified check representing the
Cash Amount deliverable upon closing of the Exchange be delivered
to the address specified below or (ii) a certificate(s)
representing the REIT Shares deliverable upon the closing of such
Exchange be delivered to the address specified below;
(c) represents, warrants, certifies and agrees that:
(1) the undersigned Member or Assignee has, and at the closing of
the Exchange will have, good, marketable and unencumbered title
to such LLC Units, free and clear of the rights or interests of
any other person or entity, (2) the undersigned Member or
Assignee has, and at the closing of the Exchange will have, the
full right, power and authority to tender and surrender such LLC
Units as provided herein, (3) the undersigned Member or Assignee
has obtained the consent or approval of all persons and entities,
if any, having the right to consent to or approve such tender and
surrender, and (4) such Exchange is in compliance with the
provisions of Section 8.6 of the Agreement; and
(d) acknowledges that it will continue to own such LLC
Units until and unless such Exchange transaction closes.
All capitalized terms used herein and not otherwise
defined shall have the same meaning ascribed to them respectively
in the Agreement.
Dated: ________________________
Name of Member or Assignee:
------------------------------
------------------------------
(Signature of Member or Assignee)
------------------------------
(Street Address)
------------------------------
(City) (State) (Zip)
Signature Guaranteed by:
-------------------------------
Issue REIT Shares in the name of:
----------------------------
Please insert social security or identifying number:
----------------------------
Exhibit 10.16
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
HCPI/UTAH, LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement") is made
and entered into as of January 20, 1999, by and among Health Care Property
Investors, Inc., a Maryland corporation (the "Managing Member"), and the Persons
whose names are set forth on Exhibit A as attached hereto (the "Non-Managing
Members" and together with the Managing Member, the "Members"), for the purpose
of forming HCPI/Utah, LLC, a Delaware limited liability company (the "Company").
WHEREAS, the Managing Member, the Company, and each of the parties
identified on the signature page of that certain Contribution Agreement dated as
of the date hereof (the "Contribution Agreement") (collectively, the
"Transferor"), have entered into the Contribution Agreement, providing for the
contribution of certain assets to, and the acquisition of certain interests in,
the Company;
WHEREAS, it is a condition to the closing of the transactions
contemplated by the Contribution Agreement that the parties hereto enter into
this Agreement;
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE 1.
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Limited Liability Company Act, as it may be
amended from time to time, and any successor to such statute.
"Actions" has the meaning set forth in Section 7.7 hereof.
"Additional Funds" has the meaning set forth in Section 4.4.A hereof.
"Additional Member" means a Person admitted to the Company as a Member
pursuant to Section 4.2 hereof.
"Adjusted Capital Account Deficit" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant Fiscal Year, after giving effect to the following adjustments:
(a) decrease such deficit by any amounts that such Member is
obligated to restore pursuant to this Agreement or by operation of law upon
liquidation of such Member's Membership Interest or is deemed to be
obligated to restore pursuant to Regulation Section 1.704-1(b) (2)(ii)(c)
or the penultimate sentence of each of Regulations Sections 1.704-2(g)(1)
and 1.704-2(i)(5); and
(b) increase such deficit by the items described in Regulations
Section 1.704-1(b) (2)(ii)(d)(4), (5) and (6).
The foregoing definition of "Adjusted Capital Account Deficit" is intended to
comply with the provisions of Regulations Section 1.704-1(b) (2)(ii)(d) and
shall be interpreted consistently therewith.
"Adjustment Factor" means 1.0; provided, however, that in the event
that: the Managing Member (i) declares or pays a dividend on its outstanding
REIT Shares in REIT Shares or makes a distribution to all Members of its
outstanding REIT Shares in REIT Shares, (ii) splits or subdivides its
outstanding REIT Shares or (iii) effects a reverse stock split or otherwise
combines its outstanding REIT Shares into a smaller number of REIT Shares, the
Adjustment Factor shall be adjusted by multiplying the Adjustment Factor in
effect immediately prior to such adjustment by a fraction, (1) the numerator of
which shall be the number of REIT Shares issued and outstanding on the record
date for such dividend, distribution, split, subdivision, reverse split or
combination (assuming for such purposes that such dividend, distribution, split,
subdivision, reverse split or combination has occurred as of such time) and (2)
the denominator of which shall be the actual number of REIT Shares issued and
outstanding on the record date for such dividend, distribution, split,
subdivision, reverse split or combination (assuming for such purposes that such
dividend, distribution, split, subdivision, reverse split or combination has not
occurred as of such time). Any adjustments to the Adjustment Factor shall
become effective immediately after the effective date of such event, retroactive
to the record date, if any, for such event.
"Affiliate" means, with respect to any Person, any Person directly or
indirectly Controlling or Controlled by or under common Control with such
Person.
"Aggregate Sharing Amount" means, with respect to any taxable
disposition of a Real Property, an amount equal to the excess, if any, of (i)
the Property Appreciation with respect to all Real Properties being sold or
previously sold by the Company; over (ii) the Unit Appreciation with respect to
all Real Properties being sold or previously sold by the Company.
"Agreement" means this Amended and Restated Limited Liability Company
Agreement of HCPI/Utah LLC, as it may be amended, supplemented or restated from
time to time.
"Appraisal" means, with respect to any assets, the written opinion of
an independent third party experienced in the valuation of similar assets in the
general location of the property being appraised, selected by the Managing
Member in good faith. Such opinion may be in the form of an opinion by such
independent third party that the value for such property or asset as set by the
Managing Member is fair, from a financial point of view, to the Company.
"Appraised Value" means, with respect to any asset, including any
Contributed Property, the value of such asset as determined by Appraisal.
"Assignee" means a Person to whom one or more LLC Units have been
Transferred in a manner permitted under this Agreement, but who has not become a
Substituted Member, and who has the rights set forth in Section 11.5 hereof.
"Available Cash" means, with respect to any period for which such
calculation is being made:
(a) the sum, without duplication, of:
(1) the Company's net income or net loss (as the case may
be) for such period determined in accordance with GAAP,
(2) depreciation and all other noncash charges to the
extent deducted in determining net income or net loss for such period
pursuant to the foregoing clause (a)(1),
(3) the amount of any reduction in reserves of the Company
(including, without limitation, reductions resulting because the
Managing Member determines such amounts are no longer necessary), and
(4) all other cash received (including, but not limited to,
Capital Contributions, amounts previously accrued as net income and
amounts of deferred income but excluding any net amounts borrowed by
the Company for such period) that was not included in determining net
income or net loss for such period pursuant to the foregoing clause
(a)(1);
(b) less the sum, without duplication, of:
(1) all principal debt payments made during such period by
the Company,
(2) capital expenditures made by the Company during such
period,
(3) all other expenditures and payments not deducted in
determining net income or net loss for such period pursuant to the
foregoing clause (a)(1) (including amounts paid in respect of expenses
previously accrued),
(4) any amount included in determining net income or net
loss for such period pursuant to the foregoing clause (a)(1) that was
not received by the Company during such period, and
(5) the amount of any increase in reserves (including,
without limitation, working capital reserves) established during such
period that the Managing Member determines are necessary or
appropriate in its sole and absolute discretion.
Notwithstanding the foregoing, Available Cash shall not include (i) any cash
received or reductions in reserves, or take into account any disbursements made,
or reserves established, after dissolution and the commencement of the
liquidation and winding up of the Company, (ii) Disposition Proceeds or (iii)
the proceeds of Refinancing Debt.
"Bankruptcy Law" means Title II, U.S. Code or any similar federal or
state law for the relief of debtors.
"Beneficial Ownership" means ownership of REIT Shares by a Person who
is or would be treated as an owner of such REIT Shares either actually or
constructively through the application of Section 544 of the Code, as modified
by Section 856(h)(1)(B) of the Code. The terms "Beneficially Own,"
"Beneficially Owned," "Beneficially Owns" and "Beneficial Owner" shall have the
correlative meanings.
"Built-in Gain" means the excess of the gross fair market value of one
or more of the Real Properties or Successor Properties over the adjusted tax
basis of such property or properties (as the case may be) for federal income tax
purposes, as determined as of the Effective Date, as reduced from time to time
in accordance with applicable provisions of the Code and Regulations.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in Los Angeles, California or Salt Lake City, Utah are
authorized or required by law to close.
"Call Notice" means a written notice to the Non-Managing Members
informing them of the Managing Member's election to call their Non-Managing
Member Units pursuant to Section 13.2 hereof.
"Capital Account" means, with respect to any Member, the Capital
Account maintained for such Member on the Company's books and records in
accordance with the following provisions:
(a) To each Member's Capital Account, there shall be added such
Member's Capital Contributions, such Member's allocable share of Net Income
and any items of income or gain specially allocated pursuant to Section 6.3
hereof, and the amount of any Company liabilities assumed by such Member or
that are secured by any property distributed to such Member.
(b) From each Member's Capital Account, there shall be
subtracted the amount of cash and the Gross Asset Value of any property
distributed to such Member pursuant to any provision of this Agreement,
such Member's allocable share of Net Loss and any items of loss or
deductions specially allocated pursuant to Section 6.3 hereof, and the
amount of any liabilities of such Member assumed by the Company or that are
secured by any property contributed by such Member to the Company.
(c) In the event any interest in the Company is Transferred in
accordance with the terms of this Agreement, the transferee shall succeed
to the Capital Account of the transferor to the extent that it relates to
the Transferred interest.
(d) In determining the principal amount of any liability for
purposes of subsections (a) and (b) above there shall be taken into account
Code Section 752(c) and any other applicable provisions of the Code and
Regulations.
(e) The provisions of this Agreement relating to the maintenance
of Capital Accounts are intended to comply with Regulations Sections 1.704-
1(b) and 1.704-2, and shall be interpreted and applied in a manner
consistent with such Regulations. If the Managing Member shall determine
that it is prudent to modify the manner in which the Capital Accounts are
maintained in order to comply with such Regulations, the Managing Member
may make such modification provided that such modification will not change
the amounts distributable to any Member without such Member's Consent. The
Managing Member also shall (i) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the
Members and the amount of Company capital reflected on the Company's
balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b) (2)(iv)(q) and (ii) make any appropriate
modifications in the event that unanticipated events might otherwise cause
this Agreement not to comply with Regulations Section 1.704-1(b) or Section
1.704-2.
"Capital Contribution" means, with respect to any Member, the amount
of money and the initial Gross Asset Value of any Contributed Property that such
Member contributes to the Company pursuant to Section 4.1, Section 4.2 or
Section 4.4 hereof.
"Cash Amount" means an amount of cash equal to the product of (a) the
Value of a REIT Share and (b) the REIT Shares Amount determined as of the
applicable Valuation Date.
"Certificate" means the Certificate of Formation of the Company filed
in the office of the Secretary of State of the State of Delaware, as amended
from time to time in accordance with the terms hereof and the Act.
"Charter" means the Articles of Incorporation of the Managing Member,
as amended, supplemented or restated from time to time.
"Closing Price" means the closing price of a REIT Share on the New
York Stock Exchange.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time or any successor statute thereto, as interpreted by the
applicable Regulations thereunder. Any reference herein to a specific section
or sections of the Code shall be deemed to include a reference to any
corresponding provision of future law.
"Company" means the limited liability company formed under the Act and
pursuant to this Agreement, and any successor thereto.
"Company Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b) (2) for the phrase "partnership minimum gain," and the amount
of Company Minimum Gain, as well as any net increase or decrease in Company
Minimum Gain, for a Fiscal Year shall be determined in accordance with the rules
of Regulations Section 1.704-2(d).
"Consent" means the consent to, approval of, or vote on a proposed
action by a Member given in accordance with Article 14 hereof.
"Consent of the Non-Managing Members" means the Consent of a Majority
in Interest of the Non-Managing Members, which Consent shall be obtained prior
to the taking of any action for which it is required by this Agreement and,
except as otherwise provided in this Agreement, may be given or withheld by a
Majority in Interest of the Non-Managing Members, in their reasonable
discretion.
"Constructive Ownership" means ownership of REIT Shares, or any other
interest in an entity by a Person who is or would be treated as an owner thereof
either actually or constructively through the application of Section 318 of the
Code, as modified by Section 856(d)(5) of the Code. The terms "Constructively
Own," "Constructively Owned," "Constructively Owns" and "Constructive Owner"
shall have the correlative meanings.
"Contribution Agreement" means the Contribution Agreement of even date
herewith, by and between the Managing Member, the Company and the parties
identified on the signature page thereto.
"Control" means, when used with respect to any Person, the possession
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have correlative meanings.
"Custodian" means any receiver, trustee, assignee, liquidator or other
similar official under any Bankruptcy Law.
"Debt" means, as to any Person, as of any date of determination,
(i) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services; (ii) all amounts owed by such Person to
banks or other Persons in respect of reimbursement obligations under letters of
credit, surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person; (iii) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof; and (iv) lease obligations of such Person
that, in accordance with GAAP, should be capitalized.
"Depreciation" means, for each Fiscal Year or other applicable period,
an amount equal to the federal income tax depreciation, amortization or other
cost recovery deduction allowable with respect to an asset for such year or
other period, except that, if the Gross Asset Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of such year or
period, Depreciation shall be in an amount that bears the same ratio to such
beginning Gross Asset Value as the federal income tax depreciation, amortization
or other cost recovery deduction for such year or other period bears to such
beginning adjusted tax basis; provided, however, that, if the federal income tax
depreciation, amortization or other cost recovery deduction for such year or
period is zero, Depreciation shall be determined with reference to such
beginning Gross Asset Value using any reasonable method selected by the Managing
Member.
"Dissolution Protection Period" means the period beginning on the
Effective Date and ending either (i) on the date on which the Initial Threshold
Test has been satisfied, if the Initial Threshold Test is satisfied at any time
prior to the third (3rd) anniversary of the Effective Date or (ii) on the date
on which the Subsequent Threshold Test is satisfied if the Initial Threshold
Test is not satisfied at any time prior to the third (3rd) anniversary of the
Effective Date.
"Disposition Proceeds" means the net proceeds (including a reduction
for any amount used for the repayment of any Debt and the payment of any costs
related thereto) received by the Company upon the taxable disposition of some,
but not all, of the Real Properties.
"Effective Date" means the date on which the transactions contemplated
by the Contribution Agreement to be consummated on the Initial Closing Date are
consummated at which time the contributions set forth on Exhibit A that are to
be effective on the Effective Date shall become effective. With respect to any
future contributions, the Effective Date shall be the date that such
contributions are completed.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excess LLC Units" means any LLC Units held by a Non-Managing Member
to the extent that, if such LLC Units were exchanged for the REIT Shares Amount
pursuant to Section 8.6 hereof, such Non-Managing Member would Beneficially Own
or Constructively Own REIT Shares in excess of the Ownership Limit or otherwise
in violation of the Charter.
"Exchange" has the meaning set forth in Section 8.6.A hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"Existing Indebtedness" has the meaning set forth in Section 7.3E(3)
hereof.
"First Exchange Date" means the first anniversary of the Initial
Closing Date or, if such day is not a Business Day, the next following Business
Day.
"First Traunch Non-Managing Member Units" has the meaning set forth in
Section 8.6.A hereof.
"Fiscal Year" means the fiscal year of the Company, which shall be the
calendar year.
"Flip-Over Event" means the occurrence of a merger of the Managing
Member with and into another Person or the consolidation of the Managing Member
with another Person, or the merger of another Person with and into the Managing
Member or the sale or transfer of assets of the Managing Member to another
Person if, as a result of such merger, consolidation or transfer of assets the
holder of Rights issued under the Rights Agreement would be entitled under
Section 13 of the Rights Agreement (or a comparable provision in the event the
Rights Agreement is amended) to purchase shares of common stock of such other
Person (including the Managing Member as the successor to such other Person or
as the surviving corporation) (the "Successor Person").
"Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a
Member to the Company shall be its fair market value, as agreed to by such
Member and the Managing Member, and set forth on Exhibit A with respect to
that Member.
(b) The Gross Asset Values of all Company assets immediately
prior to the occurrence of any event described in clause (1), clause (2),
clause (3), or clause (4) hereof shall be adjusted to equal their
respective gross fair market values, as determined by the Managing Member
using such reasonable method of valuation as it may adopt, as of the
following times:
(1) the acquisition of an additional interest in the
Company (other than in connection with the execution of this Agreement
but including, without limitation, acquisitions pursuant to
Section 4.2 hereof or contributions or deemed contributions by the
Managing Member pursuant to Section 4.4 hereof) by a new or existing
Member in exchange for more than a de minimis Capital Contribution, if
the Managing Member reasonably determines that such adjustment is
necessary or appropriate to reflect the relative economic interests of
the Members in the Company;
(2) the distribution by the Company to a Member of more
than a de minimis amount of Company property as consideration for an
interest in the Company, if the Managing Member reasonably determines
that such adjustment is necessary or appropriate to reflect the
relative economic interests of the Members in the Company;
(3) the liquidation of the Company within the meaning of
Regulations Section 1.704-1(b) (2)(ii)(g); and
(4) at such other times as the Managing Member shall
reasonably determine necessary or advisable in order to comply with
Regulations Sections 1.704-1(b) and 1.704-2.
(c) The Gross Asset Value of any Company asset distributed to a
Member shall be the gross fair market value of such asset on the date of
distribution as determined by the distributee and the Managing Member,
provided that, if the distributee is the Managing Member or if the
distributee and the Managing Member cannot agree on such a determination,
such gross fair market value shall be determined by Appraisal.
(d) At the election of the Managing Member, the Gross Asset
Values of Company assets shall be increased (or decreased) to reflect any
adjustments to the adjusted basis of such assets pursuant to Code Section
734(b) or Code Section 743(b), but only to the extent that such adjustments
are taken into account in determining Capital Accounts pursuant to
Regulations Section 1.704-1(b) (2)(iv)(m); provided, however, that Gross
Asset Values shall not be adjusted pursuant to this subsection (d) to the
extent that the Managing Member reasonably determines that an adjustment
pursuant to subsection (b) above is necessary or appropriate in connection
with a transaction that would otherwise result in an adjustment pursuant to
this subsection (d).
(e) If the Gross Asset Value of a Company asset has been
determined or adjusted pursuant to subsection (a), subsection (b) or
subsection (d) above, such Gross Asset Value shall thereafter be adjusted
by the Depreciation taken into account with respect to such asset for
purposes of computing Net Income and Net Loss.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the accounting profession), or in such
other statements by such entity as may be in general use by significant segments
of the United States accounting profession, which are applicable to the facts
and circumstances on the date of determination.
"HCPI/Davis North I, LLC" shall mean HCPI/Davis North I, LLC, a
Delaware limited liability company and subsidiary of the Company.
"Incapacity" or "Incapacitated" means, (i) as to any Member who is an
individual, death, total physical disability or entry by a court of competent
jurisdiction adjudicating such Member incompetent to manage his or her person or
his or her estate; (ii) as to any Member that is a corporation or limited
liability company, the filing of a certificate of dissolution, or its
equivalent, for the corporation or limited liability company or the revocation
of its charter; (iii) as to any Member that is a partnership, the dissolution
and commencement of winding up of the partnership; (iv) as to any Member that is
an estate, the distribution by the fiduciary of the estate's entire interest in
the Company; (v) as to any trustee of a trust that is a Member, the termination
of the trust (but not the substitution of a new trustee); or (vi) as to any
Member, the bankruptcy of such Member. For purposes of this definition,
bankruptcy of a Member shall be deemed to have occurred when (a) the Member
commences a voluntary proceeding seeking liquidation, reorganization or other
relief of or against such Member under any bankruptcy, insolvency or other
similar law now or hereafter in effect, (b) the Member is adjudged as bankrupt
or insolvent, or a final and non-appealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Member, (c) the Member executes and delivers a general
assignment for the benefit of the Member's creditors, (d) the Member files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Member in any proceeding of the
nature described in clause (b) above, (e) the Member seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Member or for all or any substantial part of the Member's properties, (f) any
proceeding seeking liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect has not
been dismissed within 120 days after the commencement thereof, (g) the
appointment without the Member's consent or acquiescence of a trustee, receiver
or liquidator has not been vacated or stayed within 90 days of such appointment,
or (h) an appointment referred to in clause (g) above is not vacated within 90
days after the expiration of any such stay.
"Indemnitee" means (i) any Person made a party to a proceeding by
reason of its status as (a) the Managing Member or (b) a director of the
Managing Member or an officer or employee of the Company or the Managing Member
and (ii) such other Persons (including Affiliates of the Managing Member or the
Company) as the Managing Member may designate from time to time (whether before
or after the event giving rise to potential liability), in its sole and absolute
discretion.
"Initial Closing Date" has the meaning set forth in the Contribution
Agreement.
"Initial Non-Managing Members" means the Non-Managing Members who
acquired their Non-Managing Member Units in exchange for the Real Properties or
the ninety nine percent (99%) non-managing member interest in HCPI/Davis North
I, LLC.
"Initial Threshold Test" means a test which will be satisfied on the
date on which ninety percent (90%) of the LLC Units issued by the Company to the
Initial Non-Managing Members have been disposed of pursuant to a Taxable
Disposition or series of Taxable Dispositions.
"IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States.
"Liquidating Event" has the meaning set forth in Section 13.1 hereof.
"Liquidator" has the meaning set forth in Section 13.3.A hereof.
"LLC Distribution Date" means the date established by the Managing
Member for the payment of actual distributions declared by the Managing Member
pursuant to Sections 5.1 and 5.2, which date shall be the same as the date
established by the Managing Member for the payment of dividends to holders of
REIT Shares.
"LLC Record Date" means the record date established by the Managing
Member for the distribution of Available Cash pursuant to Section 5.1 hereof,
which record date shall be the same as the record date established by the
Managing Member for a dividend to holders of REIT Shares.
"LLC Units" means the Managing Member Units and the Non-Managing
Member Units, collectively.
"Majority in Interest of the Non-Managing Members" means those Non-
Managing Members (other than the Managing Member in its capacity as a holder of
Non-Managing Member Units) holding in the aggregate more than 50% of the
aggregate outstanding Non-Managing Member Units (other than those held by the
Managing Member).
"Majority of Remaining Members" means Non-Managing Members owning a
majority of the Non-Managing Member Units held by Non-Managing Members.
"Managing Member" means Health Care Property Investors, Inc., a
Maryland corporation, in its capacity as a Member, or any successor Managing
Member designated pursuant to the terms of this Agreement.
"Managing Member Shortfall" has the meaning set forth in Section
5.1.A(2) hereof.
"Managing Member Unit" means a single unit of Membership Interest of
the Managing Member issued pursuant to Article 4 hereof, as the same may be
modified from time to time as provided in this Agreement. The ownership of
Managing Member Units may (but need not in the sole and absolute discretion of
the Managing Member) be evidenced in the form of a certificate for Managing
Member Units.
"Member Minimum Gain" means an amount, with respect to each Member
Nonrecourse Debt, equal to the Company Minimum Gain that would result if such
Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in
accordance with Regulations Section 1.704-2(i) with respect to "partner
nonrecourse debt minimum gain."
"Member Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b) (4) for the phrase "partner nonrecourse debt."
"Member Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2) for the phrase "partner nonrecourse
deductions," and the amount of Member Nonrecourse Deductions with respect to a
Member Nonrecourse Debt for a Fiscal Year shall be determined in accordance with
the rules of Regulations Section 1.704-2(i)(2).
"Members" means the Persons owning Membership Interests, including the
Managing Member, Non-Managing Members and any Additional and Substitute Members,
named as Members in Exhibit A attached hereto, which Exhibit A may be amended
from time to time.
"Membership Interest" means an ownership interest in the Company
representing a Capital Contribution by a Member and includes any and all
benefits to which the holder of such a Membership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement. A Membership Interest
may be expressed as a number of Managing Member Units or Non-Managing Member
Units, as applicable.
"Net Income" or "Net Loss" means, for each Fiscal Year of the Company,
an amount equal to the Company's taxable income or loss for such year,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) Any income of the Company that is exempt from federal income
tax and not otherwise taken into account in computing Net Income (or Net
Loss) pursuant to this definition of "Net Income" or "Net Loss" shall be
added to (or subtracted from, as the case may be) such taxable income (or
loss);
(b) Any expenditure of the Company described in Code Section
705(a)(2)(b) or treated as a Code Section 705(a)(2)(b) expenditure pursuant
to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Net Income (or Net Loss) pursuant to this definition
of "Net Income" or "Net Loss," shall be subtracted from (or added to, as
the case may be) such taxable income (or loss);
(c) In the event that the Gross Asset Value of any Company asset
is adjusted pursuant to subsection (b) or subsection (c) of the definition
of "Gross Asset Value," the amount of such adjustment shall be taken into
account as gain or loss from the disposition of such asset for purposes of
computing Net Income or Net Loss;
(d) In lieu of the depreciation, amortization and other cost
recovery deductions that would otherwise be taken into account in computing
such taxable income or loss, there shall be taken into account Depreciation
for such Fiscal Year;
(e) To the extent that an adjustment to the adjusted tax basis
of any Company asset pursuant to Code Section 734(b) or Code Section 743(b)
is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be
taken into account in determining Capital Accounts as a result of a
distribution other than in liquidation of a Member's interest in the
Company, the amount of such adjustment shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition of the
asset and shall be taken into account for purposes of computing Net Income
or Net Loss; and
(f) Notwithstanding any other provision of this definition of
"Net Income" or "Net Loss," any item allocated pursuant to Section 6.3.A
hereof shall not be taken into account in computing Net Income or Net Loss.
The amounts of the items of Company income, gain, loss or deduction
available to be allocated pursuant to Section 6.3.A hereof shall be
determined by applying rules analogous to those set forth in this
definition of "Net Income" or "Net Loss."
"NMM Sharing Amount" means, with respect to any taxable disposition of
a Real Property, the product equal to (i) the Sharing Amount multiplied by (ii)
the NMM Sharing Percentage.
"NMM Sharing Percentage" means a percentage equal to 1% multiplied by
a fraction with the numerator equal to the number of Non-Managing Member Units
then outstanding and the denominator equal to the number of Non-Managing Member
Units issued by the Company to all Initial Non-Managing Members; provided,
however, any NMM Units reduced pursuant to Section 8.6.D hereof shall be
subtracted from the denominator of such fraction.
"Non-Managing Member" means any Member other than the Managing Member
(except to the extent the Managing Member holds Non-Managing Member Units).
"Non-Managing Member Representative" means Steven B. Ostler until a
successor Non-Managing Member Representative shall have been appointed pursuant
to Section 15.14 hereof and, thereafter, shall mean the person appointed and
then acting as the Non-Managing Member Representative hereunder.
"Non-Managing Member Unit" means a single unit of Membership Interest
issued to a Non-Managing Member pursuant to Section 4.1 hereof, as the same may
be modified from time to time as provided in this Agreement. The ownership of
Non-Managing Member Units shall be evidenced in the form of a certificate for
Non-Managing Member Units.
"Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(b) (1), and the amount of Nonrecourse Deductions for a Fiscal
Year shall be determined in accordance with the rules of Regulations Section
1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations
Section 1.752-1(a)(2).
"Notice of Exchange" means the Notice of Exchange substantially in the
form of Exhibit B attached to this Agreement.
"One Hundred Member Limit" has the meaning set forth in Section 11.6.E
hereof.
"Ownership Limit" means 9.9% of the number or value (whichever is more
restrictive) of outstanding REIT Shares. The number of REIT Shares shall be
determined by the Board of Directors of the Managing Member, in good faith,
which determination shall be conclusive for all purposes hereof.
"Payment Quarter" has the meaning set forth in Section 5.1.A hereof.
"Percentage Interest" means, as to a Member holding a Membership
Interest, its interest in the Company as determined by dividing the LLC Units
owned by such Member by the total number of LLC Units then outstanding as
specified in Exhibit A attached hereto, as it may be modified or supplemented
from time to time.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association, limited liability company or other
entity.
"Preferred Return Per Unit" means with respect to each Non-Managing
Member Unit outstanding on a LLC Record Date an amount initially equal to zero,
and increased cumulatively on each LLC Record Date by an amount equal to the
product of (i) the cash dividend per REIT Share declared by the Managing Member
for holders of REIT Shares on that LLC Record Date, multiplied by (ii) the
Adjustment Factor in effect on that LLC Record Date; provided, however, that the
increase that shall occur in accordance with the foregoing on the first LLC
Record Date subsequent to December 31, 1998 shall be the foregoing product of
(i) and (ii) above multiplied by a fraction, the numerator of which shall be the
number of days in the period commencing on the date hereof and ending on March
31, 1999, and the denominator of which shall be the number of days in the period
commencing on January 1, 1999 and ending on March 31, 1999.
"Preferred Return Shortfall" means, for any holder of Non-Managing
Member Units, the amount (if any) by which (i) the Preferred Return Per Unit
with respect to all Non-Managing Member Units held by such holder exceeds
(ii) the aggregate amount previously distributed with respect to such Non-
Managing Member Units pursuant to Section 5.1.A(1), Section 5.6.A(1) or
Section 5.6.B(1) hereof, together with cumulative interest accruing thereon at
the Prime Rate from the applicable LLC Record Date to the date of distribution.
"Prime Rate" means on any date, a rate equal to the annual rate on
such date announced by the Bank of New York to be its prime, base or reference
rate for 90-day unsecured loans to its corporate borrowers of the highest credit
standing but in no event greater than the maximum rate then permitted under
applicable law. If the Bank of New York discontinues its use of such prime,
base or reference rate or ceases to exist, the Managing Member shall designate
the prime, base or reference rate of another state or federally chartered bank
based in New York to be used for the purpose of calculating the Prime Rate
hereunder (which rate shall be subject to limitation by all applicable usury
laws).
"Properties" means any assets and property of the Company such as, but
not limited to, interests in real property (including the Real Properties) and
personal property, including, without limitation, fee interests, interests in
ground leases, interests in limited liability companies, joint ventures or
partnerships, interests in mortgages, and Debt instruments as the Company may
hold from time to time.
"Property Appreciation" means, with respect to a taxable disposition
of a Real Property, the excess of the sales price paid in such disposition
(including amounts paid through the assumption of debt) over the initial Gross
Asset Value of such Real Property.
"Real Properties" has the meaning set forth in Section 7.3.E(2)
hereof.
"Recourse Debt Amount" means a number equal to (i) $22,000,000 minus
(ii) the amount of nonrecourse debt of the Company allocable to the Non-Managing
Members, as determined from time to time in the reasonable discretion of the Non
Managing Member Representative and communicated to the Company and the Managing
Member, but which number shall in no event be less than zero. The Non-Managing
Member Representative has informed the Managing Member and the Company that the
amount of nonrecourse debt of the Company allocable to the Non-Managing Members
as of the date of this Agreement is Twenty-Five Million Two Hundred Four
Thousand Dollars ($25,204,000.00).
"Reduction" has the meaning set forth in Section 8.6.D hereof.
"Reduction Date" has the meaning set forth in Section 8.6.D hereof.
"Reduction Units" has the meaning set forth in Section 8.6.D hereof.
"Refinancing Debt" means any Debt (other than indebtedness to the
Managing Member or any Affiliate of the Managing Member), the repayment of which
is secured by all or any portion of the Real Properties.
"Refinancing Debt Proceeds" means the net proceeds from any
Refinancing Debt incurred by the Company which remain after the repayment of any
Debt with proceeds of the Refinancing Debt and all costs related to the
Refinancing Debt.
"Regulations" means the applicable income tax regulations under the
Code, whether such regulations are in proposed, temporary or final form, as such
regulations may be amended from time to time (including corresponding provisions
of succeeding regulations).
"Regulatory Allocations" has the meaning set forth in Section 6.3.A(7)
hereof.
"REIT" means a real estate investment trust qualifying under Code
Section 856, et seq.
"REIT Member" means a Member or Assignee that is, or has made an
election to qualify as, a REIT.
"REIT Payment" has the meaning set forth in Section 15.12 hereof.
"REIT Requirements" has the meaning set forth in Section 5.1.B hereof.
"REIT Share" means a share of the Common Stock of the Managing Member,
par value $1.00 per share.
"REIT Shares Amount" means a number of REIT Shares equal to the
product of (a) the number of Tendered Units and (b) the Adjustment Factor;
provided, however, that, in the event that the Managing Member issues Rights to
all holders of REIT Shares as of a certain record date, with the record date for
such Rights issuance falling within the period starting on the date of the
Notice of Exchange and ending on the day immediately preceding the Specified
Exchange Date, which Rights will not be distributed before the relevant
Specified Exchange Date, then the REIT Shares Amount shall also include such
Rights that a holder of that number of REIT Shares would be entitled to receive,
expressed, where relevant hereunder, in a number of REIT Shares determined by
the Managing Member in good faith. So long as the holder of Tendered Units is
not an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as
those terms are defined in the Rights Agreement), the number of REIT Shares
referenced in the preceding sentence shall be adjusted for the issuance,
distribution and triggering of exercisability of the Rights governed by the
Rights Agreement (so long as the Rights shall not previously have been redeemed
or expired pursuant to the Rights Agreement) which adjustment shall be satisfied
by issuing, together with the REIT Shares Amount, either (i) if Rights may be
issued under the Rights Agreement, the aggregate number of Rights issuable under
the Rights Agreement with respect to a number of REIT Shares equal to the REIT
Shares Amount, or (ii) in the event Rights may no longer be issued under the
Rights Agreement, a number of REIT Shares necessary to reflect equitably the
dilution in REIT Shares resulting from the exercise of Rights (but only if the
REIT Shares Amount is issued subsequent to the occurrence of an event that
results in a reduction in the purchase price attributable to the Rights in the
manner provided in Section 11(a)(ii) of the Rights Agreement (or any comparable
provision in the event the Rights Agreement is amended), and prior to a Flip-
Over Event), or (iii) if the REIT Shares Amount is issued concurrently with or
subsequent to a Flip-Over Event, the number of shares of common stock of the
Successor Person necessary to reflect equitably the dilution in REIT Shares
resulting from the exercise of Rights.
"Related Party" means, with respect to any Person, any other Person
whose actual ownership, Beneficial Ownership or Constructive Ownership of shares
of the Managing Member's capital stock would be attributed to the first such
Person under either (i) Code Section 544 (as modified by Code Section
856(h)(1)(B) ) or (ii) Code Section 318 (as modified by Code Section 856(d)(5)).
"Replacement Indebtedness" has the meaning set forth in Section
7.3.E(3) hereof.
"Rights" means rights, options, warrants or convertible or
exchangeable securities entitling the Managing Member's shareholders to
subscribe for or purchase REIT Shares, or any other securities or property.
"Rights Agreement" means the Rights Agreement, dated as of July 5,
1990, by and between the Managing Member and Manufacturers Hanover Trust Company
of California, as the same may be supplemented or amended from time to time.
"SEC" means the Securities and Exchange Commission.
"Second Exchange Date" means that date which is one year after the
last Non-Managing Member Unit is issued pursuant to the Contribution Agreement
or, if such day is not a Business Day, the next following Business Day.
"Second Traunch Non-Managing Member Units" has the meaning set forth
in Section 8.6.A hereof.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Sharing Amount" means, with respect to any taxable disposition of a
Real Property, the excess, if any, of the Aggregate Sharing Amount over the
Sharing Amounts, if any, previously used for purposes of calculating Reduction
Units pursuant to Section 8.6.D.
"Sharing Percentage" means, with respect to a Non-Managing Member or
Assignee, its share of the NMM Sharing Percentage based on its share of the Non-
Managing Member Units and, with respect to the Managing Member, one hundred
percent (100%) minus the NMM Sharing Percentage.
"Specified Exchange Date" means (A) in the case of an Exchange
pursuant to Section 8.6.A hereof, (i) the First Exchange Date if a Notice of
Exchange is received by the Managing Member not less than thirty (30) days prior
to the First Exchange Date in respect of any First Traunch Non-Managing Member
Unit, (ii) the sixtieth (60th) calendar day (or, if such day is not a Business
Day, the next following Business Day) after the receipt by the Managing Member
of a Notice of Exchange if such notice is received by the Managing Member
pursuant to the provisions of Section 8.6.A hereof more than sixty (60) calendar
days prior to the Second Exchange Date in respect of any Second Traunch Non-
Managing Member Unit, (iii) the Second Exchange Date if a Notice of Exchange is
received by the Managing Member less than sixty (60) but not less than thirty
(30) calendar days prior to the Second Exchange Date in respect of any Second
Traunch Non-Managing Member Unit, or (iv) in all other events, the thirtieth
(30th) calendar day (or, if such day is not a Business Day, the next following
Business Day) after the receipt by the Managing Member of a Notice of Exchange;
provided, however, that, notwithstanding any other provisions set forth herein,
in no event shall a Specified Exchange Date as to any LLC Unit occur prior to
the first anniversary of the issuance of such LLC Unit by the Company; provided,
further, that the Specified Exchange Date, as well as the closing of an Exchange
on any Specified Exchange Date, may be deferred, in the Managing Member's sole
and absolute discretion, for such time (but in any event not more than 150 days
in the aggregate) as may reasonably be required to effect, as applicable, (i)
necessary funding arrangements, (ii) compliance with the Securities Act or other
law (including, but not limited to, (a) state "blue sky" or other securities
laws and (b) the expiration or termination of the applicable waiting period, if
any, under the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended)
and (iii) satisfaction or waiver of other commercially reasonable and customary
closing conditions and requirements for a transaction of such nature, and (B) in
the case of the delivery of a Call Notice pursuant to Section 13.2 hereof, the
10th calendar day (or, if such day is not a Business Day, the next following
Business Day) after the mailing to the applicable Non-Managing Members of a Call
Notice.
"Subsequent Threshold Test" means a test which will be satisfied on
the date on which eighty percent (80%) of the LLC Units issued by the Company to
the Initial Non-Managing Members have been disposed of pursuant to a Taxable
Disposition or series of Taxable Dispositions.
"Substituted Member" means an Assignee who is admitted as a Member to
the Company pursuant to Section 11.4 hereof. The term "Substituted Member"
shall not include any Additional Member.
"Subsidiary" means, with respect to any Person other than the Company,
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 is owned,
directly or indirectly, by such Person; provided, however, that, with respect to
the Company, "Subsidiary" means solely a partnership or limited liability
company (taxed, for federal income tax purposes, as a partnership and not as an
association or publicly traded partnership taxable as a corporation) of which
the Company is a member unless the Managing Member has received an unqualified
opinion from independent counsel of recognized standing, or a ruling from the
IRS, that the ownership of shares of stock of a corporation or other entity will
not jeopardize the Managing Member's status as a REIT, in which event the term
"Subsidiary" shall include the corporation or other entity which is the subject
of such opinion or ruling.
"Subsidiary Operating Agreement" shall mean the Amended and Restated
Limited Liability Company Operating Agreement of HCPI/Davis North I, LLC.
"Successor Person" has the meaning set forth in the definition of
Flip-Over Event.
"Successor Properties" means real properties acquired by the Company
in connection with a Tax-Free Disposition of any Real Property or Successor
Property.
"Tax-Free Disposition" means the disposition of property in a
transaction that is not subject to tax under the Code, including by virtue of
the provisions of Section 1031 of the Code.
"Tax Items" has the meaning set forth in Section 6.1 hereof.
"Tax Protection Period" means the period of time beginning on the
Effective Date and ending on the first to occur of (i) the twentieth (20th)
anniversary of the Effective Date or (ii) the date on which the Subsequent
Threshold Test has been satisfied; provided, however, that notwithstanding the
foregoing, (x) with respect to the Real Properties listed on Schedule 1.1, the
tenth (10th) or the thirteenth (13th) anniversary (as indicated with respect to
each such Real Property on such Schedule 1.1) shall be substituted for the
twentieth (20th) anniversary in this definition and (y) with respect to the
Company's and the Managing Member's obligations pursuant to Section 7.3.E(3)
hereof, the tenth (10th) anniversary shall be substituted for the twentieth
(20th) anniversary in this definition.
"Taxable Disposition" means a transaction or event in which a LLC Unit
has either (a) been disposed of in a taxable transaction (including, without
limitation, any Exchange pursuant 8.6.A hereof) or (b) otherwise received a
"step up" in tax basis to its fair market value at the time of such "step up"
(e.g., as a result of the death of a holder of LLC Units who is an individual).
"Tendered Units" has the meaning set forth in Section 8.6.A hereof.
"Tendering Party" has the meaning set forth in Section 8.6.A hereof.
"Terminating Capital Transaction" means any sale or other disposition
of all or substantially all of the assets of the Company or a related series of
transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Company.
"Transfer," when used with respect to an LLC Unit or all or any
portion of a Membership Interest, means any sale, assignment, bequest,
conveyance, devise, gift (outright or in trust), pledge, encumbrance,
hypothecation, mortgage, exchange, transfer or other disposition or act of
alienation, whether voluntary or involuntary or by operation of law. The terms
"Transferred" and "Transferring" have correlative meanings.
"Transferor" shall have the meaning set forth in the Recitals.
"Transferred Properties" means the "Properties" as that term is
defined in the Contribution Agreement, except for the Property known as "Davis
North I" which is to be contributed to HCPI/Davis North I, LLC and shall also
mean a ninety-nine percent (99%) membership interest in HCPI/Davis North I, LLC.
"Unit Amount" means, with respect to a taxable disposition of a Real
Property, a number of LLC Units equal to the product of (i) the number of LLC
Units outstanding at the time of such disposition, and (ii) the Unit Portion.
"Unit Appreciation" means, with respect to any taxable disposition of
a Real Property, the product of the (i) Unit Amount and (ii) excess of the Value
at the time of such disposition over $33.50.
"Unit Portion" means, with respect to a taxable disposition of a Real
Property, a number determined by dividing (i) the net cash flow (ignoring
payments made by the Company under any Debt related to such Property) produced
by such Real Property for the twelve month period immediately prior to such
disposition, by (ii) the net cash flow (ignoring payments made by the Company
under any Debt related to all Real Properties) produced by all Real Properties
held by the Company for the twelve month period immediately prior to such
disposition.
"Valuation Date" means (a) in the case of a tender of LLC Units for
Exchange, the date of the receipt by the Managing Member of the Notice of
Exchange with respect to those LLC Units or, if such date is not a Business Day,
the immediately preceding Business Day or (b) for purposes of Section 8.6.D
hereof, the Reduction Date or, if the Reduction Date is not a Business Day, the
immediately preceding Business Day, (c) for purposes of Section 13.2 hereof, the
date the Call Notice is delivered or, if such day is not a Business Day, the
immediately preceding Business Day, or (d) in any other case, the date specified
in this Agreement or, if such date is not a Business Day, the immediately
preceding Business Day.
"Value" means, on any Valuation Date, the average of the Closing
Prices for the ten (10) consecutive trading days ending on the second trading
day immediately prior to the Valuation Date.
ARTICLE 2.
ORGANIZATIONAL MATTERS
Section 2.1. Formation
The Company is a limited liability company formed pursuant to the
provisions of the Act for the purposes and upon the terms and subject to the
conditions set forth in this Agreement. Except as expressly provided herein,
the rights and obligations of the Members and the administration and termination
of the Company shall be governed by the Act.
Section 2.2. Name
The name of the Company is HCPI/Utah, LLC. The Company's business may
be conducted under any other name or names deemed advisable by the Managing
Member, including the name of the Managing Member or any Affiliate thereof. The
Managing Member in its sole and absolute discretion may change the name of the
Company at any time and from time to time in accordance with applicable law and
shall notify the Members of such change in the next regular communication to the
Members.
Section 2.3. Registered Office and Agent; Principal Place of
Business; Other Places of Business
The address of the registered office of the Company in the State of
Delaware is located at c/o The Corporation Trust Company, Corporation Trust
Center, 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801,
and the registered agent for service of process on the Company in the State of
Delaware at such registered office is The Corporation Trust Company, Corporation
Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The principal
office of the Company is located at 4675 MacArthur Court, Suite 900, Newport
Beach, California 92660, or such other place as the Managing Member may from
time to time designate by notice to the Members. The Company may maintain
offices at such other place or places within or outside the State of Delaware as
the Managing Member deems advisable.
Section 2.4. Power of Attorney
A. Each Member (other than the Managing Member) and each Assignee
hereby irrevocably constitutes and appoints the Managing Member, any Liquidator,
and authorized officers and attorneys in fact of each, and each of those acting
singly, in each case with full power of substitution, as its true and lawful
agent and attorney-in-fact, with full power and authority in its name, place and
stead to:
(1) execute, swear to, acknowledge, deliver, file and record in
the appropriate public offices (a) all certificates, documents and other
instruments (including, without limitation, this Agreement and the
Certificate and all amendments or restatements thereof) that the Managing
Member or any Liquidator deems appropriate or necessary to form, qualify or
continue the existence or qualification of the Company as a limited
liability company in the State of Delaware and in all other jurisdictions
in which the Company may conduct business or own property; (b) all
instruments that the Managing Member or any Liquidator deems appropriate or
necessary to reflect any amendment, change, modification or restatement of
this Agreement in accordance with its terms; (c) all conveyances and other
instruments or documents that the Managing Member or any Liquidator deems
appropriate or necessary to reflect the dissolution and liquidation of the
Company pursuant to the terms of this Agreement, including, without
limitation, a certificate of cancellation; (d) all instruments relating to
the admission, withdrawal, removal or substitution of any Member pursuant
to, or other events described in, Articles 11, 12 or 13 hereof or the
Capital Contribution of any Member; and (e) all certificates, documents and
other instruments relating to the determination of the rights, preferences
and privileges of Membership Interests; and
(2) execute, swear to, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole and absolute discretion of the
Managing Member or any Liquidator, to make, evidence, give, confirm or
ratify any vote, consent, approval, agreement or other action which is made
or given by the Members hereunder or is consistent with the terms of this
Agreement or appropriate or necessary, in the sole discretion of the
Managing Member or any Liquidator, to effectuate the terms or intent of
this Agreement.
Nothing contained in this Section 2.4 shall be construed as
authorizing the Managing Member or any Liquidator to amend this Agreement except
in accordance with Article 14 hereof or as may be otherwise expressly provided
for in this Agreement.
B. The foregoing power of attorney is hereby declared to be
irrevocable and a special power coupled with an interest, in recognition of the
fact that each of the Members and Assignees will be relying upon the power of
the Managing Member to act as contemplated by this Agreement, and it shall
survive and not be affected by the subsequent Incapacity of any Member or
Assignee and the Transfer of all or any portion of such Member's or Assignee's
LLC Units or Membership Interest and shall extend to such Member's or Assignee's
heirs, successors, assigns and personal representatives. Each such Member or
Assignee hereby agrees to be bound by any representation made by the Managing
Member or any Liquidator, acting in good faith pursuant to such power of
attorney; and each such Member or Assignee hereby waives any and all defenses
which may be available to contest, negate or disaffirm the action of the
Managing Member or any Liquidator, taken in good faith under such power of
attorney. Each Member or Assignee shall execute and deliver to the Managing
Member or any Liquidator, within 15 days after receipt of the Managing Member's
or Liquidator's request therefor, such further designation, powers of attorney
and other instruments as the Managing Member or the Liquidator, as the case may
be, deems necessary to effectuate this Agreement and the purposes of the
Company.
Section 2.5. Term
The term of the Company commenced on October 27, 1998, the date that
the original Certificate was filed in the office of the Secretary of State of
Delaware in accordance with the Act, and shall continue until December 31, 2058
unless extended by mutual agreement of the Members or earlier terminated
pursuant the provisions of Article 13 hereof or as otherwise provided by law.
ARTICLE 3.
PURPOSE
Section 3.1. Purpose and Business
The sole purposes of the Company are (i) to acquire, own, manage,
operate, maintain, improve, expand, redevelop, encumber, sell or otherwise
dispose of, in accordance with the terms of this Agreement, the Transferred
Properties and any other Properties acquired by the Company and to invest and
ultimately distribute funds, including, without limitation, funds obtained from
owning or otherwise operating the Transferred Properties and any other
Properties acquired by the Company and the proceeds from the sale or other
disposition of the Transferred Properties and any other Properties acquired by
the Company, all in the manner permitted by this Agreement, and (ii) subject to
and in accordance with the terms of this Agreement, to do anything necessary or
incidental to the foregoing.
Section 3.2. Powers
The Company is empowered to do any and all acts and things necessary,
appropriate, proper, advisable, incidental to or convenient for the furtherance
and accomplishment of the purposes and business described herein and for the
protection and benefit of the Company including, without limitation, full power
and authority, directly or through its ownership interest in other entities, to
enter into, perform and carry out contracts of any kind, borrow money and issue
evidences of indebtedness, whether or not secured by mortgage, deed of trust,
pledge or other lien, acquire, own, manage, improve and develop real property,
and lease, sell, transfer and dispose of real property; provided, however, that
notwithstanding any other provision in this Agreement, the Managing Member may
cause the Company to take any action to avoid a result that, or to refrain from
taking any action that, in the judgment of the Managing Member, in its sole and
absolute discretion, (i) could adversely affect the ability of the Managing
Member to continue to qualify as a REIT, (ii) could subject the Managing Member
to any additional taxes under Code Section 857 or Code Section 4981 or
(iii) could violate any law or regulation of any governmental body or agency
having jurisdiction over the Managing Member, its securities or the Company,
unless such action (or inaction) under clause (i), clause (ii) or clause (iii)
above shall have been specifically consented to by the Managing Member in
writing.
Section 3.3. Specified Purposes
The Company shall be a limited liability company only for the purposes
specified in Section 3.1 hereof, and this Agreement shall not be deemed to
create a company, venture or partnership between or among the Members with
respect to any activities whatsoever other than the activities within the
purposes of the Company as specified in Section 3.1 hereof. Except as otherwise
provided in this Agreement, no Member shall have any authority to act for, bind,
commit or assume any obligation or responsibility on behalf of the Company, its
properties or any other Member. No Member, in its capacity as a Member under
this Agreement, shall be responsible or liable for any indebtedness or
obligation of another Member, nor shall the Company be responsible or liable for
any indebtedness or obligation of any Member, incurred either before or after
the execution and delivery of this Agreement by such Member, except as to those
responsibilities, liabilities, indebtedness or obligations incurred pursuant to
and as limited by the terms of this Agreement and the Act.
Section 3.4. Representations and Warranties by the Members;
Disclaimer of Certain Representations
A. Each Member that is an individual (including, without limitation,
each Additional Member or Substituted Member as a condition to becoming an
Additional Member or a Substituted Member) represents and warrants to the
Company, the Managing Member and each other Member that (i) such Member has the
legal capacity to enter into this Agreement and perform such Member's
obligations hereunder, (ii) the consummation of the transactions contemplated by
this Agreement to be performed by such Member will not result in a breach or
violation of, or a default under, any material agreement by which such Member or
any of such Member's property is bound, or any statute, regulation, order or
other law to which such Member is subject, (iii) such Member is neither a
"foreign person" within the meaning of Code Section 1445(f) nor a "foreign
partner" within the meaning of Code Section 1446(e), (iv) such Member (other
than the Managing Member) either (a) does not Constructively Own more than 25%
of the interests in capital or profits of the Company or (b) does not
Constructively Own any interest in any entity that is a tenant of either the
Managing Member, the Company or any partnership, venture or limited liability
company of which the Managing Member or the Company is a direct or indirect
owner, and (v) this Agreement is binding upon, and enforceable against, such
Member in accordance with its terms.
B. Each Member that is not an individual (including, without
limitation, each Additional Member or Substituted Member as a condition to
becoming an Additional Member or a Substituted Member) represents and warrants
to the Company, the Managing Member and each other Member that (i) all
transactions contemplated by this Agreement to be performed by it have been duly
authorized by all necessary action, including, without limitation, that of its
managing member(s) (or, if there is no managing member, a majority in interest
of all members), committee(s), trustee(s), general partner(s), beneficiaries,
directors and shareholder(s), as the case may be, as required, (ii) the
consummation of such transactions will not result in a breach or violation of,
or a default under, its partnership or operating agreement, trust agreement,
charter or bylaws, as the case may be, any material agreement by which such
Member or any of such Member's properties or any of its partners, members,
beneficiaries, trustees or shareholders, as the case may be, is or are bound, or
any statute, regulation, order or other law to which such Member or any of its
partners, members, trustees, beneficiaries or shareholders, as the case may be,
is or are subject, (iii) such Member is neither a "foreign person" within the
meaning of Code Section 1445(f) nor a "foreign partner" within the meaning of
Code Section 1446(e), (iv) such Member (other than the Managing Member) either
(a) does not Constructively Own more than 25% of the interests in capital of
profits of the Company or (b) does not Constructively Own any interest in any
entity that is a tenant of either the Managing Member, the Company or any
partnership, venture or limited liability company of which the Managing Member
or the Company is direct or indirect owner, and (v) this Agreement is binding
upon, and enforceable against, such Member in accordance with its terms.
C. Each Member (including, without limitation, each Additional
Member or Substituted Member as a condition to becoming an Additional Member or
a Substituted Member) represents, warrants and agrees that it has acquired and
continues to hold its interest in the Company for its own account for investment
only and not for the purpose of, or with a view toward, the resale or
distribution of all or any part thereof, nor with a view toward selling or
otherwise distributing such interest or any part thereof at any particular time
or under any predetermined circumstances. Each Member further represents and
warrants that it is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act and is a sophisticated investor, able and
accustomed to handling sophisticated financial matters for itself, particularly
real estate investments, and that it has a sufficiently high net worth that it
does not anticipate a need for the funds that it has invested in the Company in
what it understands to be a highly speculative and illiquid investment.
D. The representations and warranties contained in Sections 3.4.A,
3.4.B and 3.4.C hereof shall survive the execution and delivery of this
Agreement by each Member (and, in the case of an Additional Member or a
Substituted Member, the admission of such Additional Member or Substituted
Member as a Member in the Company) and the dissolution, liquidation and
termination of the Company.
E. Each Member (including, without limitation, each Additional
Member or Substituted Member as a condition to becoming an Additional Member or
a Substituted Member) hereby represents that it has consulted and been advised
by its legal counsel and tax advisor in connection with, and acknowledges that
no representations as to potential profit, tax consequences of any sort
(including, without limitation, the tax consequences resulting from forming or
operating the Company, conducting the business of the Company, executing this
Agreement, consummating the transaction provided for in or contemplated by the
Contribution Agreement, making a Capital Contribution, being admitted to the
Company, receiving or not receiving distributions from the Company, exchanging
LLC Units or being allocated Tax Items), cash flows, funds from operations or
yield, if any, in respect of the Company or the Managing Member have been made
by the Company, any Member or any employee or representative or Affiliate of the
Company or any Member, and that projections and any other information,
including, without limitation, financial and descriptive information and
documentation, that may have been in any manner submitted to such Member shall
not constitute any representation or warranty of any kind or nature, express or
implied.
ARTICLE 4.
CAPITAL CONTRIBUTIONS
Section 4.1. Capital Contributions of the Initial Members
At the time of their respective execution of this Agreement, the
Members shall make Capital Contributions as set forth in Exhibit A to this
Agreement. The Members shall own Managing Member Units and Non-Managing Member
Units, as applicable, in the amounts set forth on Exhibit A. Except as required
by law, as provided by the Contribution Agreement or as otherwise provided in
Sections 4.1, 4.2 and 4.4 hereof, no Member shall be required or permitted to
make any additional Capital Contributions or loans to the Company.
Section 4.2. Additional Members
The Managing Member is authorized to admit one or more Additional
Members to the Company from time to time, in accordance with the provisions of
Section 12.2 hereof, on terms and conditions and for such Capital Contributions
as may be established by the Managing Member in its reasonable discretion.
Except as set forth in Section 12.2, no action or consent by the Non-Managing
Members shall be required in connection with the admission of any Additional
Members. The provisions of Section 12.2 shall govern the acquisition by the
Company in the future of additional Properties by means of Capital Contributions
by other Persons, which Capital Contributions shall be set forth in Exhibit A.
As a condition to being admitted to the Company, each Additional Member shall
execute an agreement to be bound by the terms and conditions of this Agreement.
Section 4.3. Loans
Subject to the provisions of Sections 4.4 and 7.3.E(3) hereof, the
Company may incur or assume Debt, enter into other similar credit, guarantee,
financing or refinancing arrangements, repay or prepay Debt, for any purpose
(including, without limitation, in connection with any further acquisition of
Properties from any Person), upon such terms as the Managing Member determines
appropriate.
Section 4.4. Additional Funding and Capital Contributions
A. General. The Managing Member may, at any time and from time to
time, determine that the Company requires additional funds ("Additional Funds")
for the operation of the Company. Additional Funds may be raised by the Company
in accordance with the terms of this Section 4.4 or the terms of Section 4.3
hereof. No Person, including, without limitation, any Member or Assignee, shall
have any preemptive, preferential, participation or similar right or rights to
subscribe for or acquire any Membership Interest except as otherwise provided in
the Contribution Agreement.
B. Additional Contributions. The Managing Member on behalf of the
Company may raise all or any portion of the Additional Funds by making
additional Capital Contributions. Subject to the terms of this Section 4.4 and
to the definition of "Gross Asset Value," the Managing Member shall determine in
good faith the amount, terms and conditions of such additional Capital
Contributions. In addition, the Managing Member shall be solely responsible for
making additional Capital Contributions to the Company in amounts sufficient to
(i) fund all necessary capital additions, tenant improvements and leasing
commissions relating to the Real Properties, except for the Unidentified and
Unpaid Tenant Improvement Costs (as such term is defined in the Contribution
Agreement) which are required to be funded by a Non-Managing Member pursuant to
the Contribution Agreement; and (ii) repay any mortgage Debt which encumbers any
of the Properties as of the date of this Agreement and which the Managing Member
elects to cause the Company to repay as permitted under this Agreement. The
Managing Member shall receive that number of additional Managing Member Units in
consideration for additional Capital Contributions made by the Managing Member
equal to the initial Gross Asset Value of the additional capital contribution
(or, in the event of a contribution of cash, the amount of cash so contributed)
divided by the Value as of the date of such contribution.
C. Timing of Additional Capital Contributions. If additional
Capital Contributions are made by a Member on any day other than the first day
of a Fiscal Year, then Net Income, Net Loss, each item thereof and all other
items of income, gain, loss, deduction and credit allocable among Members for
such Fiscal Year, if necessary, shall be allocated among such Members by taking
into account their varying interests during the Fiscal Year in accordance with
Code Section 706(d), using the "interim closing of the books" or "daily
proration" method or another permissible method selected by the Managing Member.
Section 4.5. No Interest; No Return
Except as provided herein, no Member shall be entitled to interest on
its Capital Contribution or on such Member's Capital Account. Except as
provided herein or by law, no Member shall have any right to demand or receive
the return of its Capital Contribution from the Company.
ARTICLE 5.
DISTRIBUTIONS
Section 5.1. Requirement and Characterization of Distributions
A. The Managing Member shall cause the Company to distribute
quarterly on the LLC Distribution Date all Available Cash generated by the
Company during the quarter most recently ended prior to the LLC Distribution
Date (the "Payment Quarter") as follows:
(1) First, to the holders of the Non-Managing Member Units, in
accordance with their relative Preferred Return Shortfalls at the end of
the Payment Quarter, until the Preferred Return Shortfall for each holder
of Non-Managing Member Units at the end of the Payment Quarter is zero,
provided, however, that in the event a Reduction Date occurs during any
Payment Quarter, a distribution shall be made under this Section 5.1.A(1)
on the LLC Distribution Date associated with such Payment Quarter to the
holder or holders of the Reduction Units in an amount determined by
multiplying the amount that would have been distributed on the LLC
Distribution Date under Section 5.1.A(1) in respect of the Reduction Units
had they been outstanding on the last day of such Payment Quarter by a
fraction, the numerator of which shall be the number of days beginning on
the first day of the Payment Quarter relating to the LLC Distribution Date
and ending on the Reduction Date and the denominator of which shall be the
number of days in the Payment Quarter in which the Reduction Date occurs.
(2) Second, to the Managing Member until the Managing Member has
received an amount equal to the excess (the "Managing Member Shortfall"),
if any, of (A) the amount of cash that must be distributed to the Managing
Member such that aggregate distributions of cash pursuant to Sections
5.1.A(1), 5.1.A(2), 5.6.A(1) and 5.6.B(1) shall have been made to all
Members pro rata to the Members' Percentage Interests, over (B) the sum of
all prior distributions to the Managing Member pursuant to this Section
5.1.A(2) and Sections 5.6.A(1) and 5.6.B(1).
(3) Thereafter, all Available Cash remaining after the
distributions provided for in Section 5.1.A(1) and 5.1.A.(2) above shall be
distributed to the Members in proportion to their Sharing Percentages.
B. The Managing Member may take such reasonable efforts, as
determined by it in its sole and absolute discretion and consistent with its
qualification as a REIT, to cause the Company to make distributions in
accordance with Section 5.1.A and Section 5.6 in sufficient amounts to enable
the Managing Member to pay stockholder dividends that will (a) satisfy the
requirements for qualifying as a REIT under the Code and Regulations ("REIT
Requirements"), and (b) avoid any federal income or excise tax liability of the
Managing Member.
Section 5.2. Distributions in Kind
No right is given to any Member to demand and receive property other
than cash. The Managing Member may determine, with the Consent of the Non-
Managing Members, to make a distribution in kind to the Members of Company
assets, and such assets shall be distributed in such a fashion as to ensure that
the fair market value is distributed and allocated in accordance with Articles 5
and 6 hereof.
Section 5.3. Amounts Withheld
Each Member hereby authorizes the Company to withhold from or pay on
behalf of or with respect to such Member any amount of federal, state, local or
foreign taxes that the Managing Member determines that the Company is required
to withhold or pay with respect to any amount distributable or allocable to such
Member pursuant to this Agreement, including, without limitation, any taxes
required to be withheld or paid by the Company pursuant to Code Section 1441,
Code Section 1442, Code Section 1445 or Code Section 1446. Any amount paid on
behalf of or with respect to a Member shall constitute a loan by the Company to
such Member, which loan shall be repaid by such Member within 15 days after
notice from the Managing Member that such payment must be made unless (i) the
Company withholds such payment from a distribution that would otherwise be made
to the Member or (ii) the Managing Member determines, in its sole and absolute
discretion, that such payment may be satisfied out of the Available Cash of the
Company that would, but for such payment, be distributed to the Member. Any
amounts withheld pursuant to the foregoing clauses (i) or (ii) shall be treated
as having been distributed to such Member. Each Member hereby unconditionally
and irrevocably grants to the Company a security interest in such Member's
Membership Interest to secure such Member's obligation to pay to the Company any
amounts required to be paid pursuant to this Section 5.3. In the event that a
Member fails to pay any amounts owed to the Company pursuant to this Section 5.3
when due, the Managing Member may, in its sole and absolute discretion, elect to
make the payment to the Company on behalf of such defaulting Member, and in such
event shall be deemed to have loaned such amount to such defaulting Member and
shall succeed to all rights and remedies of the Company as against such
defaulting Member (including, without limitation, the right to receive
distributions). Any amounts payable by a Member hereunder shall bear interest
at the base rate on corporate loans at large United States money center
commercial banks, as published from time to time in the Wall Street Journal,
plus four (4) percentage points (but not higher than the maximum lawful rate)
from the date such amount is due (i.e., 15 days after demand) until such amount
is paid in full. Each Member shall take such actions as the Company or the
Managing Member shall request in order to perfect or enforce the security
interest created hereunder.
Section 5.4. Distributions Upon Liquidation
Notwithstanding the other provisions of this Article 5, net proceeds
from a Terminating Capital Transaction and any other cash received or reductions
in reserves made after commencement of the liquidation of the Company shall be
distributed to the Members in accordance with Section 13.3 hereof.
Section 5.5. Restricted Distributions
Notwithstanding any provision to the contrary contained in this
Agreement, neither the Company nor the Managing Member, on behalf of the
Company, shall make a distribution to any Member on account of its Membership
Interest or interest in LLC Units if such distribution would violate Section 18-
607 of the Act or other applicable law.
Section 5.6. Distributions of Proceeds from Sale of Real Properties
and Refinancing Debt
A. In the event of a taxable disposition of some, but not all, of
the Real Properties, the Managing Member shall cause the Company to (i) reinvest
the Disposition Proceeds to the extent the Managing Member elects to do so and
in the amount determined by the Managing Member to be appropriate (and to hold
the Disposition Proceeds in an interest bearing account pending such
reinvestment) and (ii) if the Managing Member elects to distribute all or any
portion of the Disposition Proceeds, distribute such portions of the Disposition
Proceeds, to the extent thereof, as follows:
(1) First, to the holders of LLC Units in accordance with their
Preferred Return Shortfalls until the Preferred Return Shortfall for each
holder of Non-Managing Member Units is zero, and then to the Managing
Member to the extent of its Managing Member Shortfall;
(2) Second, to the holders of LLC Units pro rata to their
holdings of LLC Units but only to the extent that such distribution would
not cause the number of LLC Units held by the Non-Managing Members to be
reduced below zero pursuant to the provisions of Section 8.6.D hereof; and
(3) Third, the remaining balance of the Disposition Proceeds, if
any, to the Managing Member.
B. Upon the incurrence of Refinancing Debt, the Managing Member
shall cause the Company to (i) reinvest the Refinancing Debt Proceeds to the
extent the Managing Member elects to do so and in the amount determined by the
Managing Member to be appropriate (and to hold the Refinancing Debt Proceeds in
an interest bearing account pending such reinvestment) and (ii) if the Managing
Member elects to distribute all or any portion of the Refinancing Debt Proceeds,
distribute such portion of the Refinancing Debt Proceeds, to the extent thereof,
as follows:
(1) First, to the holders of the Non-Managing Member Units in
accordance with their Preferred Return Shortfalls until the Preferred
Return Shortfall for each holder of Non-Managing Member Units is zero and
then to the Managing Member to the extent of its Managing Member Shortfall;
(2) Second, the remaining balance of the Refinancing Debt
Proceeds, if any, to the Managing Member.
C. The Managing Member shall have no obligation to incur Refinancing
Debt for the purpose of making distributions pursuant to this Section 5.6 or for
any other purpose, except as provided in Section 7.3.E(3) and Section 7.3.E(4).
ARTICLE 6.
ALLOCATIONS
Section 6.1. Timing and Amount of Allocations of Net Income and Net
Loss
Net Income and Net Loss of the Company shall be determined and
allocated with respect to each Fiscal Year of the Company as of the end of each
such year. Except as otherwise provided in this Article 6, an allocation to a
Member of a share of Net Income or Net Loss shall be treated as an allocation of
the same share of each item of income, gain, loss or deduction (collectively
"Tax Items") that is taken into account in computing Net Income or Net Loss.
Section 6.2. General Allocations
A. Operating Net Income, Depreciation, and Net Loss. Except as
otherwise provided in Sections 6.2.B, 6.2.C or 6.3:
(1) Net Loss with respect to any Fiscal Year of the Company,
other than Net Loss attributable to a disposition of any or all of the Real
Properties, and other than Net Loss attributable to a Liquidating Event,
shall be allocated to the Members and Assignees in proportion to their
Sharing Percentages.
(2) Net Income with respect to any Fiscal Year of the Company,
other than Net Income attributable to a disposition of any or all of the
Real Properties, and other than Net Income attributable to a Liquidating
Event, shall be allocated as follows:
(a) First, to each Member or Assignee in proportion to, and
to the extent of, the amount that cumulative Net Loss previously
allocated to such Member or Assignee pursuant to Section 6.2.A(1)
exceeds the cumulative amount of Net Income previously allocated to
such Member or Assignee pursuant to this Section 6.2.A(2)(a); and
(b) Thereafter, to each Member or Assignee in an amount
that will cause such allocation, together with the amount of all
previous allocations of Net Income under this Section 6.2.A(2)(b) and
Section 6.2.B(2)(b), to be pro rata to the cumulative distributions
received by such Member or Assignee pursuant to Sections 5.1.A,
5.6.A(1) and 5.6.B(1) for the current and all prior Fiscal Years.
B. Net Income and Net Loss from the Disposition of Real Properties.
Except as otherwise provided in Sections 6.2.C or 6.3:
(1) Net Loss attributable to a disposition of any or all of the Real
Properties shall be allocated to the Members and Assignees in proportion to
their Sharing Percentages.
(2) Net Income attributable to a disposition of any or all of the
Real Properties shall be allocated as follows:
(a) First, to each Member or Assignee in proportion to, and to
the extent of, the amount that cumulative Net Loss previously allocated to
such Member or Assignee pursuant to Section 6.2.B(1) exceeds the cumulative
amount of Net Income previously allocated to such Member or Assignee
pursuant to this Section 6.2.B(2)(a);
(b) Second, to each Member or Assignee in an amount that will
cause such allocation, together with the amount of all previous allocations
of Net Income under this Section 6.2.B(2)(b) and Section 6.2.A(2)(b) to be
pro rata to the cumulative distributions received by such Member or
Assignee pursuant to Sections 5.1.A, 5.6.A(1) and 5.6.B(1) for the current
and all prior Fiscal Years; and
(c) Thereafter, to each Member or Assignee pro rata to such
Member's or Assignee's Percentage Interest.
C. Net Income and Net Loss Upon Liquidation. If a Liquidating Event
occurs in a Fiscal Year, or if the number of LLC Units held by the Non-Managing
Members have been reduced (pursuant to Section 8.6.D or otherwise) to zero, Net
Income or Net Loss (or, if necessary, separate items of income, gain, loss and
deduction) for such Fiscal Year and any Fiscal Years thereafter shall, subject
to Section 6.3, be allocated among the Members, as follows:
(1) First, to holders of Non-Managing Member Units, pro rata to
their Percentage Interests, in such amounts as will cause, to the greatest
extent possible, each such holder's Capital Account per Non-Managing Member
Unit (if any) to be equal to the sum of (a) such holder's Preferred Return
Shortfall per unit, (b) the product of (i) the Value of a REIT Share (with
the date of the liquidating distribution being the Valuation Date), and
(ii) the Adjustment Factor (with the product set forth in (b) being equal
to zero if the number of outstanding Non-Managing Member Units has been
reduced (pursuant to Section 8.6.D, or otherwise) to zero), and (c) an
amount equal to (x) the NMM Sharing Amount, calculated as if all of the
Real Properties then owned by the Company were sold in a taxable
transaction at their fair market values, divided by (y) the total number of
Non-Managing Member Units then outstanding; and
(2) Thereafter, to the Managing Member.
Section 6.3. Additional Allocation Provisions
A. Regulatory Allocations.
(1) Minimum Gain Chargeback.
Except as otherwise provided in Regulations Section 1.704-2(f),
notwithstanding the provisions of Section 6.2 hereof, or any other provision of
this Article 6, if there is a net decrease in Company Minimum Gain during any
Fiscal Year, each Member shall be specially allocated items of Company income
and gain for such year (and, if necessary, subsequent years) in an amount equal
to such Member's share of the net decrease in Company Minimum Gain, as
determined under Regulations Section 1.704-2(g). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each Member pursuant thereto. The items to be allocated
shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and
1.704-2(j)(2). This Section 6.3.A(1) is intended to qualify as a "minimum gain
chargeback" within the meaning of Regulations Section 1.704-2(f) and shall be
interpreted consistently therewith.
(2) Member Minimum Gain Chargeback.
Except as otherwise provided in Regulations Section 1.704-2(i)(4) or
in Section 6.3.A(1) hereof, if there is a net decrease in Member Minimum Gain
attributable to a Member Nonrecourse Debt during any Fiscal Year, each Member
who has a share of the Member Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Regulations Section 1.704-
2(i)(5), shall be specially allocated items of Company income and gain for such
year (and, if necessary, subsequent years) in an amount equal to such Member's
share of the net decrease in Member Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Regulations Section 1.704-
2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in
accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This
Section 6.3.A(2) is intended to qualify as a "chargeback of partner nonrecourse
debt minimum gain" within the meaning of Regulations Section 1.704-2(i) and
shall be interpreted consistently therewith.
(3) Member Nonrecourse Deductions.
Any Member Nonrecourse Deductions for any Fiscal Year shall be
specially allocated to the Member(s) who bears the economic risk of loss with
respect to the Member Nonrecourse Debt to which such Member Nonrecourse
Deductions are attributable, in accordance with Regulations Section 1.704-2(i).
(4) Qualified Income Offset.
If any Member unexpectedly receives an adjustment, allocation or
distribution described in Regulations Section 1.704-1(b) (2)(ii)(d)(4), (5) or
(6), items of Company income and gain shall be allocated, in accordance with
Regulations Section 1.704-1(b) (2)(ii)(d), to such Member in an amount and
manner sufficient to eliminate, to the extent required by such Regulations, the
Adjusted Capital Account Deficit of such Member as quickly as possible, provided
that an allocation pursuant to this Section 6.3.A(4) shall be made if and only
to the extent that such Member would have an Adjusted Capital Account Deficit
after all other allocations provided in this Article 6 have been tentatively
made as if this Section 6.3.A(4) were not in the Agreement. It is intended that
this Section 6.3.A(4) qualify and be construed as a "qualified income offset"
within the meaning of Regulations Section 1.704-1(b) (2)(ii)(d) and shall be
interpreted consistently therewith.
(5) Limitation on Allocation of Net Loss.
To the extent that any allocation of Net Loss would cause or increase
an Adjusted Capital Account Deficit as to any Member, such allocation of Net
Loss shall be reallocated among the other Members in accordance with their
respective LLC Units, subject to the limitations of this Section 6.3.A(5).
(6) Section 754 Adjustment.
To the extent that an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Section 734(b) or Code Section 743(b) is
required, pursuant to Regulations Section 1.704-1(b) (2)(iv)(m)(2) or
Regulations Section 1.704-1(b) (2)(iv)(m)(4), to be taken into account in
determining Capital Accounts as the result of a distribution to a Member in
complete liquidation of its interest in the Company, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such gain or loss shall be specially allocated to the
Members in accordance with their LLC Units in the event that Regulations Section
1.704-1(b) (2)(iv)(m)(2) applies, or to the Members to whom such distribution
was made in the event that Regulations Section 1.704-1(b) (2)(iv)(m)(4) applies.
(7) Curative Allocations.
The allocations set forth in Sections 6.3.A(1) through (6) hereof (the
"Regulatory Allocations") are intended to comply with certain regulatory
requirements, including the requirements of Regulations Sections 1.704-1(b) and
1.704-2. Notwithstanding the provisions of Sections 6.1 and 6.2 hereof, the
Regulatory Allocations shall be taken into account in allocating other items of
income, gain, loss and deduction among the Members so that, to the extent
possible without violating the requirements giving rise to the Regulatory
Allocations, the net amount of such allocations of other items and the
Regulatory Allocations to each Member shall be equal to the net amount that
would have been allocated to each such Member if the Regulatory Allocations had
not occurred.
B. Allocation of Excess Nonrecourse Liabilities.
For purposes of determining a Member's proportional share of the
"excess nonrecourse liabilities" of the Company within the meaning of
Regulations Section 1.752-3(a)(3), each Member's interest in Company profits
shall be such Member's Percentage Interest.
Section 6.4. Tax Allocations
A. In General.
Except as otherwise provided in this Section 6.4, for income tax
purposes under the Code and the Regulations each of the Company's Tax Items
shall be allocated among the Members in the same manner as its correlative item
of "book" income, gain, loss or deduction is allocated pursuant to Sections 6.2
and 6.3 hereof.
B. Allocations Respecting Section 704(c) Revaluations.
Notwithstanding Section 6.4.A hereof, Tax Items with respect to
Property that is contributed to the Company with a Gross Asset Value that varies
from its basis in the hands of the contributing Member immediately preceding the
date of contribution shall be allocated among the Members for income tax
purposes pursuant to the "traditional method" as described in Regulations
Section 1.704-3(b). In the event that the Gross Asset Value of any Company
asset is adjusted pursuant to subsection (b) of the definition of "Gross Asset
Value" (provided in Article 1 hereof), subsequent allocations of Tax Items with
respect to such asset shall take account of the variation, if any, between the
adjusted basis of such asset and its Gross Asset Value in the same manner as
under Code Section 704(c) and the applicable Regulations and this
Section 6.4.B., pursuant to any method permitted under Regulations Section 1.704
- -3 as selected by the Managing Member
Section 6.5. Other Provisions
A. Other Allocations.
In the event that (i) any modifications are made to the Code or any
Regulations, (ii) any changes occur in any case law applying or interpreting the
Code or any Regulations, (iii) the IRS changes or clarifies the manner in which
it applies or interprets the Code or any Regulations or any case law applying or
interpreting the Code or any Regulations or (iv) the IRS adjusts the reporting
of any of the transactions contemplated by this Agreement which, in each case,
in the opinion of an independent tax counsel, either (a) requires allocations of
items of income, gain, loss, deduction or credit or (b) requires reporting of
any of the transactions contemplated by this Agreement in a manner different
from that set forth in this Article 6, the Managing Member is hereby authorized
to make new allocations or report any such transactions (as the case may be) in
reliance of the foregoing, and such new allocations and reporting shall be
deemed to be made pursuant to the fiduciary duty of the Managing Member to the
Company and the other Members, and no such new allocation or reporting shall
give rise to any claim or cause of action by any Member.
B. Consistent Tax Reporting.
The Members acknowledge and are aware of the income tax consequences
of the allocations made by this Article 6 and hereby agree to be bound by the
provisions of this Article 6 in reporting their shares of Net Income, Net Loss
and other items of income, gain, loss, deduction and credit for federal, state
and local income tax purposes.
Section 6.6. Amendments to Allocation to Reflect Issuance of
Additional Membership Interests
In the event that the Company issues additional Membership Interests
to the Managing or any Additional Member pursuant to Article 4 hereof, the
Managing Member shall make such revisions to this Article 6 as it determines are
necessary to reflect the terms of the issuance of such additional Membership
Interests, including making preferential allocations to certain classes of
Membership Interests.
ARTICLE 7.
MANAGEMENT AND OPERATION OF BUSINESS
Section 7.1. Management
A. Except as otherwise expressly provided in this Agreement, the
Managing Member, in its capacity as a Member of the Company under the Act, shall
have sole and complete charge and management over the business and affairs of
the Company, in all respects and in all matters. The Managing Member shall at
all times act in good faith in exercising its powers hereunder. The Managing
Member shall be an agent of the Company's business, and the actions of the
Managing Member taken in such capacity and in accordance with this Agreement
shall bind the Company. The Managing Member shall at all times be a Member of
the Company. Except as otherwise expressly provided in this Agreement or
required by any non-waivable provisions of applicable law, the Non-Managing
Members shall not participate in the control of the Company, shall have no
right, power or authority to act for or on behalf of, or otherwise bind, the
Company and shall have no right to vote on or consent to any other matter, act,
decision or document involving the Company or its business. The Managing Member
may not be removed by the Members with or without cause, except with the consent
of the Managing Member. In addition to the powers now or hereafter granted a
manager of a limited liability company under applicable law or that are granted
to the Managing Member under any other provision of this Agreement, the Managing
Member, subject to the other provisions hereof including the limitations on the
authority of the Managing Member set forth in Section 7.3, shall have full power
and authority to do all things deemed necessary or desirable by it to conduct
the business of the Company, to exercise all powers set forth in Section 3.2
hereof and to effectuate the purposes set forth in Section 3.1 hereof,
including, without limitation:
(1) except as restricted pursuant to Section 7.3.E, the making
of any expenditures, the lending or borrowing of money (including, without
limitation, making prepayments on loans and borrowing money to permit the
Company to make distributions to its Members in such amounts as will permit
the Managing Member (so long as the Managing Member qualifies as a REIT) to
avoid the payment of any federal income tax (including, for this purpose,
any excise tax pursuant to Code Section 4981) and to make distributions to
its stockholders sufficient to permit the Managing Member to maintain REIT
status or otherwise to satisfy the REIT Requirements), the assumption or
guarantee of, or other contracting for, indebtedness and other liabilities,
the issuance of evidences of indebtedness (including the securing of same
by deed to secure debt, mortgage, deed of trust or other lien or
encumbrance on the Company's assets) and the incurring of any obligations
that it deems necessary for the conduct of the activities of the Company;
(2) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or other agencies
having jurisdiction over the business or assets of the Company;
(3) except as restricted pursuant to Section 7.3.E(2) hereof,
the acquisition, sale, transfer, exchange or other disposition of any
assets of the Company (including, but not limited to, the exercise or grant
of any conversion, option, privilege or subscription right or any other
right available in connection with any assets at any time held by the
Company);
(4) except as restricted in this Agreement, the mortgage,
pledge, encumbrance or hypothecation of any assets of the Company
(including, without limitation, any Contributed Property), the use of the
assets of the Company (including, without limitation, cash on hand) for any
purpose consistent with the terms of this Agreement which the Managing
Member believes will directly benefit the Company and on any terms that the
Managing Member sees fit, including, without limitation, the financing of
the conduct or the operations of the Company, the lending of funds to other
Persons (including, without limitation, the Managing Member (if necessary
to permit the financing or capitalization of a subsidiary of the Managing
Member or the Company)) and the repayment of obligations of the Company;
(5) the management, operation, leasing, landscaping, repair,
alteration, demolition, replacement or improvement of any Property,
including, without limitation, any Contributed Property, or other asset of
the Company or any Subsidiary, subject to any management agreements to
which the Company is a party;
(6) the negotiation, execution and performance of any contracts,
leases, conveyances or other instruments that the Managing Member considers
useful or necessary to the conduct of the Company's operations or the
implementation of the Managing Member's powers under this Agreement,
including, without limitation, (i) contracting with property managers
(including, without limitation, as to any Contributed Property or other
Property, contracting with the contributing or any other Member or its
Affiliates for property management services), contractors, developers,
consultants, accountants, legal counsel, other professional advisors and
other agents and the payment of their expenses and compensation out of the
Company's assets, and (ii) the execution, delivery and performance of the
Contribution Agreement and the agreements and instruments referred to
therein or contemplated thereby, including the Management Agreement (as
defined in the Contribution Agreement) and the Loan Assumption Documents;
(7) the distribution of Company cash or other Company assets in
accordance with this Agreement, the holding, management, investment and
reinvestment of cash and other assets of the Company, and the collection
and receipt of revenues, rents and income of the Company;
(8) the selection and dismissal of employees of the Company or
the Managing Member (including, without limitation, employees having titles
or offices such as "president," "vice president," "secretary" and
"treasurer"), and agents, outside attorneys, accountants, consultants and
contractors of the Company or the Managing Member and the determination of
their compensation and other terms of employment or hiring;
(9) the maintenance of such insurance including (i) liability
insurance for the Indemnitees hereunder and (ii) casualty, liability,
earthquake and other insurance on the Properties of the Company for the
benefit of the Company and the Members comparable in coverage to that
maintained by the Managing Member with respect to the properties it owns
and otherwise as it deems necessary or appropriate;
(10) the control of any matters affecting the rights and
obligations of the Company, including the settlement, compromise,
submission to arbitration or any other form of dispute resolution, or
abandonment, of any claim, cause of action, liability, debt or damages, due
or owing to or from the Company, the commencement or defense of suits,
legal proceedings, administrative proceedings, arbitrations or other forms
of dispute resolution, and the representation of the Company in all suits
or legal proceedings, administrative proceedings, arbitrations or other
forms of dispute resolution, the incurring of legal expense, and the
indemnification of any Person against liabilities and contingencies to the
extent permitted by law;
(11) the determination of the fair market value of any Company
property distributed in kind using such reasonable method of valuation as
it may adopt; provided that such methods are otherwise consistent with the
requirements of this Agreement;
(12) the enforcement of any rights against any Member pursuant to
representations, warranties, covenants and indemnities relating to such
Member's contribution of property or assets to the Company;
(13) holding, managing, investing and reinvesting cash and other
assets of the Company;
(14) the collection and receipt of revenues and income of the
Company;
(15) the exercise, directly or indirectly, through any attorney-
in-fact acting under a general or limited power of attorney, of any right,
including the right to vote, appurtenant to any asset or investment held by
the Company;
(16) the exercise of any of the powers of the Managing Member
enumerated in this Agreement on behalf of or in connection with any
Subsidiary of the Company or any other Person in which the Company has a
direct or indirect interest, or jointly with any such Subsidiary or other
Person;
(17) the exercise of any of the powers of the Managing Member
enumerated in this Agreement on behalf of any Person in which the Company
does not have an interest pursuant to contractual or other arrangements
with such Person;
(18) the maintenance of working capital and other reserves in
such amounts as the Managing Member deems appropriate and reasonable from
time to time;
(19) the making, execution and delivery of any and all deeds,
leases, notes, deeds to secure debt, mortgages, deeds of trust, security
agreements, conveyances, contracts, guarantees, warranties, indemnities,
waivers, releases or legal instruments or agreements in writing necessary
or appropriate in the judgment of the Managing Member for the
accomplishment of any of the powers of the Managing Member enumerated in
this Agreement;
(20) the distribution of cash to acquire LLC Units held by a
Member in connection with a Member's exercise of its Exchange Right under
Section 8.6 hereof; and
(21) the amendment and restatement of Exhibit A hereto to reflect
accurately at all times the Capital Accounts, LLC Units, and Percentage
Interests of the Members as the same are adjusted from time to time to the
extent necessary to reflect redemptions, Capital Contributions, the
issuance of or reduction in the number of LLC Units, the admission of any
Substituted Member or otherwise, as long as the matter or event being
reflected in Exhibit A hereto otherwise is authorized by this Agreement.
B. Each of the Non-Managing Members agrees that, except as provided
in Section 7.3 hereof, the Managing Member is authorized to execute, deliver and
perform the above-mentioned agreements and transactions on behalf of the Company
without any further act, approval or vote of the Non-Managing Members,
notwithstanding any other provision of this Agreement (except as provided in
Section 7.3 hereof), the Act or any applicable law, rule or regulation. The
execution, delivery or performance by the Managing Member or the Company of any
agreement authorized or permitted under this Agreement shall not constitute a
breach by the Managing Member of any duty that the Managing Member may owe the
Company or the Members or any other Persons under this Agreement or of any duty
stated or implied by law or equity.
C. At all times from and after the date hereof, the Managing Member
may cause the Company to establish and maintain working capital reserves in such
amounts as the Managing Member, in its sole and absolute discretion, deems
appropriate and reasonable from time to time.
D. Except as otherwise expressly provided in this Agreement, in
exercising its permitted authority under this Agreement, the Managing Member
may, but shall be under no obligation to, take into account the tax consequences
to any Member (including the Managing Member) of any action taken by it. The
Managing Member and the Company shall not have liability to a Member under any
circumstances as a result of an income tax liability incurred by such Member as
a result of an action (or inaction) by the Managing Member pursuant to its
authority under this Agreement so long as the action or inaction is taken in
good faith.
Section 7.2. Certificate of Formation
To the extent that such action is determined by the Managing Member to
be reasonable and necessary or appropriate, the Managing Member shall file
amendments to and restatements of the Certificate and do all the things to
maintain the Company as a limited liability company under the laws of the State
of Delaware and each other state, the District of Columbia or any other
jurisdiction in which the Company may elect to do business or own property.
Subject to the terms of Section 8.5.A(4) hereof, the Managing Member shall not
be required, before or after filing, to deliver or mail a copy of the
Certificate or any amendment thereto to any Member. The Managing Member shall
use all reasonable efforts to cause to be filed such other certificates or
documents as may be commercially reasonable and necessary or appropriate for the
formation, continuation, qualification and operation of a limited liability
company in the State of Delaware and any other state, or the District of
Columbia or other jurisdiction in which the Company may elect to do business or
own property.
Section 7.3. Restrictions on Managing Member's Authority
A. The Managing Member may not take any action in contravention of
an express prohibition or limitation of this Agreement, including, without
limitation:
(1) take any action that would make it impossible to carry on
the ordinary business of the Company, except as otherwise provided in this
Agreement;
(2) possess Company property, or assign any rights in specific
Company property, for other than a Company purpose except as otherwise
provided in this Agreement;
(3) perform any act that would subject a Member to liability as
a Managing Member in any jurisdiction or any other liability except as
provided herein or under the Act; or
(4) enter into any contract, mortgage, loan or other agreement
that expressly prohibits or restricts, or has the effect of prohibiting or
restricting, the ability of (a) the Managing Member or the Company from
satisfying its obligations under Section 8.6 hereof in full, (b) a Member
from exercising its rights to an Exchange in full, or (c) the Company to
make distributions of Available Cash as required by Article 5 hereof,
except, in any such case, with the written consent of any Member affected
by the prohibition or restriction.
B. The Managing Member shall not, without the prior Consent of the
Non-Managing Members undertake or have the authority to do or undertake, on
behalf of the Company, any of the following actions or enter into any
transaction which would have the effect of such transactions:
(1) except as provided in Section 7.3.C and except in connection
with a dissolution or termination of the Company permitted by Section
7.3.E, amend, modify or terminate this Agreement other than to reflect the
admission, substitution, termination or withdrawal of Members pursuant to
Article 11 or Article 12 hereof;
(2) approve or acquiesce to the Transfer of the Membership
Interest of the Managing Member to any Person other than the Company;
(3) admit into the Company any Additional Managing Member or
Substitute Managing Member;
(4) make a general assignment for the benefit of creditors or
appoint or acquiesce in the appointment of a Custodian for all or any part
of the assets of the Company;
(5) institute any proceeding for bankruptcy on behalf of the
Company;
(6) confess a judgment against the Company in an amount in
excess of $5,000,000; or
(7) act on behalf of the Company in the Company's capacity as
the non-managing member of HCPI/Davis North I, LLC; provided, however, that
the Managing Member shall be authorized to (i) appoint a new managing
member of HCPI/Davis North I, LLC upon the Incapacity of the managing
member of HCPI/Davis North I, LLC, (ii) cause HCPI/Davis North I, LLC to be
merged into HCPI Utah, Inc. as set forth in Section 13.2 of the Subsidiary
Operating Agreement, and (iii) cause the Company to make Capital
Contributions to HCPI/Davis I, LLC in accordance with the Subsidiary
Operating Agreement without first obtaining the Consent of the Non-Managing
Members.
C. Notwithstanding Section 7.3.B, the Managing Member shall have the
exclusive power to amend this Agreement as may be required to facilitate or
implement any of the following purposes:
(1) to reflect the issuance of additional Membership Interests
pursuant to Section 4.4, to reflect the admission, substitution,
termination, or withdrawal of Members in accordance with this Agreement and
to amend Exhibit A in connection therewith and to reflect the redemption or
other reduction in the number of LLC Units outstanding pursuant to Section
5.6 hereof and as otherwise permitted by this Agreement;
(2) to reflect a change that is of an inconsequential nature and
does not adversely affect the Non-Managing Members in any material respect,
or to cure any ambiguity, correct or supplement any provision in this
Agreement not inconsistent with law or with other provisions, or make other
changes with respect to matters arising under this Agreement that will not
be inconsistent with law or with the provisions of this Agreement;
(3) to satisfy any requirements, conditions, or guidelines
contained in any order, directive, opinion, ruling or regulation of a
federal or state agency or contained in federal or state law;
(4) to reflect such changes as are reasonably necessary for the
Managing Member to maintain its status as a REIT or to satisfy the REIT
Requirements; and
(5) to modify, as set forth in the definition of "Capital
Account," the manner in which Capital Accounts are computed.
D. Notwithstanding Section 7.3.B and 7.3.C hereof, this Agreement
shall not be amended with respect to any Member adversely affected, and no
action may be taken by the Managing Member, without the Consent of such Member
adversely affected if such amendment or action would (i) convert a Non-Managing
Member's interest in the Company into a Managing Member's interest, (ii) modify
the limited liability of a Non-Managing Member, (iii) alter rights of the Member
to receive distributions pursuant to Article 5 or Section 13.3.A(4), or the
allocations specified in Article 6 (except as permitted pursuant to Section 4.4
and Section 7.3.C(1) hereof), (iv) materially alter or modify the rights to an
Exchange as set forth in Section 8.6, and related definitions hereof or (v)
amend this Section 7.3.D. Further, no amendment may alter the restrictions on
the Managing Member's authority set forth elsewhere in this Section 7.3 without
the Consent specified in such section. Any such amendment or action consented
to by any Member shall be effective as to that Member, notwithstanding the
absence of such consent by any other Member.
E. Except as otherwise permitted by Section 11.2, the Managing
Member shall not, on behalf of the Company, take any of the following actions
during the Tax Protection Period without the prior Consent of the Non-Managing
Members:
(1) cause or permit the Company (i) to merge, consolidate or
combine with or into any other partnership, limited partnership, limited
liability company, corporation or other person, (ii) to sell or otherwise
dispose of all or substantially all of its assets or (iii) to reclassify or
change its outstanding equity interests;
(2) sell, dispose, convey or otherwise transfer any of the real
properties the Company acquired in connection with the transactions
consummated pursuant to the Contribution Agreement (collectively, the "Real
Properties") or any Successor Properties, in a transaction that causes
holders of Non-Managing Member Units to recognize taxable income under the
Code on account of a Built-in Gain, other than a casualty loss, taking by
eminent domain or pursuant to the exercise of a purchase option granted to
a Person pursuant to any document or instrument executed pursuant to the
Contribution Agreement; provided that the Company shall use commercially
reasonable efforts to apply the proceeds of any such casualty or taking to
the restoration or replacement of such Real Properties or Successor
Properties in a transaction qualifying under Code Section 1033; or
(3) (A) replace or refinance any nonrecourse indebtedness set
forth on Schedule 7.3 encumbering the Real Properties ("Existing
Indebtedness"), unless such indebtedness is replaced or refinanced with
other indebtedness satisfying the requirements set forth below
("Replacement Indebtedness"), (B) prepay the Existing Indebtedness or any
Replacement Indebtedness, including Replacement Indebtedness assumed or
taken subject to in a transaction qualifying under Code Section 1031, and
(C) convert the Existing Indebtedness or Replacement Indebtedness from
nonrecourse indebtedness to recourse indebtedness; provided, however, the
above limitations shall not prevent (i) regularly scheduled periodic
principal payments on Existing Indebtedness or Replacement Indebtedness
(including full payment at maturity) and (ii) the replacement, prepayment,
or refinancing of the Existing Indebtedness or any Replacement
Indebtedness, provided such replacement, prepayment, or refinancing shall
be made with Replacement Indebtedness. Any Replacement Indebtedness shall
(x) be nonrecourse, (y) not require principal repayments during such period
that are greater than the payments required on the Existing Indebtedness
replaced by such debt during such period, and (z) be secured solely by the
Real Property or Properties which secure the Existing Indebtedness or the
Replacement Indebtedness that is being refinanced. The determination of
whether indebtedness is recourse or nonrecourse shall be determined under
Code Section 752.
(4) The Non-Managing Members shall have the option from time to
time during the Tax Protection Period to guarantee debt of the Company (or
enter into a reimbursement agreement with respect to debt of the Company)
in an amount up to the Recourse Debt Amount. If a Non-Managing Member
elects to guarantee debt as described in this Section 7.3.E(4), the
Company, the Managing Member, and such Non-Managing Member agree to enter
into a reimbursement agreement in the form attached hereto as Exhibit C.
The Company shall be required to ensure that there is a sufficient level of
debt available to all Non-Managing Members for such guarantees, but not
greater in the aggregate, than the Recourse Debt Amount. The Company may
incur or repay such indebtedness from time to time as it so chooses;
provided, however, if the Company intends to repay, in whole or in part, or
to substitute other debt for, indebtedness of the Company that one or more
Non-Managing Members has guaranteed (or with respect to which one or more
Non-Managing Members has entered into a reimbursement agreement) in
accordance with this Section 7.3.E(4), the Company shall provide notice to
the Non-Managing Member Representative prior to such repayment or
substitution and such additional information as the Non-Managing Member
Representative shall reasonably request to permit such Non-Managing
Member(s) to decide whether or not to enter into different and/or
additional guarantees or reimbursement agreements (as the case may be).
The notice described in the immediately preceding sentence shall be deemed
to have been satisfied so long as the Company provides notice to the Non-
Managing Member Representative at least fifteen (15) calendar days prior to
any such repayment or substitution of indebtedness.
In the event that the prior Consent of the Non-Managing Members is not
required for the Managing Member, on behalf of the Company, to take or engage in
any of the actions described in the foregoing subparagraphs (1) and (2), the
Managing Member may take such action only after providing the Non-Managing
Members with not less than 30 days notice of its intention to do so.
F. Except as otherwise permitted by Section 11.2, the Managing
Member shall not, on behalf of the Company, take any action to dissolve or
otherwise terminate the Company during the Dissolution Protection Period. In
the event the Managing Member intends to dissolve or otherwise terminate the
Company following the Dissolution Protection Period, it shall give not less than
thirty (30) days notice to that effect to the Non-Managing Member prior to
taking such action. In the event the Managing Member provides the Non-Managing
Members notice of its intent to dissolve or otherwise terminate the Company
after June 30th of any year, the closing of the termination or dissolution shall
not occur prior to January 1 of the subsequent year.
Section 7.4. Compensation of the Managing Member
A. The Managing Member shall not be compensated for its services as
the manager of the Company. Distributions, payments and allocations to which
the Managing Member may be entitled in its capacity as the Managing Member shall
not constitute compensation for services rendered by the Managing Member as
provided in this Agreement (including the provisions of Articles 5 and 6
hereof).
B. Subject to Sections 7.4.C and 15.12 hereof, the Company shall be
liable, and shall reimburse the Managing Member on a monthly basis (or such
other basis as the Managing Member may determine in its sole and absolute
discretion), for all sums expended in connection with the Company's business.
Any such reimbursements shall be in addition to any reimbursement of the
Managing Member as a result of indemnification pursuant to Section 7.7 hereof.
C. To the extent practicable, Company expenses shall be billed
directly to and paid by the Company. Subject to Section 15.12 hereof,
reimbursements to the Managing Member or any of its Affiliates by the Company
shall be allowed, however, for the actual cost to the Managing Member or any of
its Affiliates of operating and other expenses of the Company, including,
without limitation, the actual cost of goods, materials and administrative
services related to (i) Company operations, (ii) company accounting, (iii)
communications with Members, (iv) legal services, (v) tax services, (vi)
computer services, (vii) risk management, (viii) mileage and travel expenses and
(ix) such other related operational and administrative expenses as are necessary
for the prudent organization and operation of the Company. "Actual cost of
goods and materials" means the actual cost to the Managing Member or any of its
Affiliates of goods and materials used for or by the Company obtained from
entities not affiliated with the Managing Member, and "actual cost of
administrative services" means the pro rata cost of personnel (as if such
persons were employees to the Company) providing administrative services to the
Company. The cost for such services to be reimbursed to the Managing Member or
any Affiliate thereof shall be the lesser of the Managing Member's or
Affiliate's actual cost, or the amount the Company would be required to pay to
independent parties for comparable administrative services in the same
geographic location.
D. The Managing Member shall also be reimbursed for all expenses it
incurs relating to any issuance of additional Membership Interests, Debt of the
Company, or rights, options, warrants or convertible or exchangeable securities
of the Company pursuant to Article VIII hereof (including, without limitation,
all costs, expenses, damages and other payments resulting from or arising in
connection with litigation related to any of the foregoing), all of such
expenses are considered by the Members to constitute expenses of, and for the
benefit of, the Company.
To the extent that reimbursements to the Managing Member or any of its
Affiliates by the Company pursuant to this Section 7.4 would constitute gross
income to the Managing Member for purposes of Code Section 856(c)(2) or
856(c)(3), then such amounts shall be treated as "guaranteed payments" within
the meaning of Code Section 707(c).
Section 7.5. Other Business of Managing Member
The Managing Member shall devote to the Company such time as may be
necessary for the performance of its duties as Managing Member, but the Managing
Member is not required, and is not expected, to devote its full time to the
performance of such duties. The Managing Member may engage independently or
with others in other business ventures of every nature and description,
including, without limitation, the ownership of other properties and the making
or management of other investments. Nothing in this Agreement shall be deemed
to prohibit the Managing Member or any Affiliate of the Managing Member from
dealing, or otherwise engaging in business with, Persons transacting business
with the Company, or from providing services related to the purchase, sale,
financing, management, development or operation of real or personal property and
receiving compensation therefor, not involving any rebate or reciprocal
arrangement that would have the effect of circumventing any restriction set
forth herein upon dealings with the Managing Member or any Affiliate of the
Managing Member. Neither the Company nor any Member shall have any right by
virtue of this Agreement or the relationship created hereby in or to such other
ventures or activities or to the income or proceeds derived therefrom, and the
pursuit of such ventures, even if competitive with the business of the Company,
shall not be deemed wrongful or improper.
Section 7.6. Contracts with Affiliates
A. Subject to Section 7.6.B below, the Company may lend or
contribute to Persons in which it has an equity investment, and such Persons may
borrow funds from the Company, on terms and conditions established in the sole
and absolute discretion of the Managing Member. The foregoing authority shall
not create any right or benefit in favor of any Person.
B. The Managing Member or any of its Affiliates, directly or
indirectly, shall be permitted to sell, transfer or convey any property to, or
purchase any property from, or borrow funds from, or lend funds to, the Company
or engage in any other transaction with the Company, but only upon terms
determined by the Managing Member in good faith to be fair and reasonable and
comparable to terms that could be obtained from an unaffiliated party in an
arm's length transaction, except as otherwise expressly permitted by this
Agreement.
Section 7.7. Indemnification
A. To the fullest extent permitted by applicable law, the Company
shall indemnify each Indemnitee from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including, without limitation,
attorney's fees and other legal fees and expenses), judgments, fines,
settlements and other amounts arising from any and all claims, demands, actions,
suits or proceedings, civil, criminal, administrative or investigative, that
relate to the operations of the Company ("Actions") as set forth in this
Agreement in which such Indemnitee may be involved, or is threatened to be
involved, as a party or otherwise unless it is established that: (i) the act or
omission of the Indemnitee was material to the matter giving rise to the
proceeding and either was committed in bad faith or was the result of active and
deliberate dishonesty; (ii) the Indemnitee actually received an improper
personal benefit in money, property or services; or (iii) in the case of any
criminal proceeding, the Indemnitee had reasonable cause to believe that the act
or omission was unlawful. Without limitation the foregoing indemnity shall
extend to any liability of any Indemnitee, pursuant to a loan guaranty or
otherwise, for any indebtedness of the Company or any Subsidiary of the Company
(including, without limitation, any indebtedness which the Company or any
Subsidiary of the Company has assumed or taken subject to), and the Managing
Member is hereby authorized and empowered, on behalf of the Company, to enter
into one or more indemnity agreements consistent with the provisions of this
Section 7.7 in favor of any Indemnitee having or potentially having liability
for any such indebtedness. The termination of any proceeding by judgment, order
or settlement does not create a presumption that the Indemnitee did not meet the
requisite standard of conduct set forth in this Section 7.7.A. The termination
of any proceeding by conviction or upon a plea of nolo contendere or its
equivalent, or an entry of an order of probation prior to judgment, creates a
rebuttable presumption that the Indemnitee acted in a manner contrary to that
specified in this Section 7.7.A with respect to the subject matter of such
proceeding. Any indemnification pursuant to this Section 7.7 shall be made only
out of the assets of the Company, and any insurance proceeds from the liability
policy covering the Managing Member and any Indemnitees, and neither the
Managing Member nor any Non-Managing Member shall have any obligation to
contribute to the capital of the Company or otherwise provide funds to enable
the Company to fund its obligations under this Section 7.7.
B. Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding or otherwise subject to or the focus of or is involved in any Action
shall be paid or reimbursed by the Company as incurred by the Indemnitee in
advance of the final disposition of the Action upon receipt by the Company of
(i) a written affirmation by the Indemnitee of the Indemnitee's good faith
belief that the standard of conduct necessary for indemnification by the Company
as authorized in Section 7.7.A has been met, and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
C. The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Members, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity unless otherwise provided in a written agreement with
such Indemnitee or in the writing pursuant to which such Indemnitee is
indemnified.
D. The Company may, but shall not be obligated to, purchase and
maintain insurance, on behalf of any of the Indemnitees and such other Persons
as the Managing Member shall determine, against any liability that may be
asserted against or expenses that may be incurred by such Person in connection
with the Company's activities, regardless of whether the Company would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.
E. In no event may an Indemnitee subject any of the Members to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
F. An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
G. The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the limitations on the
Company's liability to any Indemnitee under this Section 7.7 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
H. If and to the extent any reimbursements to the Managing Member
pursuant to this Section 7.7 constitute gross income to the Managing Member (as
opposed to the repayment of advances made by the Managing Member on behalf of
the Company) such amounts shall constitute guaranteed payments within the
meaning of Code Section 707(c), shall be treated consistently therewith by the
Company and all Members, and shall not be treated as distributions for purposes
of computing the Members' Capital Accounts.
Section 7.8. Liability of the Managing Member
A. Notwithstanding anything to the contrary set forth in this
Agreement, neither the Managing Member nor any of its directors or officers
shall be liable or accountable in damages or otherwise to the Company, any
Members or any Assignees for losses sustained, liabilities incurred or benefits
not derived as a result of errors in judgment or mistakes of fact or law or of
any act or omission if the Managing Member or such director or officer acted in
good faith.
B. The Non-Managing Members expressly acknowledge that the Managing
Member is acting for the benefit of the Company, the Members and the Managing
Member's shareholders collectively, that the Managing Member is under no
obligation to give priority to the separate interests of the Members or the
Managing Member's shareholders (including, without limitation, the tax
consequences to Members, Assignees or the Managing Member's shareholders) in
deciding whether to cause the Company to take (or decline to take) any actions
and that the Managing Member shall not be liable to the Company or to any Member
for monetary damages for losses sustained, liabilities incurred, or benefits not
derived by Non-Managing Members in connection with such decisions, provided that
the Managing Member has acted in good faith and has not breached its express
covenants set forth in this Agreement.
C. Subject to its obligations and duties as Managing Member set
forth in Section 7.1.A hereof, the Managing Member may exercise any of the
powers granted to it by this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its employees or agents. The
Managing Member shall not be responsible for any misconduct or negligence on the
part of any such agent appointed by it in good faith.
D. Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the Managing Member's, and its officers' and directors',
liability to the Company and the Non-Managing Members under this Section 7.8 as
in effect immediately prior to such amendment, modification or repeal with
respect to claims arising from or relating to matters occurring, in whole or in
part, prior to such amendment, modification or repeal, regardless of when such
claims may arise or be asserted.
Section 7.9. Other Matters Concerning the Managing Member
A. The Managing Member may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other paper
or document believed by it in good faith to be genuine and to have been signed
or presented by the proper party or parties.
B. The Managing Member may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters that the Managing Member reasonably believes to be within
such Person's professional or expert competence shall be conclusively presumed
to have been done or omitted in good faith and in accordance with such opinion.
C. The Managing Member shall have the right, in respect of any of
its powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed attorney or attorneys-in-fact. Each such attorney
shall, to the extent provided by the Managing Member in the power of attorney,
have full power and authority to do and perform all and every act and duty that
is permitted or required to be done by the Managing Member hereunder.
D. Notwithstanding any other provisions of this Agreement or the
Act, any action of the Managing Member on behalf of the Company or any decision
of the Managing Member to refrain from acting on behalf of the Company
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the Managing Member to continue
to qualify as a REIT, (ii) for the Managing Member otherwise to satisfy the REIT
Requirements or (iii) to allow the Managing Member to avoid incurring any
liability for taxes under Section 857 or Section 4981 of the Code, is expressly
authorized under this Agreement and is deemed approved by all of the Non-
Managing Members.
Section 7.10. Title to Company Assets
Title to Company assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Company as an entity,
and no Member, individually or collectively with other Members or Persons, shall
have any ownership interest in such Company assets or any portion thereof. All
Company assets shall be recorded as the property of the Company in its books and
records, irrespective of the name in which legal title to such Company assets is
held.
Section 7.11. Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Company shall be entitled to assume that the Managing Member
has full power and authority, without the consent or approval of any other
Member or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Company and to enter into any contracts on behalf of the Company,
and take any and all actions on behalf of the Company, and such Person shall be
entitled to deal with the Managing Member as if it were the Company's sole party
in interest, both legally and beneficially. Each Non-Managing Member hereby
waives any and all defenses or other remedies that may be available against such
Person to contest, negate or disaffirm any action of the Managing Member in
connection with any such dealing. In no event shall any Person dealing with the
Managing Member or its representatives be obligated to ascertain that the terms
of this Agreement have been complied with or to inquire into the necessity or
expediency of any act or action of the Managing Member or its representatives.
Each and every certificate, document or other instrument executed on behalf of
the Company by the Managing Member or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (i) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Company and (iii)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Company.
ARTICLE 8.
RIGHTS AND OBLIGATIONS OF MEMBERS
Section 8.1. Limitation of Liability
The Non-Managing Members shall have no liability under this Agreement
except as expressly provided in this Agreement or under the Act.
Section 8.2. Managing of Business
No Non-Managing Members or Assignee (other than the Managing Member,
any of its Affiliates or any officer, director, employee, partner, agent or
trustee of the Managing Member, the Company or any of their Affiliates, in their
capacity as such) shall take part in the operations, management or control
(within the meaning of the Act) of the Company's business transact any business
in the Company's name or have the power to sign documents for or otherwise bind
the Company. The transaction of any such business by the Managing Member, any
of its Affiliates or any officer, director, employee, partner, agent or trustee
of the Managing Member, the Company or any of their Affiliates, in their
capacity as such, shall not affect, impair or eliminate the limitations on the
liability of the Non-Managing Members or Assignees under this Agreement.
Section 8.3. Outside Activities of Members
Subject to any agreements entered into by a Member or its Affiliates
with the Managing Member, the Company or a Subsidiary (including, without
limitation, any employment agreement), any Member and any Assignee, officer,
director, employee, agent, trustee, Affiliate or shareholder of any Member shall
be entitled to and may have business interests and engage in business activities
in addition to those relating to the Company, including business interests and
activities that are in direct or indirect competition with the Company or that
are enhanced by the activities of the Company. Neither the Company nor any
Member shall have any rights by virtue of this Agreement in any business
ventures of any Member or Assignee. Subject to such agreements, none of the
Members nor any other Person shall have any rights by virtue of this Agreement
or the relationship established hereby in any business ventures of any other
Person (other than the Managing Member, to the extent expressly provided
herein), and such Person shall have no obligation pursuant to this Agreement,
subject to any agreements entered into by a Member or its Affiliates with the
Managing Member, the Company or a Subsidiary, to offer any interest in any such
business ventures to the Company, any Member or any such other Person, even if
such opportunity is of a character that, if presented to the Company, any Member
or such other Person, could be taken by such Person.
Section 8.4. Return of Capital
Except pursuant to the rights of Exchange set forth in Section 8.6
hereof, no Member shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent of distributions made pursuant to this
Agreement or upon termination of the Company as provided herein. Except to the
extent provided in Article 5, Article 6 and Article 13 hereof or otherwise
expressly provided in this Agreement, no Member or Assignee shall have priority
over any other Member or Assignee either as to the return of Capital
Contributions or as to profits, losses, distributions or credits.
Section 8.5. Rights of Non-Managing Members Relating to the Company
A. In addition to other rights provided by this Agreement or by the
Act, and except as limited by Section 8.5.C hereof, each Non-Managing Member
shall have the right, for a purpose reasonably related to such Non-Managing
Member's Membership Interest in the Company, upon written demand with a
statement of the purpose of such demand and at such Non-Managing Member's own
expense:
(1) to obtain a copy of (i) the most recent annual and quarterly
reports filed with the SEC by the Managing Member pursuant to the Exchange
Act and (ii) each report or other written communication sent to the
shareholders of the Managing Member;
(2) to obtain a copy of the Company's federal, state and local
income tax returns for each Fiscal Year;
(3) to obtain a current list of the name and last known
business, residence or mailing address of each Member;
(4) to obtain a copy of this Agreement and the Certificate and
all amendments thereto, together with executed copies of all powers of
attorney pursuant to which this Agreement, the Certificate and all
amendments thereto have been executed; and
(5) to obtain true and full information regarding the amount of
cash and a description and statement of any other property or services
contributed by each Member, and the date on which each became a Member.
B. The Company shall notify any Non-Managing Member of the then
current Adjustment Factor or any change made to the Adjustment Factor or to the
REIT Shares Amount within 30 days following such change or adjustment.
C. Notwithstanding any other provision of this Section 8.5, the
Managing Member may keep confidential from the Non-Managing Members, for such
period of time as the Managing Member determines in its sole and absolute
discretion to be reasonable, any information that (i) the Managing Member
believes to be in the nature of trade secrets or other information the
disclosure of which the Managing Member in good faith believes is not in the
best interests of the Company or could damage the Company or its business or
(ii) the Company or the Managing Member is required by law or by agreements with
unaffiliated third parties to keep confidential.
Section 8.6. Exchange Rights
A. On or after the First Exchange Date, each Non-Managing Member
shall have the right (subject to the terms and conditions set forth herein) to
require the Managing Member to acquire all or a portion of those Non-Managing
Member Units held by such Non-Managing Member which were issued by the Company
on the Initial Closing Date (the "First Traunch Non-Managing Member Units"), and
on or after the Second Exchange Date, each Non-Managing Member shall have the
right (subject to the terms and conditions set forth herein) to require the
Managing Member to acquire all or a portion of those Non-Managing Member Units
held by such Non-Managing Members which were issued by the Company at any time
after the Initial Closing Date (the "Second Traunch Non-Managing Member Units")
(all such Non-Managing Member Units being hereafter called "Tendered Units") in
exchange (an "Exchange") for, at the election of and in the sole and absolute
discretion of the Managing Member, either the Cash Amount or a number of REIT
Shares equal to the REIT Shares Amount payable on the Specified Exchange Date.
Notwithstanding the foregoing, a third party lender that has acquired a
Membership Interest upon the foreclosure of debt secured by such Membership
Interest in accordance with Section 11.3.A hereof shall have the right to tender
such Non-Managing Member Units for Exchange (subject to the terms and conditions
set forth herein) and require the Managing Member to acquire all of those Non-
Managing Member Units which were acquired by such lender pursuant to such
foreclosure and which were issued by the Company at least one year prior to the
related Specified Exchange Date regardless of whether the Second Exchange Date
will have occurred by the related Specified Exchange Date. Any Exchange shall
be exercised pursuant to a Notice of Exchange delivered to the Managing Member
by the Non-Managing Member exercising the Exchange right (the "Tendering
Party"). On the Specified Exchange Date, the Tendering Party shall sell the
Tendered Units to the Managing Member in exchange for, at the election of and in
the sole and absolute discretion of the Managing Member, either the Cash Amount
or a number of REIT Shares equal to the REIT Shares Amount. Any Tendered Units
so acquired by the Managing Member pursuant to this Section 8.6.A shall be held
by the Managing Member as Non-Managing Member Units with all the rights and
preferences relating thereto as provided in this Agreement. The Tendering Party
shall submit (i) such information, certification or affidavit as the Managing
Member may reasonably require in connection with the Ownership Limit and (ii) in
the event the REIT Shares issuable upon such Exchange are not registered for
resale under the Securities Act, such written representations, investment
letters, legal opinions or other instruments necessary, in the Managing Member's
view, to effect compliance with the Securities Act. If a Cash Amount is to be
delivered upon the Exchange, the Cash Amount shall be delivered as a certified
check payable to the Tendering Party or, in the Managing Member's sole
discretion, in immediately available funds. If REIT Shares are to be delivered
upon the Exchange, the REIT Shares Amount shall be delivered by the Managing
Member as duly authorized, validly issued, fully paid and nonassessable REIT
Shares (and, if applicable, Rights), free of any pledge, lien, encumbrance or
restriction, other than the Ownership Limit, and other restrictions provided in
the Charter or the Bylaws of the Managing Member in the event the REIT Shares
issuable upon such Exchange are not registered for resale under the Securities
Act, the Securities Act and relevant state securities or "blue sky" laws. The
Tendering Party shall be deemed the owner of such REIT Shares and Rights for all
purposes, including, without limitation, rights to vote or consent, receive
dividends, and exercise rights, as of the Specified Exchange Date. REIT Shares
issued upon an acquisition of the Tendered Units by the Managing Member pursuant
to this Section 8.6.A may contain such legends regarding restrictions on
Transfer or ownership to protect the Managing Member's tax status as a REIT and
in the event the REIT Shares issuable upon such Exchange are not registered for
resale under the Securities Act, restrictions under the Securities Act and
applicable state securities laws as the Managing Member in good faith determines
to be necessary or advisable in order to ensure compliance with such laws.
B. Notwithstanding anything herein to the contrary, with respect to
any Exchange pursuant to this Section 8.6:
(1) The consummation of any Exchange shall be subject to the
expiration or termination of the applicable waiting period, if any, under
the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended.
(2) Each Tendering Party shall continue to own all LLC Units
subject to any Exchange, and be treated as a Member with respect to such
LLC Units for all purposes of this Agreement, until such LLC Units are
Transferred to the Managing Member and paid for or exchanged on the
Specified Exchange Date. Until a Specified Exchange Date and an acquisition
of the Tendered Units by the Managing Member pursuant to Section 8.6.A
hereof, the Tendering Party shall have no rights as a shareholder of the
Managing Member with respect to the REIT Shares issuable in connection with
such acquisition.
C. In connection with an exercise of Exchange rights pursuant to
this Section 8.6, the Tendering Party shall submit the following to the Managing
Member, in addition to the Notice of Exchange:
(1) A written affidavit, dated the same date as, and
accompanying, the Notice of Exchange, (a) disclosing the actual and
Constructive Ownership, as determined for purposes of Code Sections
856(a)(6), 856(h), 856(d)(2)(b) and 856(d)(5), of REIT Shares by (i) such
Tendering Party and (ii) any Related Party and (b) representing that, after
giving effect to the Exchange, neither the Tendering Party nor any Related
Party will have actual or Constructive Ownership of a number of REIT Shares
that is in excess of the Ownership Limit;
(2) A written representation that neither the Tendering Party
nor any Related Party has any intention to acquire any additional REIT
Shares prior to the closing of the Exchange on the Specified Exchange Date;
and
(3) An undertaking to certify, at and as a condition to the
closing of the Exchange that either (a) the actual and Constructive
Ownership of REIT Shares by the Tendering Party and any Related Party
remain unchanged from that disclosed in the affidavit required by
Section 8.6.C(1) or (b) after giving effect to the Exchange, neither the
Tendering Party nor any Related Party shall have actual or Constructive
Ownership of a number of REIT Shares that is in violation of the Ownership
Limit.
D. The number of LLC Units outstanding on the date of a distribution
pursuant to Section 5.6.A(2) will be reduced on the date of the distribution
(the "Reduction Date") by the aggregate number of LLC Units (the "Total Units")
determined by dividing (i) the excess, if any, of (a) the aggregate amount of
the distributions so made pursuant to Section 5.6.A(2) over (b) the NMM Sharing
Amount divided by the aggregate of the Non-Managing Members' Percentage
Interests by (ii) the Value on the Reduction Date. The Non-Managing Member
Units shall be reduced (each such reduction a "Reduction") by a number of LLC
Units (rounded down to the nearest whole unit) (the "Reduction Units")
determined by dividing (i) the excess of (a) the aggregate amount of
distributions made on the Reduction Date to Non-Managing Members and Assignees
pursuant to Section 5.6.A(2), over (b) the NMM Sharing Amount by (ii) the Value
on the Reduction Date. The Reduction Units shall be allocated (as closely as
practicable in whole units) among the holders of Non-Managing Member Units in
accordance with their respective holdings of Non-Managing Member Units. The
Managing Member Units shall be reduced by a number of Managing Member Units
equal to the difference between the number of Total Units and the number of
Reduction Units. To reflect the foregoing reduction, each Member shall return
to the Managing Member the certificate evidencing the Reduction Units allocated
to him or it or the Managing Member Units so reduced which will be canceled and
a new certificate evidencing the reduced number of Managing Member Units or Non-
Managing Member Units shall be immediately issued to such Member by the Managing
Member on behalf of the Company. In the event the number of outstanding Non-
Managing Member Units held by a Non-Managing Member or Assignee is reduced
(pursuant to this Section 8.6.D or otherwise) to zero, such Non-Managing Member
or Assignee shall cease to have an interest in the Company (other than the right
to receive final distributions and allocations resulting from the liquidation of
their interest).
Section 8.7. Fiduciary Duties
Pursuant to the terms of a Management Agreement, The Boyer Company,
L.C. has been retained by the Company as manager and non-exclusive leasing agent
for the Transferred Properties and as a result has certain duties and
obligations to the Company in its capacity as manager of the Transferred
Properties, whether specifically provided for in the Management Agreement or
otherwise imposed by law. The Boyer Company, L.C. is not currently a Non-
Managing Member of the Company but may hereafter be admitted as such in
accordance with and subject to the terms hereof. Accordingly, in the event the
Boyer Company, L.C. shall be admitted as a Non-Managing Member of the Company,
it is agreed that no additional or special duties or obligations shall be
imposed upon The Boyer Company, L.C. as a manager merely by virtue of its status
as a Non-Managing Member that would not otherwise be imposed on it as the
manager of the Transferred Properties, provided, however, that nothing set forth
in this Section 8.7 shall be deemed to modify or diminish any fiduciary duties
or obligations that The Boyer Company, L.C. may owe to the Company or its
Members in connection with its status as a Non-Managing Member.
ARTICLE 9.
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1. Records and Accounting
A. The Managing Member shall keep or cause to be kept at the
principal office of the Company those records and documents required to be
maintained by the Act and other books and records deemed by the Managing Member
to be appropriate with respect to the Company's business, including, without
limitation, all books and records necessary to provide to the Members any
information, lists and copies of documents required to be provided pursuant to
Section 9.3 hereof. Any records maintained by or on behalf of the Company in
the regular course of its business may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, micrographics or any other information
storage device, provided that the records so maintained are convertible into
clearly legible written form within a reasonable period of time.
B. The books of the Company shall be maintained, for financial and
tax reporting purposes, on an accrual basis in accordance with GAAP, or on such
other basis as the Managing Member determines to be necessary or appropriate.
To the extent permitted by sound accounting practices and principles, the
Company and the Managing Member may operate with integrated or consolidated
accounting records, operations and principles.
Section 9.2. Fiscal Year
The Fiscal Year of the Company shall be the calendar year.
Section 9.3. Reports
As soon as practicable, but in no event later than 90 days after the
close of each calendar quarter, the Managing Member shall cause to be mailed to
each Member of record as of the last day of the calendar quarter, a copy of the
general ledger of the Company covering the calendar quarter and a copy of the
general ledger of HCPI/Davis North I, LLC.
Section 9.4. Cooperation Regarding Tax Matters Relating to
Contributed Properties
A. In connection with the issuance of Non-Managing Member Units to
any contributor of property to the Company (each, a "Contributor"), including
the issuance of Non-Managing Member Units to the Initial Non-Managing Members
upon the contributions of the Transferred Properties to the Company pursuant to
the Contribution Agreement, each Contributor shall deliver to the Company at or
prior to the effective date of such issuance, at the Contributor's sole cost and
expense, the following information prepared as of the date of such anticipated
contribution.
(1) depreciation and amortization schedules for the assets
constituting the property or properties to be contributed to the Company
(collectively, the "Contributed Properties"), as kept for both book and tax
purposes, showing original basis and accumulated depreciation or
amortization;
(2) basis information (computed for both book and tax purposes,
if different) for all assets that are components of the Contributed
Properties;
(3) the adjusted basis of the Contributor and any constituent
partners or members of the Contributor in their interests in the Company;
and
(4) calculations of the estimated amounts of gain to be realized
and recognized by the Contributor (if any) as a result of the transactions
involving the Contributed Properties in accordance with this Agreement and
showing the method by which such amounts are calculated.
B. The Company is relying on the information provided or to be
provided to it under this Section 9.4 as to the adjusted tax basis of the
Contributed Properties and the relevant depreciation schedules thereto in
determining the amount of Built-in Gain on a going forward basis.
C. Each Contributor shall provide reasonable assistance to the
Company and the Company to enable the Company and the Managing Member to prepare
their tax returns. The Contributor shall deliver to the Company copies of its
final federal, state and local tax returns (including information returns),
including associated Schedules K-1, for the tax year in which the contribution
of the Contributed Properties occurs, including any amendments thereto, and to
notify the Company, in writing, of any audits of such return, or of any audits
for other tax years that could affect the amounts shown on the returns for the
tax year in which the Closing occurs. Copies of such returns shall be provided
to the Company in draft form at least ten (10) days before they are filed, and
in final form upon filing. The Contributor shall also provide to the Company,
promptly upon receipt, any notice that it receives from any of its direct or
indirect constituent partners or members that such partner(s) or member(s)
intends to prepare its tax returns in a manner inconsistent with the returns
filed by the Contributor. The Contributor understands and agrees that the tax
returns filed by the Contributor will be substantially consistent with the
information provided to the Company pursuant to this Section 9.4.
ARTICLE 10.
TAX MATTERS
Section 10.1. Preparation of Tax Returns
The Managing Member shall arrange for the preparation and timely
filing of all returns with respect to Company income, gains, deductions, losses
and other items required of the Company for federal and state income tax
purposes and shall use all commercially reasonable efforts to furnish, within 90
days of the close of each taxable year, the tax information reasonably required
by Members for federal and state income tax reporting purposes.
Section 10.2. Tax Elections
Except as otherwise provided herein, the Managing Member shall, in its
sole and absolute discretion, determine whether to make any available election
pursuant to the Code, including, without limitation, the election under
Section 754 of the Code. The Managing Member shall have the right to seek to
revoke any such election (including, without limitation, any election under Code
Sections 754) upon the Managing Member's determination in its sole and absolute
discretion that such revocation is in the best interests of the Members.
Section 10.3. Tax Matters Partner
A. The Managing Member shall be designated and shall operate as "Tax
Matters Partner" (as defined in Code Section 6231), to oversee or handle matters
relating to the taxation of the Company; provided, however, that the Consent of
the Non-Managing Members shall be required to settle any administrative
proceeding or institute or settle any litigation with respect to tax issues if
such action (i) is reasonably likely to affect materially the Non-Managing
Members, and (ii) does not relate to the Managing Member's tax status as a REIT.
B. Income tax returns of the Company shall be prepared by such
certified public accountant(s) as the Managing Member shall retain at the
expense of the Company.
Section 10.4. Organizational Expenses
The Company shall elect to deduct expenses, if any, incurred by it in
organizing the Company ratably over a 60-month period as provided in Code
Section 709.
ARTICLE 11.
TRANSFERS AND WITHDRAWALS
Section 11.1. Transfer
A. No part of the interest of a Member shall be subject to the
claims of any creditor, to any spouse for alimony or support, or to legal
process, and may not be voluntarily or involuntarily alienated or encumbered
except as may be specifically provided for in this Agreement.
B. No Membership Interest shall be Transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article 11.
Any Transfer or purported Transfer of a Membership Interest not made in
accordance with this Article 11 shall be null and void ab initio.
Section 11.2. Transfer of Managing Member's Membership Interest
A. Except in connection with a transaction described in
Section 11.2.B, the Managing Member shall not withdraw from the Company and
shall not Transfer all or any portion of its interest in the Company without the
Consent of all of the Non-Managing Members, which may be given or withheld by
each Non-Managing Member in its sole and absolute discretion. Upon any Transfer
of the Membership Interest of the Managing Member in accordance with the
provisions of this Section 11.2, the transferee shall become a Substitute
Managing Member for all purposes herein, and shall be vested with the powers and
rights of the transferor Managing Member, and shall be liable for all
obligations and responsible for all duties of the Managing Member, once such
transferee has executed such instruments as may be necessary to effectuate such
admission and to confirm the agreement of such transferee to be bound by all the
terms and provisions of this Agreement with respect to the Membership Interest
so acquired. It is a condition to any Transfer otherwise permitted hereunder
that the transferee assumes, by operation of law or express agreement, all of
the obligations of the transferor Managing Member under this Agreement with
respect to such Transferred Membership Interest, and such Transfer shall relieve
the transferor Managing Member of its obligations under this Agreement accruing
subsequent to the date of such Transfer. In the event the Managing Member
withdraws from the Company, in violation of this Agreement or otherwise, or
otherwise dissolves or terminates, or upon the Incapacity of the Managing
Member, all of the remaining Members may elect to continue the Company business
by selecting a Substitute Managing Member in accordance with the Act.
B. The Managing Member shall not engage in any merger, consolidation
or other combination with or into another person, sale of all or substantially
all of its assets or any reclassification, or change of its outstanding equity
interests (a "Termination Transaction"), unless either (i) the Termination
Transaction has been approved by the Consent of the Non-Managing Members or
(ii) in connection with the Termination Transaction, all holders of LLC Units
(other than the Managing Member) either will receive for each LLC Unit, or will
be entitled to receive, for each LLC Unit (in lieu of the REIT Shares Amount)
upon an Exchange of the LLC Unit pursuant to Section 8.6 hereof, an amount of
cash, securities, or other property equal to the amount that would have been
paid to the holder had the LLC Unit been Exchanged for REIT Shares pursuant to
Section 8.6 hereof immediately prior to the consummation of the Termination
Transaction subject, in the event of an Exchange of the LLC Unit pursuant to
Section 8.6 hereof subsequent to the consummation of the Termination
Transaction, to further adjustment to the extent provided in this Agreement to
compensate for the dilutive effect of certain transactions described herein;
provided, however, that, if, in connection with the Termination Transaction, a
purchase, tender or exchange offer shall have been made to and accepted by the
holders of more than fifty percent (50%) of the outstanding REIT Shares, each
Member shall receive, or shall have the right to elect to receive, the greatest
amount of cash, securities, or other property which such Member would have
received had it exchanged its LLC Units for REIT Shares pursuant to Section 8.6
immediately prior to the expiration of such purchase, tender or exchange offer
and had thereupon accepted such purchase, tender or exchange offer.
Section 11.3. Non-Managing Members' Rights to Transfer
A. General. No Non-Managing Member shall Transfer all or any
portion of its Membership Interest, or any of such Non-Managing Member's
economic rights as a Non-Managing Member, to any transferee without first
offering such Membership Interest to the Managing Member and otherwise obtaining
the consent of the Managing Member, which consent (i) may be withheld in its
sole and absolute discretion with respect to taxable Transfers, and (ii) with
respect to non-taxable Transfers, shall not be unreasonably withheld; provided,
however, that notwithstanding the foregoing or any other provisions of this
Agreement, any Non-Managing Member may, without the consent of the Managing
Member, (x) pledge all or any portion of its Membership Interest to a lender to
such Member to secure indebtedness to such lender and Transfer such Membership
Interest to such lender upon foreclosure of the debt secured by such Membership
Interest, so long as any such pledge or other Transfer would not otherwise
violate the provisions of this Agreement or (y) transfer all or any portion of
its Membership Interest or economic rights as a Non-Managing Member to a partner
of such Non-Managing Member in liquidation of such partner's interest in such
Non-Managing Member, to a family member of such Non-Managing Member or to an
organization described in Sections 170(b)(1)(A), 170(c)(2) or 501(c)(3) of the
Code, so long as any such Transfer would not otherwise violate the provisions of
this Agreement.
B. Conditions to Transfer. It is a condition to any Transfer
otherwise permitted hereunder that the transferee assume by operation of law or
express agreement all of the obligations of the transferor Member under this
Agreement with respect to such Transferred Membership Interest. Notwithstanding
the foregoing, any transferee of any Transferred Membership Interest shall be
subject to the Ownership Limits and any and all ownership limitations contained
in the Charter. Any transferee, whether or not admitted as a Substituted
Member, shall take subject to the obligations of the transferor hereunder.
Unless admitted as a Substituted Member, no transferee, whether by a voluntary
Transfer, by operation of law or otherwise, shall have any rights hereunder,
other than the rights of an Assignee as provided in Section 11.5 hereof.
C. Incapacity. If a Non-Managing Member is subject to Incapacity,
the executor, administrator, trustee, committee, guardian, conservator or
receiver of such Non-Managing Member's estate shall have all the rights of a Non
- - Managing Member, but not more rights than those enjoyed by other Non-Managing
Members, for the purpose of settling or managing the estate, and such power as
the Incapacitated Non-Managing Member possessed to Transfer all or any part of
its interest in the Company. The Incapacity of a Non-Managing Member, in and of
itself, shall not dissolve or terminate the Company.
D. Opinion of Counsel. In connection with any Transfer of a
Membership Interest, the Managing Member shall have the right to receive an
opinion of counsel reasonably satisfactory to it to the effect that the proposed
Transfer may be effected without registration under the Securities Act and will
not otherwise violate any federal or state securities laws or regulations
applicable to the Company or the Membership Interests Transferred. If, in the
opinion of such counsel, such Transfer would require the filing of a
registration statement under the Securities Act or would otherwise violate any
federal or state securities laws or regulations applicable to the Company or the
LLC Units, the Managing Member may prohibit any Transfer by a Member of
Membership Interests otherwise permitted under this Section 11.3.
E. Transfers to Lenders. No Transfer of any LLC Units may be made
to a lender to the Company or any Person who is related (within the meaning of
Section 1.752-4(b) of the Regulations) to any lender to the Company whose loan
constitutes a Nonrecourse Liability, without the consent of the Managing Member,
in its sole and absolute discretion; provided that, as a condition to such
consent, the lender will be required to enter into an arrangement with the
Company and the Managing Member to redeem or exchange for the REIT Shares Amount
any LLC Units in which a security interest is held simultaneously with the time
at which such lender would be deemed to be a member in the Company for purposes
of allocating liabilities to such lender under Code Section 752.
Section 11.4. Substituted Members
A. Each Non-Managing Member shall have the right to substitute a
transferee (including any transferees pursuant to Transfers permitted by
Section 11.3 hereof) as a Member in its place so long as the Transfer of such
Non-Managing Member's LLC Units is otherwise made pursuant to the terms and in
satisfaction of the conditions of this Agreement, specifically including the
provisions of Section 11.3 and Sections 11.4.B and C. hereof.
B. A transferee who has been admitted as a Substituted Member in
accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Member under this
Agreement. The admission of any transferee as a Substituted Member shall be
subject to the transferee executing and delivering to the Company an acceptance
of all of the terms and conditions of this Agreement (including without
limitation, the provisions of Section 2.4 and such other documents or
instruments as may be required to effect the admission).
C. Upon receipt of written notice from a Non-Managing Member that
the transferee of its LLC Units is to be admitted by the Company as a
Substituted Member, the Managing Member shall amend Exhibit A to reflect the
name, address, Capital Account, number of LLC Units and Percentage Interest of
such Substituted Member and to eliminate or adjust, if necessary, the name,
address, Capital Account, number of LLC Units and Percentage Interest of the
predecessor of such Substituted Member (and any other Member, as necessary).
Section 11.5. Assignees
If upon the Transfer of its LLC Units, the transferring Non-Managing
Member does not substitute the transferee as a Member in its place as a
Substituted Member as described in Section 11.4 hereof, such transferee shall be
considered an Assignee for purposes of this Agreement. An Assignee shall be
entitled to all the rights of an assignee of a limited liability company
interest under the Act, including the right to receive distributions from the
Company and the share of Net Income, Net Loss and other items of income, gain,
loss, deduction and credit of the Company attributable to the LLC Units assigned
to such transferee, the rights to Transfer the LLC Units provided in this
Article 11, and the right of Exchange provided in Section 8.6, but shall not be
deemed to be a Member of LLC Units for any other purpose under this Agreement,
and shall not be entitled to effect a Consent or vote with respect to such LLC
Units on any matter presented to the Members for approval (such right to Consent
or vote, to the extent provided in this Agreement or under the Act, fully
remaining with the transferor Member). In the event that any such transferee
desires to make a further assignment of any such LLC Units, such transferee
shall be subject to all the provisions of this Article 11 to the same extent and
in the same manner as any Members desiring to make an assignment of LLC Units.
The Managing Member shall have no liability under any circumstance with respect
to any Assignee as to which it does not have notice.
Section 11.6. General Provisions
A. No Non-Managing Member may withdraw from the Company other than
(i) as a result of a permitted Transfer of all of such Non-Managing Member's LLC
Units in accordance with this Article 11 and the transferee(s) of such LLC Units
being admitting to the Company as a Substituted Member or (ii) pursuant to an
Exchange by the Non-Managing Member of all of its LLC Units under Section 8.6
hereof.
B. Any Non-Managing Member who shall Transfer all of its LLC Units
in a Transfer (i) permitted pursuant to this Article 11 where such transferee
was admitted as a Substituted Member; (ii) pursuant to the exercise of its
rights to effect an Exchange of all of its LLC Units under Section 8.6 hereof;
(iii) pursuant to a Reduction; or (iv) pursuant to a combination of Transfers of
the types specified in the foregoing (i) - (iii), shall cease to be a Member.
C. Transfers pursuant to this Article 11 may only be made on the
first day of a fiscal quarter of the Company, unless the Managing Member
otherwise agrees.
D. All distributions of Available Cash attributable to an LLC Unit
with respect to which the LLC Record Date is before the date of a Transfer or an
Exchange of the LLC Unit shall be made to the transferor Member and all
distributions of Available Cash thereafter attributable to such LLC Unit shall
be made to the transferee Member.
E. Notwithstanding anything to the contrary set forth herein, in
addition to any other restrictions on Transfer herein contained, in no event may
any Transfer or assignment of a Membership Interest by any Member (including any
redemption or any Exchange or any other acquisition of LLC Units by the Company)
be made:
(a) to any person or entity who lacks the legal right, power or
capacity to own a Membership Interest;
(b) in violation of applicable law;
(c) without the consent of the Managing Member, which may be
granted or withheld in its sole and absolute discretion if such Transfer
would, in the opinion of counsel to the Company or the Managing Member,
cause an increased tax liability to any other Member or Assignee as a
result of the termination of the Company, in either case for federal or
state income or franchise tax purposes (except in the case of a Terminating
Capital Transaction or as a result of the Exchange of LLC Units pursuant to
Section 8.6 hereof);
(d) without the consent of the Managing Member, which may be
granted or withheld in its sole and absolute discretion if such Transfer
could, as determined in the sole discretion of the Managing Member, (i)
result in the Company being treated as an association taxable as a
corporation for federal income tax or for state income or franchise tax
purposes, (ii) adversely affect the ability of the Managing Member to
continue to qualify as a REIT or would subject the Managing Member to any
additional taxes under Code Section 857 or Code Section 4981 or (iii) such
Transfer could be treated as having been effectuated through an
"established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Code Section 7704, or such
Transfer fails to satisfy a "safe-harbor" preventing such treatment (as set
forth in Treasury Regulations under Code Section 7704 or any successor
provision);
(e) if such Transfer would cause the Company to become, with
respect to any employee benefit plan subject to Title I of ERISA, a "party-
in-interest" (as defined in ERISA Section 3(14)) or a "disqualified person"
(as defined in Code Section 4975(c));
(f) if such Transfer would, in the opinion of legal counsel to
the Company, cause any portion of the assets of the Company to constitute
assets of any employee benefit plan pursuant to Department of Labor
Regulations Section 2510.2-101;
(g) if such Transfer causes the Company (as opposed to the
Managing Member) to become a reporting company under the Exchange Act;
(h) if such Transfer subjects the Company to regulation under
the Investment Company Act of 1940, the Investment Advisors Act of 1940 or
ERISA, each as amended; or
(i) without the consent of the Managing Member, which may be
granted or withheld in its sole and absolute discretion, if such Transfer
would result in the Company having more than 100 Members (including as
Members those persons indirectly owning an interest in the Company through
a partnership, limited liability company, S corporation or grantor trust
(such entity, a "flow through entity"), but only if substantially all of
the value of such person's interest in the flow through entity is
attributable to the flow through entity's interest (direct or indirect) in
the Company) (the "One Hundred Member Limit").
F. No Non-Managing Member will take or allow any Affiliate to take
any action that would cause a violation of the One Hundred Member Limit.
ARTICLE 12.
ADMISSION OF MEMBERS
Section 12.1. Admission of Successor Managing Member
A successor to all of the Managing Member's Membership Interest
pursuant to Section 11.2 hereof who is proposed to be admitted as a successor
Managing Member shall be admitted to the Company as the Managing Member,
effective immediately upon such Transfer. Any such successor shall carry on the
business of the Company without dissolution. In each case, the admission shall
be subject to the successor Managing Member executing and delivering to the
Company an acceptance of all of the terms, conditions and applicable obligations
of this Agreement and such other documents or instruments as may be required to
effect the admission.
Section 12.2. Admission of Additional Members
A. A Person (other than an existing Member) who makes a Capital
Contribution to the Company in accordance with this Agreement shall be admitted
to the Company as an Additional Member, only upon furnishing to the Managing
Member (i) evidence of acceptance, in form and substance satisfactory to the
Managing Member, of all of the terms and conditions of this Agreement,
including, without limitation, the power of attorney granted in Section 2.4
hereof, and (ii) such other documents or instruments as may be required in the
sole and absolute discretion of the Managing Member in order to effect such
Person's admission as an Additional Member.
B. Notwithstanding anything to the contrary in this Section 12.2,
except pursuant to the transactions contemplated by the Contribution Agreement,
no Person shall be admitted as an Additional Member without the Consent of the
Non-Managing Members and Managing Member, which may be given or withheld by each
Non-Managing Member and Managing Member in its sole and absolute discretion.
The admission of any Person as an Additional Member shall become effective on
the date upon which the name of such Person is recorded on the books and records
of the Company, following the Consent of the Non-Managing Members and Managing
Member to such admission.
C. If any Additional Member is admitted to the Company on any day
other than the first day of a Fiscal Year, then Net Income, Net Loss, each item
thereof and all other items of income, gain, loss, deduction and credit
allocable among Members and Assignees for such Fiscal Year shall be allocated
among such Additional Member and all other Members and Assignees by taking into
account their varying interests during the Fiscal Year in accordance with Code
Section 706(d), using the "interim closing of the books" method or another
permissible method selected by the Managing Member. Solely for purposes of
making such allocations, each of such items for the calendar month in which an
admission of any Additional Member occurs shall be allocated among all the
Members and Assignees including such Additional Member, in accordance with the
principles described in Section 11.6.C hereof. All distributions of Available
Cash with respect to which the LLC Record Date is before the date of such
admission shall be made solely to Members and Assignees other than the
Additional Member, and all distributions of Available Cash thereafter shall be
made to all the Members and Assignees including such Additional Member.
Section 12.3. Amendment of Agreement and Certificate
For the admission to the Company of any Member, the Managing Member
shall take all steps necessary and appropriate under the Act to amend the
records of the Company and, if necessary, to prepare as soon as practical an
amendment of this Agreement (including an amendment of Exhibit A) and, if
required by law, shall prepare and file an amendment to the Certificate and may
for this purpose exercise the power of attorney granted pursuant to Section 2.4
hereof.
Section 12.4. Limitation on Admission of Members
No Person shall be admitted to the Company as a Substituted Member or
an Additional Member if, in the opinion of legal counsel for the Company, it
would result in the Company being treated as a corporation for federal income
tax purposes or otherwise cause the Company to become a reporting company under
the Exchange Act.
ARTICLE 13.
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1. Dissolution
The Company shall not be dissolved by the admission of Substituted
Members or Additional Members or by the admission of a successor Managing Member
in accordance with the terms of this Agreement. Upon the withdrawal of the
Managing Member, any successor Managing Member shall continue the business of
the Company without dissolution. However, the Company shall dissolve, and its
affairs shall be wound up, upon the first to occur of any of the following (each
a "Liquidating Event"):
A. the expiration of its term as provided in Section 2.5 hereof, in
which case the Managing Member shall have the right to cause the holders of Non-
Managing Member Units to Exchange their Non-Managing Member Units in accordance
with Section 13.2;
B. an event of withdrawal of the Managing Member, as defined in the
Act (other than an event of bankruptcy), unless, within 90 days after the
withdrawal, a Majority of Remaining Members agree in writing to continue the
business of the Company and to the appointment, effective as of the date of
withdrawal, of a substitute Managing Member;
C. subject to the provisions of Section 7.3.E hereof, an election to
dissolve the Company made by the Managing Member;
D. entry of a decree of judicial dissolution of the Company pursuant
to the provisions of the Act;
E. the sale of all or substantially all of the assets and properties
of the Company;
F. a final and non-appealable judgment is entered by a court of
competent jurisdiction ruling that the Managing Member is bankrupt or insolvent,
or a final and non-appealable order for relief is entered by a court with
appropriate jurisdiction against the Managing Member, in each case under any
Bankruptcy Law as now or hereafter in effect, unless prior to or within 90 days
after the entry of such order or judgment a Majority of Remaining Members
Consent in writing to continue the business of the Company and to the
appointment, effective as of a date prior to the date of such order or judgment,
of a substitute Managing Member;
G. the Incapacity of the Managing Member, unless prior to or within
90 days after such Incapacity a Majority of Remaining Members agree in writing
to continue the business of the Company and to the appointment, effective as of
a date prior to the date of such Incapacity, of a substitute Managing Member; or
H. the Exchange of all LLC Units (other than those held by the
Managing Member) or, at the election of the Managing Member, which election may
be made it its sole and absolute discretion, at any time after the end of the
Dissolution Protection Period.
Section 13.2. Exchange of Non-Managing Member Units
Notwithstanding anything in this Agreement to the contrary, on or
after such time as the Managing Member has the right to dissolve the Company, or
at any time with respect to Members that are an organization described in
Sections 170(b)(1)(A), 170(c)(2) or 501(c)(3) of the Code, the Managing Member
may, in its sole and absolute discretion, require each Non-Managing Member (by
delivering a Call Notice to such Non-Managing Member) to tender all of its Non-
Managing Member Units to the Managing Member in exchange for, at the election of
and in the sole and absolute discretion of the Managing Member, either (i) an
amount of cash equal to the sum of (a) the Cash Amount and (b) the NMM Sharing
Amount, calculated as if all of the Real Properties then owned by the Company
were sold in a taxable transaction at their fair market values, or (ii) a number
of REIT Shares equal to the sum of (a) the REIT Shares Amount payable on the
Specified Exchange Date and otherwise in accordance with the procedures and
provisions set forth in Section 8.6.A, and (b) a number of REIT Shares with a
value equal to the amount set forth in Section 13.2(i)(b).
Section 13.3. Winding Up
A. Upon the occurrence of a Liquidating Event, the Company shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets and satisfying the claims of its creditors and Members.
After the occurrence of a Liquidating Event, no Member shall take any action
that is inconsistent with, or not necessary to or appropriate for, the winding
up of the Company's business and affairs. The Managing Member (or, in the event
that there is no remaining Managing Member, any Person elected by a Majority in
Interest of the Non-Managing Members (the Managing Member or such other Person
being referred to herein as the "Liquidator")) shall be responsible for
overseeing the winding up and dissolution of the Company and shall take full
account of the Company's liabilities and property, and the Company property
shall be liquidated as promptly as is consistent with obtaining the fair value
thereof, and the proceeds therefrom (which may, to the extent determined by the
Managing Member, include shares of stock in the Managing Member) shall be
applied and distributed in the following order:
(1) First, to the satisfaction of all of the Company's debts and
liabilities to creditors other than the Members and their Assignees
(whether by payment or the making of reasonable provision for payment
thereof);
(2) Second, to the satisfaction of all of the Company's debts
and liabilities to the Managing Member (whether by payment or the making of
reasonable provision for payment thereof);
(3) Third, to the satisfaction of all of the Company's debts and
liabilities to the other Members and any Assignees incurred with the
consent of the Managing Member (whether by payment or the making of
reasonable provision for payment thereof), pro rata based upon the amount
of the debts and liabilities owing to the respective Member or Assignee;
and
(4) The balance, if any, to the Members and any Assignees in
accordance with and proportion to their positive Capital Account balances,
after giving effect to all contributions, distributions and allocations for
all periods.
The Managing Member shall not receive any additional compensation for any
services performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section 13.3.A hereof that
require liquidation of the assets of the Company, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the Company the
Liquidator determines that an immediate sale of part or all of the Company's
assets would be impractical or would cause undue loss to the Members, the
Liquidator may, in its sole and absolute discretion, defer for a reasonable time
the liquidation of any assets except those necessary to satisfy liabilities of
the Company (including to those Members as creditors) and/or distribute to the
Members, in lieu of cash, as tenants in common and in accordance with the
provisions of Section 13.3.A hereof, undivided interests in such Company assets
as the Liquidator deems not suitable for liquidation. Any such distributions in
kind shall be made only if, in the good faith judgment of the Liquidator, such
distributions in kind are in the best interest of the Members, and shall be
subject to such conditions relating to the disposition and management of such
properties as the Liquidator deems reasonable and equitable and to any
agreements governing the operation of such properties at such time. The
Liquidator shall determine the fair market value of any property distributed in
kind using such reasonable method of valuation as it may adopt.
C. In the event that the Company is "liquidated" within the meaning
of Regulations Section 1.704-1(b) (2)(ii)(g), distributions shall be made
pursuant to this Article 13 to the Members and Assignees that have positive
Capital Accounts in compliance with Regulations Section 1.704-
1(b) (2)(ii)(b) (2) to the extent of, and in proportion to, their positive
Capital Account balances. If any Member has a deficit balance in its Capital
Account (after giving effect to all contributions, distributions and allocations
for all taxable years, including the year during which such liquidation occurs),
such Member shall have no obligation to make any contribution to the capital of
the Company with respect to such deficit, and such deficit shall not be
considered a debt owed to the Company or to any other Person for any purpose
whatsoever. In the sole and absolute discretion of the Managing Member or the
Liquidator, a pro rata portion of the distributions that would otherwise be made
to the Members pursuant to this Article 13 may be withheld or escrowed to
provide a reasonable reserve for Company liabilities (contingent or otherwise)
and to reflect the unrealized portion of any installment obligations owed to the
Company, provided that such withheld or escrowed amounts shall be distributed to
the Members in the manner and order of priority set forth in Section 13.3.A
hereof as soon as practicable.
Section 13.4. Deemed Distribution and Recontribution
Notwithstanding any other provision of this Article 13, in the event
that the Company is liquidated within the meaning of Regulations Section 1.704-
1(b) (2)(ii)(g), but no Liquidating Event has occurred, the Company's Property
shall not be liquidated, the Company's liabilities shall not be paid or
discharged and the Company's affairs shall not be wound up. Instead, for
federal and state income tax purposes, the Company shall be deemed to have
distributed its assets in kind to the Members, who shall be deemed to have
assumed and taken such assets subject to all Company liabilities, all in
accordance with their respective Capital Accounts. Immediately thereafter, the
Members shall be deemed to have recontributed the Company assets in kind to the
Company, which shall be deemed to have assumed and taken such assets subject to
all such liabilities.
Section 13.5. Rights of Members
Except as otherwise provided in this Agreement, (a) each Member shall
look solely to the assets of the Company for the return of its Capital
Contribution, (b) no Member shall have the right or power to demand or receive
property other than cash from the Company and (c) except as provided in this
Agreement, no Member shall have priority over any other Member as to the return
of its Capital Contributions, distributions or allocations.
Section 13.6. Notice of Dissolution
In the event that a Liquidating Event occurs or an event occurs that
would, but for an election or objection by one or more Members pursuant to
Section 13.1 hereof, result in a dissolution of the Company, the Managing Member
shall, within 30 days thereafter, provide written notice thereof to each of the
Members and, in the Managing Member's sole and absolute discretion or as
required by the Act, to all other parties with whom the Company regularly
conducts business (as determined in the sole and absolute discretion of the
Managing Member), and the Managing Member may, or, if required by the Act,
shall, publish notice thereof in a newspaper of general circulation in each
place in which the Company regularly conduct business (as determined in the sole
and absolute discretion of the Managing Member).
Section 13.7. Cancellation of Certificate
Upon the completion of the liquidation of the Company's cash and
property as provided in Section 13.3 hereof, the Company shall be terminated and
the Certificate and all qualifications of the Company as a foreign limited
liability company in jurisdictions other than the State of Delaware shall be
canceled and such other actions as may be necessary to terminate the Company
shall be taken.
Section 13.8. Reasonable Time for Winding-Up
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Company and the liquidation of its assets pursuant
to Section 13.3 hereof, in order to minimize any losses otherwise attendant upon
such winding-up, and the provisions of this Agreement shall remain in effect
between the Members during the period of liquidation.
Section 13.9. Liability of Liquidator
The Liquidator shall be indemnified and held harmless by the Company
from and against any and all claims, liabilities, costs, damages, and causes of
action of any nature whatsoever arising out of or incidental to the Liquidator's
taking of any action authorized under or within the scope of this Agreement;
provided, however, that the Liquidator shall not be entitled to indemnification,
and shall not be held harmless, where the claim, demand, liability, cost, damage
or cause of action at issue arises out of (i) a matter entirely unrelated to the
Liquidator's action or conduct pursuant to the provisions of this Agreement or
(ii) the proven willful misconduct or gross negligence of the Liquidator.
ARTICLE 14.
PROCEDURES FOR ACTIONS AND CONSENTS
OF MEMBERS; AMENDMENTS; MEETINGS
Section 14.1. Procedures for Actions and Consents of Members
The actions requiring consent or approval of Non-Managing Members
pursuant to this Agreement, including Section 7.3 hereof, or otherwise pursuant
to applicable law, are subject to the procedures set forth in this Article 14.
Section 14.2. Amendments
Except for amendments to Exhibit A as provided in Sections 7.3.C,
11.4.C and 12.3 hereof, amendments to this Agreement may be proposed by the
Managing Member or by a Majority in Interest of the Non-Managing Members.
Following such proposal, the Managing Member shall submit any proposed amendment
to the Members. The Managing Member shall seek the written Consent of the
Members on the proposed amendment or shall call a meeting to vote thereon and to
transact any other business that the Managing Member may deem appropriate. The
affirmative vote or consent, as applicable, of the holders of a majority of the
outstanding LLC Units is required for the approval of a proposed amendment. For
purposes of obtaining a written consent, the Managing Member may require a
response within a reasonable specified time, but not less than 15 days, and
failure to respond in such time period shall constitute a consent that is
consistent with the Managing Member's recommendation with respect to the
proposal; provided, however, that an action shall become effective at such time
as requisite consents are received even if prior to such specified time.
Section 14.3. Meetings of the Members
A. Meetings of the Members may be called by the Managing Member and
shall be called upon the receipt by the Managing Member of a written request by
a Majority in Interest of the Non-Managing Members. The call shall state the
nature of the business to be transacted. Notice of any such meeting shall be
given to all Members not less than seven days nor more than 30 days prior to the
date of such meeting. The meeting shall be held at the headquarters office of
the Managing Member or at such other location as may be designated by the
Managing Member. Members may vote in person or by proxy at such meeting.
Whenever the vote or Consent of Members is permitted or required under this
Agreement, such vote or Consent may be given at a meeting of Members or may be
given in accordance with the procedure prescribed in Section 14.3.B hereof.
B. Any action required or permitted to be taken at a meeting of the
Members may be taken without a meeting if a written consent setting forth the
action so taken is signed by Members holding a majority of the LLC Units (or
such other percentage as is expressly required by this Agreement for the action
in question). Such consent may be in one instrument or in several instruments,
and shall have the same force and effect as a vote of Members holding a majority
of the LLC Units (or such other percentage as is expressly required by this
Agreement). Such consent shall be filed with the Managing Member. An action so
taken shall be deemed to have been taken at a meeting held on the effective date
so certified.
C. Each Member may authorize any Person or Persons to act for it by
proxy on all matters in which a Member is entitled to participate, including
waiving notice of any meeting, or voting or participating at a meeting. Every
proxy must be signed by the Member or its attorney-in-fact. No proxy shall be
valid after the expiration of 11 months from the date thereof unless otherwise
provided in the proxy (or there is receipt of a proxy authorizing a later date).
Every proxy shall be revocable at the pleasure of the Member executing it, such
revocation to be effective upon the Company's receipt of written notice of such
revocation from the Member executing such proxy.
D. Each meeting of Members shall be conducted by the Managing Member
or such other Person as the Managing Member may appoint pursuant to such rules
for the conduct of the meeting as the Managing Member or such other Person deems
appropriate in its sole and absolute discretion. Without limitation, meetings
of Members may be conducted in the same manner as meetings of the Managing
Member's shareholders and may be held at the same time as, and as part of, the
meetings of the Managing Member's shareholders.
ARTICLE 15.
GENERAL PROVISIONS
Section 15.1. Addresses and Notice
Any notice, demand, request or report required or permitted to be
given or made to a Member or Assignee under this Agreement shall be in writing
and shall be deemed given or made when delivered in person or when sent by first
class United States mail or by other means of written communication (including
by telecopy, facsimile, or commercial courier service) (i) in the case of a
Member, to that Member at the address set forth in Exhibit A or such other
address of which the Member shall notify the Managing Member in writing and
(ii) in the case of an Assignee, to the address of which such Assignee shall
notify the Managing Member in writing.
Section 15.2. Titles and Captions
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" or
"Sections" are to Articles and Sections of this Agreement.
Section 15.3. Pronouns and Plurals
Whenever the context may require, any pronouns used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice
versa.
Section 15.4. Further Action
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5. Binding Effect
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 15.6. Creditors
Other than as expressly set forth herein with respect to Indemnitees,
none of the provisions of this Agreement shall be for the benefit of, or shall
be enforceable by, any creditor of the Company.
Section 15.7. Waiver
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
Section 15.8. Counterparts
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart.
Section 15.9. Applicable Law
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law. In the event of a conflict between any provision of this
Agreement and any non-mandatory provision of the Act, the provisions of this
Agreement shall control and take precedence.
Section 15.10. Entire Agreement
This Agreement, the Contribution Agreement and the other agreements
executed on the Effective Date as provided in the Contribution Agreement contain
all of the understandings and agreements between and among the Members with
respect to the subject matter of this Agreement and the rights, interests and
obligations of the Members with respect to the Company.
Section 15.11. Invalidity of Provisions
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
Section 15.12. Limitation to Preserve REIT Status
Notwithstanding anything else in this Agreement, to the extent any
amount paid, credited or reimbursed to the Managing Member or its officers,
directors, employees or agents, whether as a reimbursement, fee, expense or
indemnity (a "REIT Payment"), would constitute gross income to the Managing
Member for purposes of Sections 856(c)(2) or 856(c)(3) of the Code, then,
notwithstanding any other provision of this Agreement, the amount of such REIT
Payments, as selected by the Managing Member in its discretion from among items
of potential reimbursement, fees, expenses and indemnities, shall be reduced for
any Fiscal Year so that the REIT Payments, as so reduced, to, for or with
respect to such REIT Member shall not exceed the lesser of:
(i) an amount equal to the excess, if any, of (a) four and
seventeen one-hundredths percent (4.17%) of the Managing Member's total
gross income (but not including the amount of any REIT Payments) for the
Fiscal Year that is described in subsections (A) through (H) of Section
856(c)(2) of the Code over (b) the amount of gross income (within the
meaning of Section 856(c)(2) of the Code) derived by the Managing Member
from sources other than those described in subsections (A) through (H) of
Section 856(c)(2) of the Code (but not including the amount of any REIT
Payments); or
(ii) an amount equal to the excess, if any, of (a) twenty-five
percent (25%) of the Managing Member's total gross income (but not
including the amount of any REIT Payments) for the Fiscal Year that is
described in subsections (A) through (I) of Section 856(c)(3) of the Code
over (b) the amount of gross income (within the meaning of Section
856(c)(3)) of the Code derived by the Managing Member from sources other
than those described in subsections (A) through (I) of Section 856(c)(3) of
the Code (but not including the amount of any REIT Payments);
provided, however, that REIT Payments in excess of the amounts set forth in
subparagraphs (i) and (ii) above may be made if the Managing Member, as a
condition precedent, obtains an opinion of tax counsel that the receipt of such
excess amounts would not adversely affect the Managing Member's ability to
qualify as a REIT. To the extent that REIT Payments may not be made in a Fiscal
Year as a consequence of the limitations set forth in this Section 15.12, such
REIT Payments shall carry over and be treated as arising in the following Fiscal
Year; provided, however, that such amount shall not carry over for more than
five (5) years, and if not paid within such five (5) year period, shall expire;
provided, further, that (a) as REIT Payments are made, such payments shall be
applied first to carry over amounts outstanding, if any, and (b) with respect to
carry over amounts for more than one Fiscal Year, such payment shall be applied
to the earliest Fiscal Year first.
Section 15.13. No Partition
No Member nor any successor-in-interest to a Member shall have the
right while this Agreement remains in effect to have any property of the Company
partitioned, or to file a complaint or institute to any proceeding at law or in
equity to have such property of the Company partitioned, and each Member, on
behalf of itself and its successors and assigns hereby waives any such right.
It is the intention of the Members that the rights of the parties hereto and
their successors-in-interest to Company property, as among themselves, shall be
governed by the terms of this Agreement, and that the rights of the Members and
their successors-in-interest shall be subject to the limitations and
restrictions as set forth in this Agreement.
Section 15.14. Non-Managing Member Representative
A. All actions taken by the Non-Managing Member Representative
pursuant to those provisions of this Agreement which authorize the Non-Managing
Member Representative to so act shall be binding upon all Non-Managing Members
as if they had individually taken such action and each Non-Managing Member, by
entering into or agreeing to be bound by the provisions of this Agreement,
authorize the Non-Managing Member Representative to take such actions on his,
her or its behalf and agree that the actions so taken shall be binding upon him,
her or it to the same extent as if he, she or it had taken the action directly.
B. The holders of a majority of the outstanding Non-Managing Members
Units shall be entitled to replace the Non-Managing Member Representative by
delivering to the Managing Member a written notice signed by the holders of a
majority of the outstanding Non-Managing Members Units stating (i) that the
notice is being provided to the Managing Member pursuant to this
Section 15.14.B, (ii) that the Members signing the notice own of record on the
books of the Company a majority of the outstanding Non-Managing Members Units,
(iii) that the Members signing the notice desire to replace the person then
serving as the Non-Managing Member Representative with the person named in the
notice, and (iv) specifying the date on which the appointment of the named
individual to replace the then serving Non-Managing Member Representative shall
be effective (which shall be a date not earlier than the fourteenth day after
the date on which the notice shall have been delivered to the Managing Member).
The appointment of the new Non-Managing Member Representative specified in the
notice shall be effective on the date specified in the notice and upon
effectiveness, the individual previously serving as the Non-Managing Member
Representative shall cease to be entitled to act in that capacity under this
Agreement.
[Signatures appear on following page]
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the date first written above.
MANAGING MEMBER: HEALTH CARE PROPERTY INVESTORS, INC.,
a Maryland corporation
By: /s/ Edward J. Henning
Name: Edward J. Henning
Title: Senior Vice President,
General Counsel and
Corporate Secretary
NON-MANAGING MEMBERS: BOYER-ST. MARKS MEDICAL ASSOCIATES, LTD.,
a Utah limited partnership
By: THE BOYER COMPANY, L.C.,
a Utah limited liability company,
its General Partner
By: /s/ H. Roger Boyer
Name: H. Roger Boyer
Its: Chairman and Manager
BOYER MCKAY-DEE ASSOCIATES, LTD.,
a Utah limited partnership
By: THE BOYER COMPANY, L.C.,
a Utah limited liability company,
its General Partner
By: /s/ H. Roger Boyer
Name: H. Roger Boyer
Its: Chairman and Manager
NON-MANAGING MEMBER'S (CON'T)
BOYER ST. MARK'S MEDICAL
ASSOCIATES #2, LTD., a Utah limited
partnership
By: THE BOYER COMPANY, L.C.,
a Utah limited liability company,
its General Partner
By: /s/ H. Roger Boyer
Name: H. Roger Boyer
Its: Chairman and Manager
BOYER-OGDEN MEDICAL ASSOCIATES, LTD.,
a Utah limited partnership
By: THE BOYER COMPANY, L.C.,
a Utah limited liability company,
its General Partner
By: /s/ H. Roger Boyer
Name: H. Roger Boyer
Its: Chairman and Manager
BOYER-OGDEN MEDICAL ASSOCIATES NO. 2,
LTD., a Utah limited partnership
By: THE BOYER COMPANY, L.C.,
a Utah limited liability company,
its General Partner
By: /s/ H. Roger Boyer
Name: H. Roger Boyer
Its: Chairman and Manager
NON-MANAGING MEMBER'S (CON'T)
BOYER-SALT LAKE INDUSTRIAL CLINIC ASSOCIATES,
LTD., a Utah limited partnership
By: THE BOYER COMPANY, L.C.,
a Utah limited liability company,
its General Partner
By: /s/ H. Roger Boyer
Name: H. Roger Boyer
Its: Chairman and Manager
BOYER PRIMARY CARE CLINIC ASSOCIATES, LTD. #2, a
Utah limited partnership
By: THE BOYER COMPANY, L.C.,
a Utah limited liability company,
its General Partner
By: /s/ H. Roger Boyer
Name: H. Roger Boyer
Its: Chairman and Manager
BOYER CENTERVILLE CLINIC COMPANY, L.C.,
a Utah limited liability company
By: THE BOYER COMPANY, L.C.,
a Utah limited liability company,
its Managing Member
By: /s/ H. Roger Boyer
Name: H. Roger Boyer
Its: Chairman and Manager
NON-MANAGING MEMBER'S (CON'T)
BOYER GRANTSVILLE MEDICAL, L.C.,
a Utah limited liability company
By: THE BOYER COMPANY, L.C.,
a Utah limited liability company,
its Managing Member
By: /s/ H. Roger Boyer
Name: H. Roger Boyer
Its: Chairman and Manager
BOYER ELKO, L.C., a Utah limited
liability company
By: THE BOYER COMPANY, L.C.,
a Utah limited liability company,
its Managing Member
By: /s/ H. Roger Boyer
Name: H. Roger Boyer
Its: Chairman and Manager
BOYER IOMEGA, L.C., a Utah limited
liability company
By: THE BOYER COMPANY, L.C.,
a Utah limited liability company,
its Managing Member
By: /s/ H. Roger Boyer
Name: H. Roger Boyer
Its: Chairman and Manager
NON-MANAGING MEMBER'S (CON'T)
BOYER PROVIDENCE MEDICAL ASSOCIATES,
L.C., a Utah limited liability company
By: THE BOYER COMPANY, L.C.,
a Utah limited liability company,
its Managing Member
By: /s/ H. Roger Boyer
Name: H. Roger Boyer
Its: Chairman and Manager
BOYER CASTLE DALE MEDICAL CLINIC, L.L.C., a Utah
limited liability company
By: THE BOYER COMPANY, L.C.,
a Utah limited liability company,
its Managing Member
By: /s/ H. Roger Boyer
Name: H. Roger Boyer
Its: Chairman and Manager
BOYER SPRINGVILLE, L.C., a Utah limited
liability company
By: THE BOYER COMPANY, L.C.,
a Utah limited liability company,
its Managing Member
By: /s/ H. Roger Boyer
Name: H. Roger Boyer
Its: Chairman and Manager
NON-MANAGING MEMBER'S (CON'T)
BOYER DESERT SPRINGS, L.C., a Utah limited
liability company
By: THE BOYER COMPANY, L.C.,
a Utah limited liability company,
its Managing Member
By: /s/ H. Roger Boyer
Name: H. Roger Boyer
Its: Chairman and Manager
SCHEDULE 1.1
REDUCED TAX PROTECTION PERIOD PROPERTY
St. Mark's I*
Ogden Women's Center
Salt Lake Industrial Clinic
Wasatch Family
Centerville
Grantsville
Old Mill
Elko
Creekside
Castle Dale
Springville
Northwest
* = 13th anniversary of Effective Date, all others = 10th
anniversary of Effective Date
SCHEDULE 7.3
EXISTING INDEBTEDNESS
<TABLE>
<CAPTION>
Principal Amount
of Loan at
Property Lender Initial Closing
- -----------------------------------------------------------------
<S> <C> <C>
Centerville Bankers Security Life Insurance
Society ($925,469)
St. Mark's I Aid Association for Lutherans ($5,904,458)
St. Mark's II Ohio National Life Insurance
Company ($9,318,793)
Wasatch Family Bankers Security Life Insurance
Society ($1,099,822)
</TABLE>
EXHIBIT A
MEMBERS' CAPITAL CONTRIBUTIONS
Non-Managing Members
Address:
c/o The Boyer Company, L.C.
127 South 500 East, Suite 310
Salt Lake City, Utah 84102
Attention: Steven B. Ostler
Telephone No.: (801) 521-4781
Facsimile No.: (801) 521-4793
with a copy to:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Attention: Kenneth M. Doran, Esq.
Telephone No.: (213) 229-7000
Facsimile No.: (213) 229-7520
with a copy to:
Parr, Waddoups, Brown, Gee & Loveless
185 South State Street, Suite 1300
Salt Lake City, Utah 84111-1536
Attention: David E. Gee, Esq.
Telephone No.: (801) 532-7840
Facsimile No.: (801) 532-7750
<TABLE>
<CAPTION>
Gross Asset Net Asset
Value Value
of of
Member Contribution Contribution Contribution Unit Value Units
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Boyer Castle Dale Castle Dale $1,800,000 $552,538 $32.00 17,267
Boyer Centerville Centerville $1,520,000 $536,717 $32.00 16,772
Boyer Elko Elko $2,620,000 $832,395 $32.00 26,012
Boyer Desert Springs Granger, Tatum $21,250,000 $3,652,897 $32.00 114,153
Boyer Grantsville Grantsville $410,000 $170,806 $32.00 5,338
Boyer Ogden Medical Ogden Medical $4,220,000 $25,145 $32.00 786
Boyer Ogden Medical #2 Ogden Women's $2,300,000 $1,171,029 $32.00 36,595
Boyer Salt Lake SLIC $885,000 $395,210 $32.00 12,350
Boyer St. Mark's Medical St. Mark's I $10,700,000 $3,352,905 $32.00 104,778
Boyer McKay-Dee 60% Undivided Interest in
St. Mark's II $8,880,000 $2,281,455 $32.00 71,295
Boyer St. Mark's #2 40% Undivided Interest in
St. Mark's II $5,920,000 $1,520,970 $32.00 47,530
Boyer Iomega Timpanogos $8,100,000 $2,377,577 $32.00 74,299
Boyer Springville Springville $1,500,000 $1,461,700 $32.00 45,678
Boyer Primary Care Wasatch Family $1,800,000 $652,622 $32.00 20,394
Total Non-Managing Member Units 593,249
</TABLE>
Mananging Member
Address:
Health Care Property Investors, Inc.
4675 MacArthur Court, Suite 900
Newport Beach, California 92660
Attention: Edward J. Henning, Esq.
Telephone No.: (949) 221-0600
Facsimile No.: (949) 221-0607
with a copy to:
Latham & Watkins
650 Town Center Drive, 20th Floor
Costa Mesa, California 92626
Attention: David C. Meckler, Esq.
Telephone No.: (714) 540-1235
Facsimile No.: (714) 755-8290
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Health Care Property Investors Cash $18,432,350 $18,432,350 $32.00 576,011
Total Non-Managing Member Units 576,011
</TABLE>
EXHIBIT B
NOTICE OF EXCHANGE
To: Health Care Property Investors, Inc.
4675 MacArthur Court, Suite 900
Newport Beach, California 92660
The undersigned Member or Assignee hereby irrevocably
tenders for Exchange __________ LLC Units in HCPI/Utah, LLC in
accordance with the terms of the Amended and Restated Limited
Liability Company Agreement of HCPI/Utah, LLC, dated as of
___________, 1998 (the "Agreement"), and the Exchange rights
referred to therein. The undersigned Member or Assignee:
(a) undertakes (i) to surrender such LLC Units and any
certificate therefor at the closing of the Exchange and (ii) to
furnish to the Managing Member, prior to the Specified Exchange
Date, the documentation, instruments and information required
under Section 8.6.D of the Agreement;
(b) directs that, at the sole discretion of the
Managing Member, either (i) a certified check representing the
Cash Amount deliverable upon closing of the Exchange be delivered
to the address specified below or (ii) a certificate(s)
representing the REIT Shares deliverable upon the closing of such
Exchange be delivered to the address specified below;
(c) represents, warrants, certifies and agrees that:
(1) the undersigned Member or Assignee has, and at the closing of
the Exchange will have, good, marketable and unencumbered title
to such LLC Units, free and clear of the rights or interests of
any other person or entity, (2) the undersigned Member or
Assignee has, and at the closing of the Exchange will have, the
full right, power and authority to tender and surrender such LLC
Units as provided herein, (3) the undersigned Member or Assignee
has obtained the consent or approval of all persons and entities,
if any, having the right to consent to or approve such tender and
surrender, and (4) such Exchange is in compliance with the
provisions of Section 8.6 of the Agreement; and
(d) acknowledges that it will continue to own such LLC
Units until and unless such Exchange transaction closes.
All capitalized terms used herein and not otherwise
defined shall have the same meaning ascribed to them respectively
in the Agreement.
Dated: ________________________
Name of Member or Assignee:
------------------------------
------------------------------
(Signature of Member or Assignee)
------------------------------
(Street Address)
------------------------------
(City) (State) (Zip)
Signature Guaranteed by:
-------------------------------
Issue REIT Shares in the name of:
----------------------------
Please insert social security or identifying number:
----------------------------
EXHIBIT C
FORM OF REIMBURSEMENT AGREEMENT
THIS REIMBURSEMENT AGREEMENT (this "Agreement") is entered
into as of _____________, 1998, by and between
__________________, a __________________ (the "Reimbursor"), and
HCPI/Utah, LLC, a Delaware limited liability company (the
"Reimburse").
RECITALS
A. Pursuant to a Contribution Agreement and Escrow
Instructions, dated _____________, 1998 (the "Contribution
Agreement") by and among the Health Care Property Investors,
Inc., a Maryland Corporation (the "Managing Member"), Reimbursee,
the Reimbursor, The Boyer Company, L.C. a Utah limited liability
company, and the other parties named therein, the Reimbursor
contributed (the "Contribution") property to the Reimbursee in
exchange for membership interests ("LLC Units") in the
Reimbursee.
B. Pursuant to the Amended and Restated Limited Liability
Company Agreement of the Reimbursee, dated as of ______________,
1998, the Reimbursee agreed to maintain certain indebtedness (the
"Required Indebtedness").
C. [The Managing Manager/__________________, a
_________________] ("Lender"), made a certain loan (the "Loan")
to the Reimbursee, which Loan is evidenced by a Note dated
______________, 199____ in an aggregate principal amount not to
exceed $______________ (the "Note"). [The Loan is guaranteed by
the Managing Member]. All of the documents or agreements
evidencing or securing or otherwise relating to the Loan shall be
referred to herein as the "Loan Documents."
D. The Reimbursor intends to pay to the Lender up to a
certain amount in the event the Lender has exhausted its remedies
against the Reimbursee's assets [and the Managing Member must
pay, directly or indirectly, to the Lender (or bear the economic
risk of loss for) / the Lender bears the economic risk of loss
for) any portion of the Note.
E. Each of the partners of the Reimbursor listed on Exhibit A
hereto (the "Partners") has agreed, pursuant to a Partner
Reimbursement Agreement dated of even date herewith, to reimburse
the Reimbursor for his or her respective share of the amount of
any payment made by the Reimbursor hereunder.
NOW, THEREFORE, for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the Reimbursor and
the Reimbursee hereby agree as follows:
AGREEMENT
1. Term. This Agreement shall terminate on
______________, _____ [maturity date of Note], provided, however,
(i) this Agreement shall terminate at the time that the
Reimbursor ceases to own any LLC Units, except that if at such
time the Loan is in default under the terms of the Loan Documents
this Agreement shall not terminate until such default is cured
under the terms of the Loan Documents, (ii) if the Reimbursor
distributes to the Partners some, but not all, of the LLC Units
received in the Contribution, the obligations of the Reimbursor
under this Agreement shall terminate as to that portion of the
Reimbursable Amount allocable to the LLC Units so distributed,
and (iii) if the Reimbursor redeems some, but not all, of the LLC
Units received in the Contribution, and distributes the proceeds
in redemption of a Partner's interest in the Reimbursor, the
obligations of the Reimbursor under this Agreement shall
terminate as to that portion of the Reimbursable Amount allocable
to the LLC Units so redeemed, so that in either case (ii) or
(iii) the Reimbursor shall be liable for the Reimbursement
Obligations hereunder only to the extent that the Reimbursable
Amount is allocable to the LLC Units retained by the Reimbursor.
2. Reimbursement Obligations.
(a) The maximum liability of the Reimbursor pursuant to this
Agreement is $__________ (such amount is referred to herein as
the "Reimbursable Amount").
(b) The Reimbursor hereby agrees to pay to the Lender [(or
reimburse the Managing Member if the Managing Member has paid to
the Lender)] the Shortfall Amount (as defined below) after the
Lender has fully and completely exhausted its remedies against
the Reimbursee's assets. No demand shall be made under this
Agreement for the Shortfall Amount until such time as the Lender
shall have fully and completely exhausted its remedies against
the Reimbursee's assets (including any real and personal property
securing the repayment of the Loan). The "Shortfall Amount"
shall be such portion of the Reimbursement Amount equal to the
excess of (x) the Reimbursement Amount over (y) the sum of all
amounts obtained and the fair market value of all property
obtained by Lender in proceedings against the Reimbursee under
the Loan Documents. The Reimbursor's obligations to pay the
Shortfall Amount set forth in this Section 2 shall be referred to
herein as the "Reimbursement Obligations."
3. Liability for Reimbursement Obligations.
(a) The Reimbursor shall be liable with respect to the full
amount of any Reimbursement Obligations in any period during
which the Reimbursor continues to hold all of the LLC Units
received in the Contribution.
(b) If the Reimbursor distributes to the Partners some, but not
all, of the LLC Units received in the Contribution, the
Reimbursor shall be liable for the Reimbursement Obligations to
the extent that the Reimbursable Amount is allocable to the LLC
Units that it retains.
4. Partners' Respective Shares of Reimbursable Amount;
Agreements by Partners to Reimburse Directly with Respect to
Distributed Units.
(a) Each Partner's respective share of the Reimbursable Amount
is set forth on Exhibit B hereto. Such percentage also shall be
used to determine the amount of the Reimbursable Amount allocable
to LLC Units distributed in full redemption of any such Partner's
interest (for purposes of determining that portion of the
Reimbursable Amount allocable to the LLC Units retained by the
Reimbursor under Section 3(b) hereof).
Exhibit 21.1
Health Care Property Investors, Inc.
List of Subsidiaries
- ------------------------
Texas HCP, Inc., a Maryland Corporation
HCPI Mortgage Corp., a Delaware Corporation
HCPI Charlotte, Inc., a Delaware Corporation
HCPI Knightdale, Inc., a Delaware Corporation
Texas HCP G.P., Inc., a Delaware Corporation
HCPI Trust, a Maryland Real Estate Investment Trust
Cambridge Medical Properties, LLC, a Delaware Limited Liability Company
HCPI Indiana, LLC, a Delaware Limited Liability Company
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation of our report included in this form 10-K, into
the Company's previously filed Registration Statement: No.'s
333-29485, 333-67669 and 333-57163.
Arthur Andersen LLP
Orange County, California
March 29, 1999
