<PAGE>
===============================================================================
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______to _________
Commission File No. 1-9321
UNIVERSAL HEALTH
REALTY INCOME TRUST
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
Universal Corporate Center 23-6858580
367 South Gulph Road (I.R.S. Employer
P.O. Box 61558 Identification Number)
King of Prussia, Pennsylvania
(Address of principal executive offices) 19406-0958
(Zip Code)
Registrant's telephone number, including area code: (610) 265-0688
------
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of exchange on which registered
Shares of beneficial interest,
$.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
------
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X___ No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of voting shares held by non-affiliates as of February
1, 1996: $159,820,481. Number of shares of beneficial interest outstanding of
registrant as of February 1, 1996: 8,947,491.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its 1996 Annual
Meeting of Shareholders, which will be filed with the Securities and Exchange
Commission within 120 days after December 31, 1995 (incorporated by reference
under Part III).
===============================================================================
<PAGE>
PART I
Item 1. BUSINESS
General
The Trust commenced operations on December 24, 1986. As of December 31, 1995,
the Trust had investments in fourteen facilities located in nine states. These
investments include: (i) ownership of four acute care, one comprehensive
rehabilitation and two psychiatric hospitals leased to subsidiaries of Universal
Health Services, Inc. ("UHS"); (ii) ownership of one comprehensive
rehabilitation hospital leased to a subsidiary of HEALTHSOUTH Corporation; (iii)
ownership of one sub-acute care facility leased to THC-Chicago, Inc. ("THC"), an
indirect wholly-owned subsidiary of Community Psychiatric Centers ("CPC"); (iv)
ownership of one medical office building leased to several tenants including an
outpatient surgery center operated by Columbia/HCA Healthcare Corporation
("Columbia"); (v) ownership of a medical office building located on the campus
of a hospital owned by Columbia; (vi) ownership of one single tenant and two
multi-tenant medical office buildings located in Kingwood, Texas; (vii) a
mortgage loan made to Crouse Irving Memorial Properties for the purchase of the
real assets of the Madison Irving Medical Center, an ambulatory treatment
center, and; (viii) ownership of the real estate assets of Lake Shore Hospital,
to which the Trust received free and clear title during the second quarter of
1995. The Trust has been, and will continue to, actively market the property of
Lake Shore Hospital in an effort to sell or lease the facility to a qualified
operator. The leases to the subsidiaries of UHS are guaranteed by UHS and are
cross-defaulted with one another. The lease to the subsidiary of HEALTHSOUTH
Corporation is guaranteed by HEALTHSOUTH Corporation, the lease on the sub-acute
care facility to THC is guaranteed by CPC and the leases to the outpatient
surgery center and the medical office building on the campus of a Columbia
hospital, are guaranteed by Columbia. The lease on the single tenant medical
office building located in Kingwood, Texas is guaranteed by Caremark
International, Inc.
In January of 1996, the Trust invested $5 million to acquire a 50% partnership
interest in three medical office buildings located on the campus of Desert
Samaritan Hospital in Phoenix, Arizona. The three buildings total approximately
219,000 gross square feet and are leased to several tenants including Samaritan
Health System and FHP Inc., a health maintenance organization.
The facilities owned by the Trust had an original aggregate purchase price of
approximately $148 million and contain 1,253 licensed beds. The leases with
respect to such facilities have fixed terms with an average of five years
remaining and provide for renewal options for up to six five-year terms. The
initial terms of these leases expire beginning in 1999. Minimum rents are
payable based on the initial acquisition costs of the facilities and, with
respect to all facilities other than the one leased to THC, additional rents are
payable based upon a percentage of each facility's revenue in excess of base
year amounts or CPI increases in excess of base year amounts. The lessees have
rights of first refusal to purchase the facilities exercisable during and in
most cases for 180 days after the expiration of the lease terms and also have
1
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purchase options exercisable upon three to six months notice at the end of each
lease term at the facility's fair market value. The combined ratio of earnings
(exclusive of certain special Medicaid reimbursements at one of the Trust's
facilities located in Texas) before interest, taxes, depreciation, amortization
and lease and rental expense (EBITDAR) to minimum rent plus additional rent
payable to the Trust of the various hospital facilities owned by the Trust was
approximately 4.7, 3.6 and 3.8 for the years ended December 31, 1995, 1994 and
1993, respectively. The combined ratio of EBITDAR (including $10.4 million in
1995, $12.4 million in 1994 and $13.5 million in 1993 of special Medicaid
reimbursements received by one of the Trust's facilities located in Texas) to
minimum rent plus additional rent payable to the Trust of the various hospital
facilities owned by the Trust was approximately 5.3, 4.3 and 4.5 for the years
ended December 31, 1995, 1994 and 1993, respectively. The coverage ratio for
individual facilities varies (see "Relationship to Universal Health Services,
Inc.").
Lessees are required to maintain all risk, replacement cost and commercial
property insurance policies on the leased properties. The Trust is one of the
named insured and believes the leased properties are adequately insured.
Relationship to Universal Health Services, Inc.
Leases. As of December 31, 1995, subsidiaries of UHS leased seven of the nine
hospital facilities owned by the Trust with initial terms expiring in 1999
through 2003. The leases to the subsidiaries of UHS are guaranteed by UHS and
are cross-defaulted with one another. Each of the leases contains renewal
options of up to six 5-year periods. These leases accounted for 85% of the total
revenue of the Trust for the five years ended December 31, 1995. For the twelve
months ended December 31, 1995, one of the UHS facilities did not generate
sufficient earnings before interest, taxes, depreciation, amortization and lease
and rental expense (EBITDAR) to cover the 1995 rent expense payable to the
Trust. The lease on this facility, which matures in 2001, generated 12% of the
Trust's 1995 rental income. Three additional UHS facilities had 1995 EBITDAR
which was less than 1.5 times the 1995 rent expense payable to the Trust. The
leases on these three facilities, which mature in 1999, 2000 and 2001, generated
on a combined basis, 22% of the Trust's 1995 rental income. All of the Trust's
remaining hospital facilities, including the facilities operated by non-related
parties, had 1995 EBITDAR greater than 2.5 times the 1995 rent expense payable
to the Trust. Management of the Trust cannot predict whether the leases with
subsidiaries of UHS, which have initial renewal options at the existing lease
rates, or any of the Trust's other leases, will be renewed at the end of their
initial terms.
During the third quarter of 1995, UHS purchased the assets of Westlake Medical
Center, ("Westlake") a 126-bed hospital of which the majority of real estate
assets were owned by the Trust and leased to UHS. In exchange for the real
estate assets of Westlake and the termination of the lease, the Trust received
substitution properties valued at approximately $19 million (the Trust's
original purchase price of Westlake) consisting of additional real estate assets
which were owned by UHS but related to three acute care facilities, of which the
Trust owns the real estate and which are operated by UHS (McAllen Medical
Center, Inland Valley Regional Medical Center and Wellington Regional Medical
Center). These additional real estate assets represent major additions and
expansions made to these facilities by UHS since the purchase of the facilities
by the Trust from UHS in 1986. The Trust also purchased from UHS, additional
real estate assets related to McAllen Medical Center for approximately $1.9
2
<PAGE>
million in cash. Total annual base rental payments from UHS to the Trust on the
substituted properties will be $2.4 million which equals the total base and
bonus rental earned by the Trust on the Westlake facility during 1994 ($2.1
million base and $300,000 bonus). Total annual base rental payments on the
additional real estate assets purchased related to McAllen Medical Center will
be approximately $200,000. Bonus rental on the substituted and purchased real
estate assets will be equal to 1% of the growth in revenues, in excess of base
year amounts, generated by these additional assets. The guarantee by UHS under
the existing leases, as amended to include the additional property, will
continue.
Pursuant to the terms of the leases with UHS, the lessees have rights of first
refusal to: (i) purchase the respective leased facilities during and for 180
days after the lease terms at the same price, terms and conditions of any third
party offer, or; (ii) renew the lease on the respective leased facility at the
end of, and for 180 days after, the lease term at the same terms and conditions
pursuant to any third party offer. The leases also grant the lessees options,
exercisable on at least six months notice, to purchase the respective leased
facilities at the end of the lease term or any renewal term at the facility's
then fair market value. The terms of the leases also provide that in the event
UHS discontinues operations at the leased facility for more than one year, or
elects to terminate its lease prior to the expiration of its term for prudent
business reasons, UHS is obligated to offer a substitution property. If the
Trust does not accept the substitution property offered, UHS is obligated to
purchase the leased facility back from the Trust at a price equal to the greater
of its then fair market value or the original purchase price paid by the Trust.
As noted below, transactions with UHS must be approved by a majority of Trustees
who are unaffiliated with UHS (the "Independent Trustees"). However, the
purchase options and rights of first refusal granted to the respective lessees
to purchase or lease, after the expiration of the lease term, the respective
leased facilities may, in addition to adversely affecting the Trust's ability to
sell or lease a facility, present a potential conflict of interest between the
Trust and UHS since the price and terms offered by a third party are likely to
be dependent, in part, upon the financial performance of the facility during the
final years of the lease term.
Advisory Agreement. UHS of Delaware, Inc. (the "Advisor"), a wholly-owned
subsidiary of UHS, serves as Advisor to the Trust under an Advisory Agreement
dated December 24, 1986 between the Advisor and the Trust (the "Advisory
Agreement"). Under the Advisory Agreement, the Advisor is obligated to present
an investment program to the Trust, to use its best efforts to obtain
investments suitable for such program (although it is not obligated to present
any particular investment opportunity to the Trust), to provide administrative
services to the Trust and to conduct the Trust's day-to-day affairs. In
performing its services under the Advisory Agreement, the Advisor may utilize
independent professional services, including accounting, legal and other
services, for which the Advisor is reimbursed directly by the Trust. The
Advisory Agreement expires on December 31 of each year, however, it is renewable
by the Trust, subject to a determination by the Independent Trustees that the
Advisor's performance has been satisfactory and to the termination rights of the
parties. The Advisory Agreement may be terminated for any reason upon sixty days
written notice by the Trust or the Advisor. The Advisory Agreement has been
renewed for 1996. All transactions with UHS must be approved by the Independent
Trustees.
The Advisory Agreement provides that the Advisor is entitled to receive an
annual advisory fee equal to .60% of the average invested real estate assets of
the Trust, as derived from its consolidated balance sheet from time to time. In
addition, the Advisor is entitled to an annual incentive fee equal to 20% of the
3
<PAGE>
amount by which cash available for distribution to shareholders for each year,
as defined in the Advisory Agreement, exceeds 15% of the Trust's equity as shown
on its balance sheet, determined in accordance with generally accepted
accounting principles without reduction for return of capital dividends. No
incentive fees were paid during 1995, 1994 and 1993. The advisory fee is payable
quarterly, subject to adjustment at year end based upon audited financial
statements of the Trust.
Share Purchase Option. UHS has the option to purchase shares of beneficial
interest in the Trust at fair market value to maintain a 5% interest in the
Trust. As of December 31, 1995, UHS owned 8% of the outstanding shares of
beneficial interest.
Competition
The Trust believes that it is one of thirteen publicly traded real estate
investment trusts (REITs) currently investing primarily in income-producing real
estate with an emphasis on healthcare related facilities. The REITs compete with
one another in that each is continually seeking attractive investment
opportunities in healthcare related facilities.
The Trust may also compete with banks and other companies, including UHS, in the
acquisition, leasing and financing of healthcare related facilities. In most
geographical areas in which the Trust's facilities operate, there are other
facilities which provide services comparable to those offered by the Trust's
facilities, some of which are owned by governmental agencies and supported by
tax revenues, and others of which are owned by nonprofit corporations and may be
supported to a large extent by endowments and charitable contributions. Such
support is not available to the Trust's facilities. In addition, certain
hospitals which are located in the areas served by the Trust's facilities are
special service hospitals providing medical, surgical and psychiatric services
that are not available at the Trust's hospitals or other general hospitals. The
competitive position of a hospital is to a large degree dependent upon the
number and quality of staff physicians. Although a physician may at any time
terminate his or her affiliation with a hospital, the Trust's hospitals seek to
retain doctors of varied specializations on its hospital staffs and to attract
other qualified doctors by improving facilities and maintaining high ethical and
professional standards. The competitive position of a hospital is also affected
by alternative health care delivery systems such as preferred provider
organizations, health maintenance organizations and indemnity insurance
programs. Such systems normally involve a discount from a hospital's established
charges. Outpatient treatment and diagnostic facilities, outpatient surgical
centers, and freestanding ambulatory surgical centers also impact the healthcare
marketplace.
The Trust anticipates investing in additional healthcare related facilities and
leasing the facilities to qualified operators, perhaps including UHS and
subsidiaries of UHS.
Regulation
Private as well as Federal and state payment programs, and the impact of other
laws and regulations, could have a significant effect on the utilization of the
Trust's properties and its revenues. A number of legislative initiatives have
been proposed that could result in major changes in the healthcare system,
either nationally or at the state level. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
4
<PAGE>
Executive Officers of the Registrant
The executive officers of the Trust are as follows:
Name Age Position
---- --- --------
Alan B. Miller 58 Chairman of the Board,
Chief Executive Officer
Kirk E. Gorman 45 President, Chief Financial
Officer,Secretary and Trustee
Charles F. Boyle 36 Vice President and
Controller
Cheryl K. Ramagano 33 Vice President and
Treasurer
Timothy J. Fowler 40 Vice President,
Acquisition and Development
Mr. Alan B. Miller has been Chairman of the Board and Chief Executive Officer of
the Trust since its inception in 1986. He served as President of the Trust until
March, 1990. Mr. Miller has been Chairman of the Board, President and Chief
Executive Officer of UHS since its inception in 1978. Prior thereto, he was
President, Chairman of the Board and Chief Executive Officer of American
Medicorp, Inc. Mr. Miller also serves as a director of CDI Corp, Genesis Health
Ventures, Gmis Inc. and Penn Mutual Life Insurance Company.
Mr. Kirk E. Gorman has been President and Chief Financial Officer of the Trust
since March, 1990 and was elected to the Board of Trustees and Secretary in
December, 1994. Mr. Gorman had previously served as Vice President and Chief
Financial Officer of the Trust since April, 1987. Mr. Gorman was elected Senior
Vice President, Treasurer and Chief Financial Officer of UHS in 1992 and served
as its Senior Vice President and Treasurer since 1989.
Mr. Charles F. Boyle was elected Vice President and Controller of the Trust in
June, 1991. Mr. Boyle was promoted to Assistant Vice President - Accounting of
UHS in 1994 and served as its Director of Corporate Accounting since 1989.
Ms. Cheryl K. Ramagano was elected Vice President and Treasurer of the Trust in
September, 1992. Ms. Ramagano was promoted to Assistant Treasurer of UHS in 1994
and served as its Director of Finance since 1990.
Mr. Timothy J. Fowler was elected Vice President, Acquisitions and Development
of the Trust upon the commencement of his employment with UHS in October, 1993.
Prior thereto, he served as a Vice President of The Chase Manhattan Bank, N.A.
since 1986.
The Trust has no salaried employees and the Trust's officers are all employees
of UHS and receive no cash compensation from the Trust.
5
<PAGE>
Item 2. Properties
The following table shows the Trust's individual investments by the type of
healthcare facility, capacity in terms of beds, and five-year occupancy levels
based on the information provided by the lessees or mortgagors.
<TABLE>
<CAPTION>
Number of
available Average Occupancy (1)
Type of beds @ -----------------------------------------
Facility Name and Location facility 12/31/95 1995 1994 1993 1992 1991
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Chalmette Medical Centers
Virtue Street Campus Rehabilitation 45 57% 92% 81% 81% 81%
Patricia Street Campus Acute Care 118 67% 66% 68% 69% 69%
Chalmette, Louisiana (2)
Inland Valley Regional Medical Center Acute Care 80 49% 45% 50% 53% 62%
Wildomar, California (3)
McAllen Medical Center Acute Care 407 87% 89% 86% 91% 79%
McAllen, Texas (3)
Wellington Regional Medical Center Acute Care 120 30% 32% 35% 33% 38%
West Palm Beach, Florida (3)
The BridgeWay Psychiatric 70 65% 61% 57% 54% 63%
North Little Rock, Arkansas
Meridell Achievement Center Psychiatric 114 65% 47% 44% 61% 81%
Austin, Texas (4)
Tri-State Regional Rehabilitation Hospital Rehabilitation 80 59% 61% 71% 78% 70%
Evansville, Indiana (5)
THC - Chicago Sub-Acute Care 67 38% 38% - - -
Chicago, Illinois (6)
Fresno - Herndon Medical Plaza Medical - 100% - - - -
Fresno, California (7) Office Building
Family Doctor's Medical Office Building Medical - 100% - - - -
Shreveport, Louisiana (8) Office Building
Kelsey-Seybold Clinic at King's Crossing Medical - 100% - - - -
Professional Center at King's Crossing Office Buildings - 100% - - - -
Kingwood, Texas (9)
Crouse Irving Memorial Properties Ambulatory - - - - - -
Syracuse, New York (10) Treatment Center
Lake Shore Hospital Psychiatric - - - - - -
Manchester, New Hampshire (11)
</TABLE>
6
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<TABLE>
<CAPTION>
Lease Term
-------------------------------------
Minimum End of Renewal
Facility Name and Location rent initial term term (years)
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chalmette Medical Centers
Virtue Street Campus $1,261,000 1999 25
Patricia Street Campus 879,000 2003 15
Chalmette, Louisiana (2)
Inland Valley Regional Medical Center 1,857,000 2001 30
Wildomar, California (3)
McAllen Medical Center 5,485,000 2001 30
McAllen, Texas (3)
Wellington Regional Medical Center 2,495,000 2001 30
West Palm Beach, Florida (3)
The BridgeWay 683,000 1999 25
North Little Rock, Arkansas
Meridell Achievement Center 1,071,000 2000 20
Austin, Texas (4)
Tri-State Regional Rehabilitation Hospital 1,113,000 1999 25
Evansville, Indiana (5)
THC - Chicago 1,065,000 2001 25
Chicago, Illinois (6)
Fresno - Herndon Medical Plaza 676,000 1999 - various
Fresno, California (7) 2003
Family Doctor's Medical Office Building 175,000 2001 10
Shreveport, Louisiana (8)
Kelsey-Seybold Clinic at King's Crossing 242,000 2004 various
Professional Center at King's Crossing 270,000 2000-2005 various
Kingwood, Texas (9)
Crouse Irving Memorial Properties - - -
Syracuse, New York (10)
Lake Shore Hospital - - -
Manchester, New Hampshire (11)
</TABLE>
7
<PAGE>
(1) Average occupancy rate is based on the average number of available beds
occupied during the years ended December 31, 1995, 1994, 1993, 1992 and
1991. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for effects of various occupancy levels at the
Trust's properties. Average available beds is the number of beds which are
actually in service at any given time for immediate patient use with the
necessary equipment and staff available for patient care. A hospital may
have appropriate licenses for more beds than are in service for a number of
reasons, including lack of demand, incomplete construction, and
anticipation of future needs.
(2) Chalmette Medical Centers, which was formed at the end of 1989 by the
consolidation of two acute care hospitals (Chalmette General Hospital and
De La Ronde Hospital), consists of two facilities separated by
approximately one mile. Each facility is leased pursuant to a separate
lease. The Patricia Street Campus is a 118-bed medical/surgical facility.
The Virtue Street Campus is a 48-bed facility made up of a physical
rehabilitation unit, skilled nursing and inpatient psychiatric services. No
assurance can be given as to the effect of the consolidation on the
underlying value of the Virtue Street and Patricia Street Campuses. Rental
commitments and the guarantee by UHS under the existing leases continue for
the remainder of the respective terms of the leases.
(3) During the third quarter of 1995, UHS purchased the assets of Westlake
Medical Center, ("Westlake") a 126-bed hospital of which the majority of
real estate assets were owned by the Trust and leased to UHS. In exchange
for the real estate assets of Westlake and the termination of the lease,
the Trust received substitution properties valued at approximately $19
million (the Trust's original purchase price of Westlake) consisting of
additional real estate assets which were owned by UHS but related to three
acute care facilities, of which the Trust owns the real estate and which
are operated by UHS (McAllen Medical Center, Inland Valley Regional Medical
Center and Wellington Regional Medical Center). These additional real
estate assets represent major additions and expansions made to these
facilities by UHS since the purchase of the facilities by the Trust from
UHS in 1986. The Trust also purchased from UHS, additional real estate
assets related to McAllen Medical Center for approximately $1.9 million in
cash. Total annual base rental payments from UHS to the Trust on the
substituted properties will be $2.4 million which equals the total base and
bonus rental earned by the Trust on the Westlake facility during 1994 ($2.1
million base and $300,000 bonus). Total annual base rental payments on the
additional real estate assets purchased related to McAllen Medical Center
will be approximately $200,000. Bonus rental on the substituted and
purchased real estate assets will be equal to 1% of the growth in revenues,
in excess of base year amounts, generated by these additional assets. The
guarantee by UHS under the existing leases, as amended to include the
additional property, will continue.
(4) During 1991, the Trust acquired from UHS for approximately $4.1
million, newly constructed patient buildings on the campus of the facility
already owned by the Trust. The buildings are leased back to UHS on
substantially the same terms as the lease already governing the Hospital's
existing assets.
8
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(5) The Trust purchased this hospital during 1989 for approximately $7.5
million. During 1993, the Trust purchased for approximately $1.1 million, a
20 bed addition which was added to the facility. The Trust entered into an
agreement with the operator, an unaffiliated third party, to lease the
facility for an initial fixed term of 10 years, with the operator having
the option to extend the lease for five 5-year renewal terms.
(6) During December of 1993, UHS the former lessee and operator of Belmont
Community Hospital, sold the operations of the facility to THC-Chicago,
Inc. ("THC"), an indirect wholly-owned subsidiary of Community Psychiatric
Centers ("CPC"). Concurrently, the Trust purchased certain related real
property from UHS for $1 million in cash and a note payable with a carrying
value of $1,021,000 at December 31, 1995. The note payable has a face value
of $1 million and is due on December 31, 2001. The amount of interest
payable on this note is contingent upon the financial performance of this
leased facility and its estimated fair value at the end of the initial
lease term. The Trust has estimated the total amount payable under the
terms of this note and has discounted the payments to their net present
value using a 6% rate. Included in the Trust's 1995 financial results is
approximately $63,000 of interest expense related to this note. In
connection with this transaction, UHS's lease with the Trust was terminated
and the Trust entered into an eight year lease agreement with THC, which is
guaranteed by CPC, for the real property of this facility, now operating as
THC-Chicago.
(7) In November of 1994, the Trust purchased the Fresno-Herndon Medical
Plaza located in Fresno, California for $6.3 million. The 37,800 square
foot medical office building is leased to seven tenants, including an
outpatient surgery center operated by Columbia/HCA Healthcare Corporation,
under the terms of leases with expiration dates ranging from November, 1999
to March, 2003. The Trust has granted the seller the option to repurchase
the property in November, 2001 for $7,250,000.
(8) During the third quarter of 1995, the Trust purchased for $1.6 million,
a medical office building on the campus of a hospital owned by Columbia/HCA
Healthcare Corporation located in Shreveport, Louisiana. The medical office
building is currently being leased under the terms of a master lease
agreement with Columbia/HCA Healthcare Corporation.
(9) In December of 1994, the Trust agreed to provide construction financing
for the Professional Center at Kings Crossing, of which $1.1 million was
advanced during 1994 and $3.2 million was advanced during 1995. Interest
accrued monthly at a margin over the one month LIBOR. During the fourth
quarter of 1995, upon completion and occupancy of the properties, the Trust
purchased the single tenant and two multi-tenant medical office buildings
for the total construction cost of $4.3 million. The single tenant building
consists of 20,000 net square feet and is leased to Kelsey-Seybold, a
subsidiary of Caremark International, Inc., for an initial term of 10
years. The two multi-tenant buildings total 27,535 net square feet and are
100% occupied by tenants consisting primarily of medical professionals.
9
<PAGE>
(10) In December of 1993, the Trust provided a $6.5 million mortgage loan
to Crouse Irving Memorial Hospital, a 612 bed general acute care hospital
located in Syracuse, New York for the purchase of the real property of the
Madison Irving Medical Center, an ambulatory treatment center. The loan has
a fifteen year repayment term with principal payments beginning in 1997.
(11) During the second quarter of 1995, the Trust received free and clear
title to Lake Shore Hospital, on which the Trust held a mortgage loan
receivable. During 1994, the Trust reached a settlement agreement with Lake
Shore Hospital, Inc. and Community Care Systems, Inc. concerning the
default of their obligations under the Trust's mortgage loan with Lake
Shore Hospital. Under the terms of the settlement agreement, the Trust
received $1.5 million in cash payments during 1994, of which $1,050,000 was
included in net income as recovery of investment losses and $450,000 was
reserved for future expenses related to the settlement of the facility. The
Trust continues to market the property of Lake Shore Hospital in an effort
to sell or lease the facility to a qualified operator.
Item 3. LEGAL PROCEEDINGS
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable. No matter was submitted during the fourth quarter of the fiscal
year ended December 31, 1995 to a vote of security holders.
10
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Trust's shares of beneficial interest are listed on the New York Stock
Exchange. The high and low closing sales prices for the Trust shares of
beneficial interest for each quarter in the two years ended December 31, 1995
are summarized below:
1995 1994
------------------------ -------------------------
High Price Low Price High Price Low Price
---------- --------- ---------- ---------
First Quarter $ 16 7/8 $ 15 7/8 $ 17 3/4 $ 16 3/8
Second Quarter $ 16 7/8 $ 15 7/8 $ 17 3/4 $ 16
Third Quarter $ 16 7/8 $ 16 $ 17 7/8 $ 16 3/4
Fourth Quarter $ 17 7/8 $ 16 1/2 $ 17 $ 15 7/8
As of February 1, 1996 there were approximately 1,165 shareholders of record of
the Trust's shares of beneficial interest. It is the Trust's intention to
declare quarterly dividends to the holders of its shares of beneficial interest
so as to comply with applicable sections of the Internal Revenue Code governing
real estate investment trusts. Covenants relating to the revolving credit
facility limit the Trust's ability to increase dividends in excess of 95% of
cash available for distribution unless additional distributions are required to
be made as to comply with applicable sections of the Internal Revenue Code and
related regulations governing real estate investment trusts. In each of the past
five years, dividends per share were declared as follows:
1995 1994 1993 1992 1991
---- ----- ----- ----- -----
First Quarter $ .42 $ .415 $ .415 $ .40 $.375
Second Quarter .42 .415 .415 .41 .380
Third Quarter .42 .415 .415 .41 .390
Fourth Quarter .42 .420 .415 .41 .395
------ ------- ------ ------- -----
$ 1.68 $ 1.665 $ 1.66 $ 1.63 $1.54
====== ======= ====== ====== =====
11
<PAGE>
Item 6. SELECTED FINANCIAL DATA
Financial highlights for the Trust for the years ended December 31, 1995, 1994,
1993, 1992 and 1991 were as follows:
<TABLE>
<CAPTION>
1995 (1) 1994 (1) 1993 (1) 1992 1991
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $20,417,000 $18,826,000 $18,263,000 $19,047,000 $19,865,000
Net income (loss) $13,584,000 $14,312,000 $12,259,000 ($1,782,000) $10,795,000
Funds from
Operations (2) $17,024,000 $17,501,000 $14,911,000 $13,737,000 $14,166,000
Per Share Data:
Net income (loss) $1.52 $1.60 $1.45 ($0.25) $1.53
Dividends $1.68 $1.665 $1.66 $1.63 $1.54
</TABLE>
(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(2) Funds from operations, which does not represent cash provided by operating
activities as defined by generally accepted accounting principles and should not
be considered as an alternative to net income as an indicator of the Trust's
operating performance or to cash flows as a measure of liquidity, is calculated
as follows:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 13,584,000 $14,312,000 $12,259,000 ($ 1,782,000) $10,795,000
Depreciation expense 3,315,000 3,127,000 3,023,000 3,052,000 3,078,000
Amortization of interest
rate cap 125,000 62,000 -- -- --
Provision for investment losses -- -- -- 12,467,000 350,000
Gain on investment
in marketable securities -- -- -- -- (57,000)
Gain on disposal of assets -- -- (371,000) -- --
-----------------------------------------------------------------------------------
Total $17,024,000 $17,501,000 $14,911,000 $13,737,000 $14,166,000
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------
At End of Period 1995 1994 1993 1992 1991
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $132,770,000 $128,907,000 $126,657,000 $126,885,000 $136,369,000
Debt $ 26,396,000 $ 21,283,000 $ 18,947,000 $ 49,600,000 $ 45,845,000
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Trust commenced operations on December 24, 1986. As of December 31, 1995,
the Trust had investments in fourteen facilities located in nine states. These
investments include: (i) ownership of four acute care, one comprehensive
rehabilitation and two psychiatric hospitals leased to subsidiaries of Universal
Health Services, Inc. ("UHS"); (ii) ownership of one comprehensive
rehabilitation hospital leased to a subsidiary of HEALTHSOUTH Corporation; (iii)
ownership of one sub-acute care facility leased to THC-Chicago, Inc. ("THC"), an
indirect wholly-owned subsidiary of Community Psychiatric Centers ("CPC"); (iv)
ownership of one medical office building leased to several tenants including an
outpatient surgery center operated by Columbia/HCA Healthcare Corporation
("Columbia"); (v) ownership of a medical office building located on the campus
of a hospital owned by Columbia; (vi) ownership of one single tenant and two
multi-tenant medical office buildings located in Kingwood, Texas; (vii) a
mortgage loan made to Crouse Irving Memorial Properties for the purchase of the
real assets of the Madison Irving Medical Center, an ambulatory treatment
center, and; (viii) ownership of the real estate assets of Lake Shore Hospital,
to which the Trust received free and clear title during the second quarter of
1995. The Trust has been, and will continue to, actively market the property of
Lake Shore Hospital in an effort to sell or lease the facility to a qualified
operator. The leases to the subsidiaries of UHS are guaranteed by UHS and are
cross-defaulted with one another. The lease to the subsidiary of HEALTHSOUTH
Corporation is guaranteed by HEALTHSOUTH Corporation, the lease on the sub-acute
care facility to THC is guaranteed by CPC and the leases to the outpatient
surgery center and the medical office building on the campus of a Columbia
hospital, are guaranteed by Columbia. The lease on the single tenant medical
office building located in Kingwood, Texas is guaranteed by Caremark
International, Inc.
In January of 1996, the Trust invested $5 million to acquire a 50% partnership
interest in three medical office buildings located on the campus of Desert
Samaritan Hospital in Phoenix, Arizona. The three buildings total approximately
219,000 gross square feet and are leased to several tenants including Samaritan
Health System and FHP Inc., a health maintenance organization.
It is the Trust's intention to declare quarterly dividends to the holders of its
shares of beneficial interest so as to comply with applicable sections of the
Internal Revenue Code governing real estate investment trusts. Covenants
relating to the revolving credit facility limit the Trust's ability to increase
dividends in excess of 95% of cash available for distribution unless additional
distributions are required to be made to comply with applicable sections of the
Internal Revenue Code and related regulations governing real estate investment
trusts. During 1995, dividends of $1.68 per share, or $15,032,000 in the
aggregate, were declared and paid.
Net cash generated by operating activities was $17.1 million in 1995, $18.2
million in 1994 and $14.7 million in 1993. The $1.1 million net decrease in 1995
as compared to 1994 was attributable to: (i) the $1.5 million of cash received
during 1994 related to the settlement agreement on Lake Shore Hospital; (ii) a
13
<PAGE>
$300,000 increase in the payment of expenses related to Lake Shore Hospital
during 1995 as compared to 1994, and; (iii) a $700,000 favorable increase in
1995 over 1994 in operating cash flows generated from the remainder of the
Trust's portfolio. The $3.5 million increase in net cash provided by operating
activities in 1994 as compared to 1993 was due primarily to the $1.5 million of
cash received during 1994 related to the Lake Shore Hospital settlement and a
$1.4 million decrease in interest paid due to the reduction in the Trust's
average outstanding borrowings and lower effective interest rates together with
the timing of 1992 accrued interest which was paid in early 1993.
During 1995, the $17.1 million of cash flows generated from operations and the
$5.1 million of additional borrowings were used primarily to: (i) pay dividends
($15.0 million); (ii) purchase additional real property including three medical
office buildings ($4.8 million, net), and; (iii) purchase additional assets at
hospitals operated by UHS and owned by the Trust ($1.9 million) (see Note 3).
During 1994, the $18.2 million of cash flows generated from operations were used
primarily to pay dividends ($14.9 million) and purchase the real property of a
medical building held for lease ($6.3 million). During 1993, the Trust generated
$14.7 million from operations, $32.6 million from the issuance of an additional
1.9 million shares of beneficial interest at $18.25 per share and $3.2 million
from the sale of the real estate assets of a psychiatric facility. These funds
were used primarily to repay indebtedness under the Trust's revolving credit
facility ($31.6 million), pay dividends ($14.1 million), invest in a mortgage
loan receivable and acquire additional real estate assets.
In December of 1994, the Trust agreed to provide construction financing for the
Professional Center at Kings Crossing, of which $1.1 million was advanced during
1994 and $3.2 million was advanced during 1995. Interest accrued monthly at a
margin over the one month LIBOR. During the fourth quarter of 1995, upon
completion and occupancy of the properties, the Trust purchased the single
tenant and two multi-tenant medical office buildings for the total construction
cost of $4.3 million. The single tenant building consists of 20,000 net square
feet and is leased to Kelsey-Seybold, a subsidiary of Caremark International,
Inc., for an initial term of 10 years. The two multi-tenant buildings total
27,535 net square feet and are 100% occupied by tenants consisting primarily of
medical professionals.
During the third quarter of 1995, the Trust purchased for $1.6 million, a
medical office building located on the campus of a hospital owned by
Columbia/HCA Healthcare Corporation located in Shreveport, Louisiana. The
medical office building is currently being leased under the terms of a master
lease agreement with Columbia/HCA Healthcare Corporation.
The Trust has a $45 million non-amortizing revolving credit agreement (the
"Agreement") which provides for interest at the Trust's option, at the
certificate of deposit rate plus 3/4%, Eurodollar rate plus 3/4% or the prime
rate. A fee of 3/8% is required on the unused portion of this commitment. As of
December 31, 1995, the Trust has approximately $20 million of unused borrowing
capacity under its revolving credit facility. The Agreement matures on February
28, 1997 at which time all amounts then outstanding are required to be repaid.
The Agreement contains a provision whereby the commitments will be reduced by
50% of the proceeds of any new equity offering.
The Trust has entered into interest rate swap agreements and an interest rate
cap agreement to reduce the impact of changes in the interest rates on its
floating rate revolving credit notes. The Trust has three outstanding swap
14
<PAGE>
agreements, two in the amount of $5 million each which mature in April, 1997 and
May, 1999, and another in the amount of $1,580,000 which matures in May, 2001.
These swap agreements effectively fix the interest rate on $11,580,000 million
of variable rate debt at 7.55%. The interest rate cap, for which the Trust paid
$622,750, matures in June, 1999 and fixes the maximum rate on $15 million of
variable rate revolving credit notes at 7.75%. The interest rate swap and cap
agreements were entered into in anticipation of certain borrowing transactions
made by the Trust during 1994, 1995 and 1996. The Trust is exposed to credit
loss in the event of nonperformance by the counterparties to the interest rate
swap and cap agreements. These counterparties are major financial institutions
and the Trust does not anticipate nonperformance by the counterparties, which
are rated A or better by Moody's Investors Service. At December 31, 1995,
termination of the interest rate swaps would have resulted in payments to the
counterparties of approximately $450,000 and termination of the interest rate
cap would have resulted in a payment to the Trust of approximately $100,000.
Covenants related to the revolving credit facility require the maintenance of a
minimum tangible net worth and specified financial ratios, limit the Trust's
ability to incur additional debt, increase dividends in excess of 95% of cash
flow and limit the aggregate amount of mortgage receivables. Management of the
Trust believes that cash generated from operations and other available sources
of capital will be sufficient to fund current operations, repay current
maturities of long-term debt, finance planned expenditures and permit
distributions to shareholders so as to comply with the applicable sections of
the Internal Revenue Code governing real estate investment trusts.
Results of Operations
Total revenues increased 9% ($1.6 million) to $20.4 million in 1995 over 1994
and 3% ($563,000) to $18.8 million in 1994 over 1993. The $1.6 million increase
during 1995 was attributable to: (i) a $224,000 increase in base rental from UHS
facilities resulting from the purchase by the Trust of additional real estate
assets related to McAllen Medical Center and the additional base rental
generated from the Westlake Medical Center swap transaction (see Note 3), (ii) a
$1.1 million increase in base rental from non-related parties resulting from the
acquisitions of medical office buildings in November of 1994 and the third and
fourth quarters of 1995 (see Note 3), (iii) a $144,000 increase in bonus
rentals, which are computed as a percentage of each facility's revenue in excess
of base year amounts or CPI increases in excess of base year amounts, and; (iv)
a $125,000 increase in interest income.
The $563,000 increase in net revenue during 1994 as compared to 1993 was
attributable to: (i) a $194,000 increase in total base rentals resulting from a
$1 million increase in base rentals from non-related parties partially offset by
a $812,000 decrease in base rentals from UHS facilities (see below); (ii) an
increase of $307,000 in interest income consisting of $663,000 of interest
earned on the $6.5 million mortgage loan advanced in December of 1993, partially
offset by a $320,000 decrease in the interest earned under the terms of the
construction loan which was fully repaid during the third quarter of 1994, and;
(iii) a $62,000 increase in bonus rentals. The decrease in the base rentals from
UHS facilities and corresponding increase in base rentals from non-related
parties is due to the increase in the invested real estate assets and the lease
rate of an acute care facility which was sold by UHS, the former owner and
operator, to THC in December, 1993.
15
<PAGE>
Approximately $104,000, $124,000 and $130,000 of the Trust's 1995, 1994 and 1993
bonus rentals, respectively, were attributable to special Medicaid reimbursement
programs which relate to an acute care hospital owned by the Trust. The
facility, which participates in the Texas Medical Assistance Program, became
eligible and received additional reimbursements from the state's
disproportionate share hospital fund since the facility met certain conditions
of participation and served a disproportionately high share of the state's low
income patients. Pursuant to the terms of this program, as renewed for the
period of September, 1995 through August, 1996, the annual bonus rental payments
to the Trust related to revenues generated under this program will be reduced to
approximately $40,000 per year. This program is scheduled to terminate in
August, 1996 and the Trust cannot predict whether this program will continue
beyond the scheduled termination date.
For the twelve months ended December 31, 1995, one of the UHS facilities did not
generate sufficient earnings before interest, taxes, depreciation, amortization
and lease and rental expense (EBITDAR) to cover the 1995 rent expense payable to
the Trust. The lease on this facility, which matures in 2001, generated 12% of
the Trust's 1995 rental income. Three additional UHS facilities had 1995 EBITDAR
which was less than 1.5 times the 1995 rent expense payable to the Trust. The
leases on these three facilities, which mature in 1999, 2000 and 2001, generated
on a combined basis, 22% of the Trust's 1995 rental income. All of the Trust's
remaining hospital facilities, including the facilities operated by non-related
parties, had 1995 EBITDAR greater than 2.5 times the 1995 rent expense payable
to the Trust. Management of the Trust cannot predict whether the leases with
subsidiaries of UHS, which have initial renewal options at the existing lease
rates, or any of the Trust's other leases, will be renewed at the end of their
initial terms. The leases to the subsidiaries of UHS are guaranteed by UHS and
are cross-defaulted with one another.
The average occupancy rate of a hospital is affected by a number of factors,
including the number of physicians using the hospital, changes in the number of
beds, the composition and size of the population of the community in which the
hospital is located, general and local economic conditions, variations in local
medical and surgical practices and the degree of outpatient use of the hospital
services. Current industry trends in utilization and occupancy have been
significantly affected by changes in reimbursement policies of third party
payors. A continuation of such industry trends could have a material adverse
impact upon the future operating performance of the Trust's facilities. The
Trust's facilities have experienced growth in outpatient utilization over the
past several years. The increase is primarily the result of advances in medical
technologies, which allow more services to be provided on an outpatient basis,
and increased pressure from Medicare, Medicaid, health maintenance organizations
(HMOs), preferred provider organizations (PPOs) and insurers to reduce hospital
stays and provide services, where possible, on a less expensive outpatient
basis. The Trust expects growth in outpatient services to continue, although the
rate of growth may be moderated in the future.
An increased proportion of the Trust's hospitals revenue is derived from fixed
payment services, including Medicare and Medicaid. Management of the Trust's
hospitals expects the Medicare and Medicaid revenues to continue to increase as
a larger portion of the general population qualifies for coverage as a result of
the aging population and expansion of the state Medicaid programs. The Medicare
program reimburses the Trust's hospitals primarily based on established rates by
a diagnosis related group for acute care hospitals and by a cost based formula
16
<PAGE>
for psychiatric hospitals. In addition to the Medicare and Medicaid programs,
other payors continue to actively negotiate the amounts they will pay for
services performed. In general, management of the Trust's hospitals expects the
percentage of its business from managed care programs, including HMOs and PPOs,
to grow. The consequent growth in managed networks and the resulting impact of
these networks on the operating results of the Trust's facilities vary among the
markets in which the Trust's facilities operate. The Trust is unable to predict
the rate of growth of the net revenues of its facilities and the resulting
impact on bonus revenues, which are computed as a percentage of each facility's
net revenues in excess of base year amounts or CPI increases in excess of base
year amounts, because the net revenues of the Trust's facilities are dependent
upon developments in medical technologies and physician practice patterns, both
of which are beyond the control of management of the facilities.
In addition to the trends described above that continue to have an impact on the
revenues of the Trust's facilities, there are a number of other, more general
factors affecting the Trust's facilities. Both the House of Representatives and
the Senate have passed legislation providing for substantial Medicare savings
over a seven year period, including reductions in payments to hospitals, which
would limit the rate of growth of the program. The House of Representatives and
the Senate bills have not yet been reconciled and the ultimate legislation will
be subject to Presidential approval. Management of the Trust cannot predict what
new legislation may ultimately be enacted, and if enacted, no assurance can be
given that the implementation of such reforms will not have a material adverse
effect on the operating results of the Trust's facilities. In Texas, a law has
been passed which mandates that the state senate apply for a waiver from current
Medicaid regulations to allow the state to require that certain Medicaid
participants be serviced through managed care providers. Management of the Trust
is unable to predict whether Texas will be granted such a waiver or the effect
on the operating results of the Trust's Texas facilities of such a waiver.
Interest expense increased $679,000 or 59% in 1995 over 1994 due primarily to
the increased borrowings used to finance the purchase of the medical office
buildings in Kingwood, Texas and Shreveport, Louisiana and the purchase of an
additional $1.9 million of real assets related to McAllen Medical Center. Also
contributing to the increased interest expense in 1995 as compared to 1994 was
the $6.3 million of additional borrowings used to finance the purchase of the
Fresno-Herndon Medical Plaza in November of 1994. Interest expense decreased
$759,000 in 1994 as compared to 1993, due to lower average outstanding
borrowings and lower effective interest rates.
Depreciation and amortization expense increased $100,000 or 3% in 1995 as
compared to 1994 due to: (i) a $188,000 increase in depreciation expense related
primarily to the purchase of the medical office buildings and additional real
assets purchased in 1995, as mentioned above, and a full year of depreciation
expense recorded on the Fresno-Herndon MOB which was purchased by the Trust in
December of 1994, and; (ii) an $88,000 decrease in amortization of financing
costs due to 1994 including $79,000 of accelerated amortization of financing
costs related to the old revolving credit agreement. Depreciation and
amortization expense increased $142,000 or 5% in 1994 as compared to 1993 due
primarily to the $79,000 of amortization expense recorded in 1994 related to the
amortization of the old revolving credit agreement financing costs and increased
17
<PAGE>
depreciation expense on the $1.9 million of additional real estate assets
purchased by the Trust in December of 1993 related to its sub-acute care
facility in Chicago, Illinois leased to THC.
Other operating expenses increased $262,000 or 64% in 1995 as compared to 1994
due primarily to the expenses related to the Fresno-Herndon Medical Plaza which
was acquired by the Trust in November of 1994. These expenses, which are passed
on directly to the tenants of the Medical Plaza, are included as revenue in the
Trust's statements of income.
Included in the financial results for 1994, as recorded as recovery of
investment losses, was $1,234,000 consisting of: (i) $1.5 million of cash
payments received related to the Lake Shore Hospital settlement agreement
partially offset by a $450,000 increase in the reserve established for future
expenses related to the settlement of Lake Shore Hospital, and; (iii) $184,000
of proceeds received during 1994 related to an investment in marketable equity
securities which was written down to zero in a prior year. As of December 31,
1995, the balance in the Lake Shore Hospital reserve account was $158,000.
Included in the financial results for 1993 was a $371,000 gain on the
disposition of a psychiatric facility sold by the Trust during the first quarter
of 1993.
Net income for 1995 was $13.6 million or $1.52 per share, compared to $14.3
million or $1.60 per share in 1994 and $12.3 million or $1.45 per share in 1993.
Funds from operations ("FFO"), which is the sum of net income plus depreciation
expense, amortization of interest rate cap expense, provision for investment
losses, less gain on disposal of assets and marketable securities, totaled $17.0
million in 1995, $17.5 million in 1994 and $14.9 million in 1993. FFO does not
represent cash flows from operations as defined by generally accepted accounting
principles and should not be considered as an alternative to net income as an
indicator of the Trust's operating performance or to cash flows as a measure of
liquidity.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Trust's Balance Sheets and its Statements of Income, Changes in
Shareholders' Equity and Cash Flows, together with the report of Arthur Andersen
LLP, independent public accountants, are included elsewhere herein. Reference is
made to the "Index to Financial Statements and Schedules."
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
18
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information to appear under the
caption "Election of Trustees" in the Trust's definitive Proxy Statement to be
filed with the Securities and Exchange Commission within 120 days after December
31, 1995. See also "Executive Officers of the Registrant" appearing in Part I
hereof.
Item 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information under the caption
"Executive Compensation" and "Compensation Pursuant to Plans" in the Trust's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after December 31, 1995.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
There is hereby incorporated by reference the information under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the Trust's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after December 31, 1995.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information under the caption
"Transactions With Management and Others" in the Trust's definitive Proxy
Statement to be filed with the Securities and Exchange Commission within 120
days after December 31, 1995.
19
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Financial Statements and Financial Statement Schedules:
1) Report of Independent Public Accountants
2) Financial Statements
Balance Sheets - December 31, 1995 and December 31, 1994.
Statements of Income - Years Ended December 31, 1995, 1994
and 1993.
Statements of Changes in Shareholders' Equity - Years Ended
December 31, 1995, 1994 and 1993.
Statements of Cash Flows - Years Ended December 31, 1995,
1994 and 1993.
Notes to Financial Statements - December 31, 1995
(3) Schedules
Schedule II - Valuation and Qualifying Accounts - Years
Ended December 31, 1995, 1994 and 1993.
Schedule III - Real Estate and Accumulated Depreciation -
December 31, 1995. Notes to Schedule III - December 31,
1995.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of the
year ended December 31, 1995.
(c) Exhibits:
3.1 Declaration of Trust, dated as of August 1986, previously filed as
Exhibit 3.1 to Amendment No. 3 of the Registration Statement on Form S-11 and
Form S-2 of Universal Health Services, Inc. and the Trust (Registration No.
33-7872), is incorporated herein by reference.
3.2 Amendment to Declaration of Trust, dated as of June 23, 1993,
previously filed as Exhibit 3.2 to the Trust's Annual Report on Form 10-K for
the year ended December 31, 1993, is incorporated herein by reference.
3.3 Amended and restated bylaws, filed as Exhibit 3.2 to the Trust's
Annual Report on Form 10-K for the year ended December 31, 1988, is incorporated
herein by reference.
10.1 Advisory Agreement, dated as of December 24, 1986, between UHS of
Delaware, Inc. and The Trust, previously filed as Exhibit 10.2 to the Trust's
Current Report on Form 8-K dated December 24, 1986, is incorporated herein by
reference.
20
<PAGE>
10.2 Agreement effective January 1, 1996, to renew Advisory Agreement
dated as of December 24, 1986 between Universal Health Realty Income Trust and
UHS of Delaware, Inc.
10.3 Contract of Acquisition, dated as of August 1986, between the
Trust and certain subsidiaries of Universal Health Services, Inc., previously
filed as Exhibit 10.2 to Amendment No. 3 of the Registration Statement on Form
S-11 and S-2 of Universal Health Services, Inc. and the Trust (Registration No.
33-7872), is incorporated herein by reference.
10.4 Form of Leases, including Form of Master Lease Document Leases,
between certain subsidiaries of Universal Health Services, Inc. and the Trust,
previously filed as Exhibit 10.3 to Amendment No. 3 of the Registration
Statement on Form S-11 and Form S-2 of Universal Health Services, Inc. and the
Trust (Registration No. 33-7872), is incorporated herein by reference.
10.5 Share Option Agreement, dated as of December 24, 1986, between the
Trust and Universal Health Services, Inc., previously filed as Exhibit 10.4 to
the Trust's Current Report on Form 8-K dated December 24, 1986, is incorporated
herein by reference.
10.6 Corporate Guaranty of Obligations of Subsidiaries Pursuant to
Leases and Contract of Acquisition, dated December 1986, issued by Universal
Health Services, Inc. in favor of the Trust, previously filed as Exhibit 10.5 to
the Trust's Current Report on Form 8-K dated December 24, 1986, is incorporated
herein by reference.
10.7 Loan Agreement dated August 30, 1988 between the Trust and Lake
Shore Hospital, Inc., previously filed as Exhibit 10.1 to the Trust's quarterly
report on Form 10-Q for the quarter ended September 30, 1988, is incorporated
herein by reference.
10.8 Contract of Acquisition dated August 31, 1988 between the Trust,
Rehab Systems Company, Inc. and Tri-State Regional Rehabilitation Hospital,
Inc., previously filed as Exhibit 10.2 to the Trust's September 30, 1988 Form
10-Q, is incorporated herein by reference.
10.9 Key Employees' Restricted Share Purchase Plan approved by the
Trustees on December 1, 1988 which authorized the issuance of up to 50,000
common shares, previously filed as Exhibit 10.11 to the Trust's Annual Report on
form 10-K for the year ended December 31, 1988, is incorporated herein by
reference.
10.10 Share Compensation Plan for Outside Trustees, previously filed as
Exhibit 10.12 to the Trust's Annual Report on Form 10-K for the year ended
December 31, 1991, is incorporated herein by reference.
10.11 1988 Non-Statutory Stock Option Plan, as amended, previously
filed as Exhibit 10.13 to the Trust's Annual Report on Form 10-K for the year
ended December 31, 1991, is incorporated herein by reference.
10.12 Loan Agreement and Deed of Trust Note between Concord/Reston
Limited Partnership and Universal Health Realty Income Trust dated August 13,
1992, previously filed as Exhibit 10.16 to the Trust's Annual Report on Form
10-K for the year ended December 31, 1992, is incorporated herein by reference.
21
<PAGE>
10.13 Revolving Credit Agreement dated as of March 7, 1994, by and
among Universal Health Realty Income Trust, CoreStates Bank, N.A., as agent, The
First National Bank of Boston and First Fidelity Bank, National Association,
previously filed as Exhibit 10.13 to the Trust's Annual Report on Form 10-K for
the year ended December 31, 1993, as incorporated herein by reference.
10.14 Lease dated December 22, 1993, between Universal Health Realty
Income Trust and THC-Chicago, Inc. as lessee, previously filed as Exhibit 10.14
to the Trust's Annual Report on Form 10-K for the year ended December 31, 1993,
is incorporated herein by reference.
10.15 Mortgage Modification, Consolidation and Extension Agreement and
Consolidated Note dated December 28, 1993 in the amount of $6,500,000.00 from
Crouse Irving Memorial Properties, Inc. to Universal Health Realty Income Trust,
previously filed as Exhibit 10.15 to the Trust's Annual Report on Form 10-K for
the year ended December 31, 1993, is incorporated herein by reference.
10.16 Agreement for Purchase and Sale and Repurchase Agreement dated as
of November 4, 1994 between Fresno-Herndon Partners, Limited and Universal
Health Realty Income Trust, previously filed as Exhibit 10.16 to the Trust's
Annual Report on Form 10-K for the year ended December 31, 1994, is incorporated
herein by reference.
10.17 Agreement of Purchase and Sale, and Construction Loan Agreement
dated as of December 20, 1994 between Turner Adreac, L.C. and Universal Health
Realty Income Trust, previously filed as Exhibit 10.17 to the Trust's Annual
Report on Form 10-K for the year ended December 31, 1994, is incorporated herein
by reference.
10.18 Sale Agreement, dated as of September 1, 1995, by and among
Universal Health Realty Income Trust and Desert Commercial Properties Limited
Partnership.
10.19 Operating Agreement of DSMB Properties, L.L.C., dated as of
September 1, 1995, by and among Universal Health Realty Income Trust and Desert
Commercial Properties Limited Partnership.
10.20 Agreement and Escrow Instructions, dated as of August 15, 1995,
by and between Phase III Desert Samaritan Medical Building Partners and Desert
Commercial Properties Limited Partnership.
27 Financial Data Schedule
28.1 Dividend Reinvestment Plan for Stockholders, previously filed as
Exhibit 28.1 to the Trust's Form 10-Q for the quarter ended March 31, 1987, is
incorporated herein by reference.
22
<PAGE>
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.
Date: March 14, 1996
UNIVERSAL HEALTH REALTY INCOME TRUST
(Registrant)
By: /s/ Alan B. Miller
------------------------------------------
Alan B. Miller, Chairman of the Board
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
---- -------------------
/s/ Alan B. Miller
--------------------------------------
March 14, 1996 Alan B. Miller, Chairman of the Board
and Chief Executive Officer
/s/ Kirk E. Gorman
--------------------------------------
March 14, 1996 Kirk E. Gorman, President, Chief
Financial Officer, Secretary and Trustee
/s/ Peter Linneman
--------------------------------------
March 15, 1996 Peter Linneman, Trustee
/s/ Myles H. Tanenbaum
--------------------------------------
March 18, 1996 Myles H. Tanenbaum, Trustee
/s/ Michael R. Walker
--------------------------------------
March 15, 1996 Michael R. Walker, Trustee
/s/ Daniel M. Cain
--------------------------------------
March 15, 1996 Daniel M. Cain, Trustee
/s/ Charles F. Boyle
--------------------------------------
March 14, 1996 Charles F. Boyle, Vice President and
Controller
/s/ Cheryl K. Ramagano
--------------------------------------
March 14, 1996 Cheryl K. Ramagano, Vice President and
Treasurer
/s/ Timothy J. Fowler
--------------------------------------
March 15, 1996 Timothy J. Fowler, Vice President,
Acquisitions and Development
23
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
----
Report of Independent Public Accountants F-2
Balance Sheets - December 31, 1995 and December 31, 1994 F-3
Statements of Income - Years Ended December 31, 1995,
1994 and 1993 F-4
Statements of Changes in Shareholders' Equity - Years Ended
December 31, 1995, 1994 and 1993 F-5
Statements of Cash Flows - Years Ended December 31, 1995,
1994 and 1993 F-6
Notes to Financial Statements - December 31, 1995 F-7
Schedule II - Valuation and Qualifying Accounts -
Years Ended December 31, 1995, 1994 and 1993 F-16
Schedule III - Real Estate and Accumulated Depreciation -
December 31, 1995 F-17
Notes to Schedule III - December 31, 1995 F-19
F-1
<PAGE>
Report of Independent Public Accountants
To The Shareholders and Board of Trustees of
Universal Health Realty Income Trust:
We have audited the accompanying balance sheets of Universal Health Realty
Income Trust (a Maryland real estate investment trust) as of December 31, 1995
and 1994 and the related statements of income, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements and the schedules referred to below are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and schedules 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 financial statements referred to above present fairly, in
all material respects, the financial position of Universal Health Realty Income
Trust, as of December 31, 1995 and 1994 and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the Index to
Financial Statements and Schedules on Page F-1 are presented for the purpose of
complying with the Securities and Exchange Commission's rules and are not a
required part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Arthur Andersen LLP
Philadelphia, Pennsylvania
January 17, 1996
F-2
<PAGE>
Universal Health Realty Income Trust
Balance Sheets
<TABLE>
<CAPTION>
December 31,
------------------------------------
1995 1994
----------- ------------
<S> <C> <C>
Assets:
- - -------
Real Estate Investments:
Buildings & improvements $129,961,000 $119,587,000
Accumulated depreciation (22,986,000) (22,646,000)
------------ ------------
106,975,000 96,941,000
Land 17,927,000 23,482,000
Mortgage loans receivable, net 6,444,000 6,440,000
Construction loan note receivable, net -- 1,143,000
Reserve for investment losses (158,000) (490,000)
------------ ------------
Net Real Estate Investments 131,188,000 127,516,000
Other Assets:
Cash 139,000 2,000
Bonus rent receivable from UHS 606,000 621,000
Rent receivable from non-related parties 13,000 68,000
Construction and mortgage loan interest receivable -- 3,000
Deferred charges, net 516,000 697,000
Deposits 308,000 --
------------ ------------
$132,770,000 $128,907,000
============ ============
Liabilities and Shareholders' Equity:
- - -------------------------------------
Liabilities:
Bank borrowings $25,375,000 $20,320,000
Note payable to UHS 1,021,000 963,000
Accrued interest 157,000 117,000
Accrued expenses & other liabilities 676,000 698,000
Tenant reserves, escrows, deposits and prepaid re 544,000 364,000
Commitments and Contingencies
Shareholders' Equity:
Preferred shares of beneficial interest,
$.01 par value; 5,000,000 shares authorized;
none outstanding -- --
Common shares, $.01 par value;
95,000,000 shares authorized; issued
and outstanding: 8,947,192 shares
in 1995 and 1994 89,000 89,000
Capital in excess of par value 128,643,000 128,643,000
Cumulative net income 83,996,000 70,412,000
Cumulative dividends (107,731,000) (92,699,000)
------------ ------------
Total Shareholders' Equity 104,997,000 106,445,000
------------ ------------
$132,770,000 $128,907,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Universal Health Realty Income Trust
Statements of Income
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1995 1994 1993
--------- ---------- -----------
Revenues (Note 2):
- - ------------------
<S> <C> <C> <C>
Base rental - UHS facilities $13,491,000 $13,267,000 $14,079,000
Base rental - Non-related parties 3,195,000 2,097,000 1,091,000
Bonus rental 2,773,000 2,629,000 2,567,000
Interest 958,000 833,000 526,000
----------- ----------- -----------
20,417,000 18,826,000 18,263,000
----------- ----------- -----------
Expenses:
- - ---------
Depreciation & amortization 3,382,000 3,282,000 3,140,000
Interest expense 1,825,000 1,146,000 1,905,000
Advisory fees to UHS (Note 2) 953,000 909,000 880,000
Other operating expenses 673,000 411,000 450,000
Recovery of investment losses -- (1,234,000) --
----------- ----------- -----------
6,833,000 4,514,000 6,375,000
----------- ----------- -----------
Income before gain on disposal of assets 13,584,000 14,312,000 11,888,000
Gain on disposal of assets -- -- 371,000
----------- ----------- -----------
Net Income $13,584,000 $14,312,000 $12,259,000
=========== =========== ===========
Net Income Per Share $1.52 $1.60 $1.45
=========== =========== ===========
Weighted average number of shares and equivalents 8,947,000 8,947,000 8,457,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
Universal Health Realty Income Trust
Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Common Shares
------------------------------ Capital in
Number excess of Cumulative Cumulative
of Shares Amount par value net income dividends
--------- ------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
January 1, 1993 7,047,192 $70,000 $96,092,000 $43,841,000 ($63,738,000)
Net Income -- -- -- 12,259,000 --
Dividends ($1.66/share) -- -- -- -- (14,064,000)
Net proceeds from issuance
of shares of beneficial interest 1,900,000 19,000 32,551,000 -- --
- - -------------------------------------------------------------------------------------------------------------------------------
January 1, 1994 8,947,192 89,000 128,643,000 56,100,000 (77,802,000)
Net Income -- -- -- 14,312,000 --
Dividends ($1.665/share) -- -- -- -- (14,897,000)
- - -------------------------------------------------------------------------------------------------------------------------------
January 1, 1995 8,947,192 89,000 128,643,000 70,412,000 (92,699,000)
Net Income -- -- -- 13,584,000 --
Dividends ($1.68/share) -- -- -- -- (15,032,000)
- - -------------------------------------------------------------------------------------------------------------------------------
December 31, 1995 8,947,192 $89,000 $128,643,000 $83,996,000 ($107,731,000)
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
Universal Health Realty Income Trust
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------
1995 1994 1993
------------- ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $13,584,000 $14,312,000 $12,259,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation & amortization 3,382,000 3,282,000 3,140,000
Provision for investment losses -- 450,000 --
Amortization of interest rate cap 125,000 62,000 --
Loss (gain) on disposal of assets -- 15,000 (371,000)
Gain on investment in marketable securities -- (184,000) --
Changes in assets and liabilities:
Rent receivable 70,000 80,000 (161,000)
Accrued expenses & other liabilities (22,000) 57,000 137,000
Tenant escrows, deposits & prepaid rents 180,000 92,000 --
Construction & mortgage loan interest receivable 3,000 11,000 488,000
Accrued interest 40,000 78,000 (477,000)
Reserve for investment losses (332,000) (37,000) (173,000)
Deferred charges & other 43,000 (19,000) (114,000)
---------- ---------- ----------
Net cash provided by operating activities 17,073,000 18,199,000 14,728,000
---------- ---------- ----------
Cash flows from investing activities:
Sale of real property -- 40,000 3,218,000
Acquisition of real property (7,794,000) (6,340,000) (2,062,000)
Advances under construction note receivable (3,190,000) (1,727,000) (6,103,000)
Repayments under construction note receivable 4,333,000 2,759,000 8,612,000
Proceeds from investments in marketable securities -- 184,000 --
Other (308,000) 272,000 --
Advances under mortgage loan receivable -- -- (6,500,000)
---------- ---------- -----------
Net cash used in investing activities (6,959,000) (4,812,000) (2,835,000)
---------- ---------- ----------
Cash flows from financing activities:
Additional borrowings, net of financing costs 5,055,000 2,091,000 --
Repayment of debt -- -- (31,560,000)
Purchase of interest rate cap -- (623,000) --
Dividends paid (15,032,000) (14,897,000) (14,064,000)
Proceeds from issuance of shares of benefical
interest, net -- -- 32,570,000
----------- ----------- -----------
Net cash used in financing activities (9,977,000) (13,429,000) (13,054,000)
----------- ----------- -----------
Increase (decrease) in cash 137,000 (42,000) (1,161,000)
Cash, beginning of period 2,000 44,000 1,205,000
----------- ----------- -----------
Cash, end of period $139,000 $2,000 $44,000
=========== =========== ===========
Supplemental disclosures of cash flow information:
Interest paid $1,602,000 $1,012,000 $2,382,000
========== ========== ==========
Supplemental disclosures of non-cash investing and financing activities:
See Notes 3 and 5
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
Universal Health Realty Income Trust
Notes to Financial Statements
December 31, 1995
(1) Summary of Significant Accounting Policies
Nature of Operations
Universal Health Realty Income Trust (the "Trust") is organized as a Maryland
real estate investment trust. As of December 31, 1995 the Trust had investments
in fourteen facilities located in nine states consisting of investments in
healthcare and human service related facilities including acute care hospitals,
psychiatric hospitals, rehabilitation hospitals, sub-acute care facilities,
surgery centers and medical office buildings, some of which are leased to
subsidiaries of Universal Health Services, Inc., ("UHS").
Federal Income Taxes
No provision has been made for Federal income tax purposes since the Trust
qualifies as a real estate investment trust under Sections 856 to 860 of the
Internal Revenue Code of 1986, and intends to continue to remain so qualified.
As such, it is required to distribute at least 95 percent of its real estate
investment taxable income to its shareholders.
The Trust is subject to a Federal excise tax computed on a calendar year basis.
The excise tax equals 4% of the excess, if any, of 85% of the Trust's ordinary
income plus 95% of any capital gain income for the calendar year over cash
distributions during the calendar year, as defined. No provision for excise tax
has been reflected in the financial statements as no tax was due.
Earnings and profits, which will determine the taxability of dividends to
shareholders, will differ from net income reported for financial reporting
purposes due to the differences for Federal tax purposes in the cost basis of
assets and in the estimated useful lives used to compute depreciation and the
recording of provision for investment losses.
Real Estate Properties
The Trust records acquired real estate at cost and uses the straight-line method
of depreciation for buildings and improvements over estimated useful lives of 25
to 45 years.
It is the Trust's policy to review the carrying value of long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. In 1995, the Financial
Accounting Standards Board released Statement of Financial Accounting Standards
(SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." The Statement requires the recognition of
an impairment loss for an asset held for use when the estimate of undiscounted
future cash flows expected to be generated by the asset is less than its
carrying amount. Measurement of the impairment loss is based on fair value of
the asset. Generally, fair value will be determined using valuation techniques
F-7
<PAGE>
such as the present value of expected future cash flows. The Trust will adopt
the provisions of SFAS No. 121 in 1996, however, the Trust does not expect the
adoption of the SFAS No. 121 to have a material impact on its financial
statements.
Per Share Data
Net income per share is based on the weighted average number of shares of
beneficial interest outstanding during the year adjusted to give effect to share
equivalents, consisting of stock options.
Statements of Cash Flows
For purposes of the Statements of Cash Flows, the Trust considers all highly
liquid investment instruments with original maturities of three months or less
to be cash equivalents.
Interest Rate Protection Agreements
In managing interest rate exposure, the Trust at times enters into interest rate
swap agreements and interest rate cap agreements. When interest rates change,
the differential to be paid or received under the Trust's interest rate swap
agreements is accrued as interest expense and is recognized over the life of the
agreements. Premiums paid for purchased interest rate cap agreements are
amortized to interest expense over the terms of the caps. Unamortized premiums
are included in deferred charges in the accompanying balance sheet. Amounts
receivable under the cap agreements is accrued as a reduction of interest
expense.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(2) Related Party Transactions
UHS of Delaware, Inc. (the "Advisor"), a wholly-owned subsidiary of UHS, serves
as Advisor to the Trust under an Advisory Agreement dated December 24, 1986
between the Advisor and the Trust (the "Advisory Agreement"). Under the Advisory
Agreement, the Advisor is obligated to present an investment program to the
Trust, to use its best efforts to obtain investments suitable for such program
(although it is not obligated to present any particular investment opportunity
to the Trust), to provide administrative services to the Trust and to conduct
the Trust's day-to-day affairs. In performing its services under the Advisory
Agreement, the Advisor may utilize independent professional services, including
accounting, legal and other services, for which the Advisor is reimbursed
directly by the Trust. The Advisory Agreement expires on December 31 of each
year; however, it is renewable by the Trust, subject to a determination by the
Independent Trustees that the Advisor's performance has been satisfactory and to
the termination rights of the parties. The Advisory Agreement may be terminated
F-8
<PAGE>
for any reason upon sixty days written notice by the Trust or the Advisor. The
Advisory Agreement has been renewed for 1996. All transactions with UHS must be
approved by the Independent Trustees.
The Advisory Agreement provides that the Advisor is entitled to receive an
annual advisory fee equal to .60% of the average invested real estate assets of
the Trust, as derived from its consolidated balance sheet from time to time. In
addition, the Advisor is entitled to an annual incentive fee equal to 20% of the
amount by which cash available for distribution to shareholders, as defined in
the Advisory Agreement, for each year exceeds 15% of the Trust's equity as shown
on its balance sheet, determined in accordance with generally accepted
accounting principles without reduction for return of capital dividends. No
incentive fees were paid during 1995, 1994 and 1993. The advisory fee is payable
quarterly, subject to adjustment at year end based upon audited financial
statements of the Trust.
For the years ended December 31, 1995, 1994 and 1993, 79%, 83% and 91%,
respectively, of the Trust's gross revenues were earned under the terms of the
leases with wholly-owned subsidiaries of UHS. UHS has unconditionally guaranteed
the obligations of its subsidiaries under these leases. For the twelve months
ended December 31, 1995, one of the UHS facilities did not generate sufficient
earnings before interest, taxes, depreciation, amortization and lease and rental
expense (EBITDAR) to cover the 1995 rent expense payable to the Trust. The lease
on this facility, which matures in 2001, generated 12% of the Trust's 1995
rental income. Three additional UHS facilities had 1995 EBITDAR which was less
than 1.5 times the 1995 rent expense payable to the Trust. The leases on these
three facilities, which mature in 1999, 2000 and 2001, generated on a combined
basis, 22% of the Trust's 1995 rental income. All of the Trust's remaining
hospital facilities, including the facilities operated by non-related parties,
had 1995 EBITDAR greater than 2.5 times the 1995 rent expense payable to the
Trust. Management of the Trust cannot predict whether the leases with
subsidiaries of UHS, which have initial renewal options of the existing lease
rates, or any of the Trust's other leases, will be renewed at the end of their
initial terms. The leases to the subsidiaries of UHS are guaranteed by UHS and
are cross-defaulted with one another.
Revenues received from UHS and from other non-related parties were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1995 1994 1993
--------------------------------------------------
<S> <C> <C> <C>
Base rental - UHS facilities $13,491,000 $13,267,000 $14,079,000
Base rental - Non-related parties 3,195,000 2,097,000 1,091,000
------------ ------------ -------------
Total base rental 16,686,000 15,364,000 15,170,000
----------- ----------- ------------
Bonus rental - UHS facilities 2,552,000 2,414,000 2,474,000
Bonus rental - Non-related parties 221,000 215,000 93,000
------------- -------------- -------------
Total bonus rental 2,773,000 2,629,000 2,567,000
------------ ----------- ------------
Interest - Non-related parties 958,000 833,000 526,000
------------- ------------ ------------
Total revenues $20,417,000 $18,826,000 $18,263,000
=========== =========== ===========
</TABLE>
F-9
<PAGE>
The Trust has no salaried employees and the Trust's officers are all employees
of UHS and receive no cash compensation from the Trust.
(3) Acquisitions and Dispositions
1996 - In January of 1996, the Trust invested $5 million to acquire a 50%
partnership interest in three medical office buildings located in the Campus of
Desert Samaritan Hospital in Phoenix, Arizona. The three buildings total
approximately 219,000 gross square feet and are leased to several tenants
including the Samaritan Health System and FHP Inc., a health maintenance
organization.
1995 - During the third quarter of 1995, the Trust sold the real estate assets
of Westlake Medical Center ("Westlake") a 126-bed hospital, of which the
majority of real estate assets were owned by the Trust and leased to UHS. In
exchange for the real estate assets of Westlake and the termination of the
lease, the Trust received substitution properties valued at approximately $19
million (the Trust's original purchase price of Westlake) consisting of
additional real estate assets which were owned by UHS but related to three acute
care facilities, of which the Trust owns the real estate and which are operated
by UHS (McAllen Medical Center, Inland Valley Regional Medical Center and
Wellington Regional Medical Center). These additional real estate assets
represent major additions and expansions made to these facilities by UHS since
the purchase of the facilities by the Trust from UHS in 1986. The Trust also
purchased from UHS, additional real estate assets related to McAllen Medical
Center for approximately $1.9 million in cash. Total annual base rental payments
from UHS to the Trust on substituted properties will be $2.4 million which
equals the total base and bonus rental earned by the Trust on the Westlake
facility during 1994 ($2.1 million base and $300,000 bonus). Total annual base
rental payments on the additional real estate assets purchased related to
McAllen Medical Center will be approximately $200,000. Bonus rental on the
substituted and purchased real estate assets will be equal to 1% of the growth
in revenues, in excess of base year amounts, generated by these additional
assets. The guarantee by UHS under the existing leases, as amended to include
the additional property, will continue.
During the third quarter of 1995, the Trust purchased for $1.6 million, a
medical office building located on the campus of a hospital owned by
Columbia/HCA Healthcare Corporation located in Shreveport, Louisiana. The
medical office building is currently being leased under the terms of a master
lease agreement with Columbia/HCA Healthcare Corporation.
In December of 1994, the Trust agreed to provide construction financing for the
Professional Center at Kings Crossing, of which $1.1 million was advanced during
1994 and $3.2 million was advanced during 1995. Interest accrued monthly at a
margin over the one month LIBOR. During the fourth quarter of 1995, upon
completion and occupancy of the properties, the Trust purchased the single
tenant and two multi-tenant medical office buildings for the total construction
cost of $4.3 million. The single tenant building consists of 20,000 net square
feet and is leased to Kelsey-Seybold, a subsidiary of Caremark International,
Inc., for an initial term of 10 years. The two multi-tenant buildings total
27,535 net square feet and are 100% occupied by tenants consisting primarily of
medical professionals.
1994 - In November of 1994, the Trust purchased the Fresno-Herndon Medical Plaza
located in Fresno, California, for $6.3 million. The 37,800 square foot medical
office building is leased to seven tenants, including an outpatient surgery
F-10
<PAGE>
center operated by Columbia/HCA Healthcare Corporation, under the terms of
leases with expiration dates ranging from November, 1999 to March, 2003. The
Trust has granted the seller the option to repurchase the property in November,
2001 for $7,250,000.
1993 - The Trust sold the real property of Live Oak Hospital, which had a net
book value of approximately $2.8 million, to UHS for the Trust's original
purchase price of $3.2 million. Operations at this facility were discontinued
during the first quarter of 1992. The base rental payments continued under the
existing lease until the date of sale. The transaction resulted in a $371,000
gain which is included in the Trust's first quarter 1993 financial results.
In December of 1993, UHS, the former lessee and operator of Belmont Community
Hospital, sold the operations of the facility to THC-Chicago, Inc. ("THC"), an
indirect wholly-owned subsidiary of Community Psychiatric Centers ("CPC").
Concurrently, the Trust purchased certain related real property from UHS for $1
million in cash and a note payable with a carrying value of $907,000 at December
31, 1993. The note payable has a face value of $1 million and is due on December
31, 2001. The amount of interest payable on this note is contingent upon the
financial performance of this leased facility and its estimated fair value at
the end of the initial lease term. The Trust has estimated the total amount
payable under the terms of this note and has discounted the payments to their
net present value using a 6% rate. In connection with this transaction, UHS's
lease with the Trust was terminated and the Trust entered into an eight year
lease agreement with THC, which is guaranteed by CPC, for the real property of
this facility now operated by THC-Chicago.
Also during 1993, the Trust purchased for approximately $1.1 million, a 20-bed
addition added to the Tri-State Regional Rehabilitation Hospital located in
Evansville, Indiana.
(4) Leases
All of the Trust's leases are classified as operating leases with initial terms
ranging from 5 to 15 years with up to six 5-year renewal options. Under the
terms of the leases, the Trust earns fixed monthly base rents and may earn
periodic additional rents (see Note 2). The additional rent payments are
generally computed as a percentage of facility net patient revenue or CPI
increase in excess of a base amount. The base year amount is typically net
patient revenue for the first full year of the lease.
Minimum future base rents on noncancelable leases are as follows:
1996 $ 17,271,000
1997 17,305,000
1998 17,338,000
1999 17,391,000
2000 14,256,000
Later Years 16,959,000
------------
Total Minimum Base Rents $100,520,000
============
Under the terms of the hospital leases, the lessees are required to pay all
operating costs of the properties including property insurance and real estate
F-11
<PAGE>
taxes. Tenants of the Fresno-Herndon Medical Plaza and the Professional
Buildings at Kingwood are required to pay their pro-rata share of the property's
operating costs above a stipulated amount.
(5) Debt
The Trust has a $45 million non-amortizing revolving credit agreement (the
"Agreement") which provides for interest at the Trust's option, at the
certificate of deposit rate plus 3/4%, Eurodollar rate plus 3/4% or the prime
rate. A fee of 3/8% is required on the unused portion of this commitment. There
are no compensating balance requirements. The Agreement matures on February 28,
1997 at which time all amounts then outstanding are required to be repaid. The
Agreement contains a provision whereby the commitments will be reduced by 50% of
the proceeds generated from any new equity offering. At December 31, 1995, the
Trust had approximately $20 million of unused borrowing capacity.
The average amounts outstanding under the revolving credit agreement during
1995, 1994 and 1993 were $21,589,000, $15,218,000, $21,400,000, respectively,
with corresponding effective interest rates, including commitment fees but not
including the effect of interest rate swaps of 7.2%, 5.3%, and 4.5%. The maximum
amounts outstanding at any month end were $25,375,000, $20,320,000, and
$47,565,000 during 1995, 1994 and 1993, respectively.
Covenants relating to the revolving credit facility require the maintenance of a
minimum tangible net worth and specified financial ratios, limit the Trust's
ability to incur additional debt, limit the aggregate amount of mortgage
receivables and limit the Trust's ability to increase dividends in excess of 95%
of cash available for distribution, unless additional distributions are required
to comply with the applicable section of the Internal Revenue Code and related
regulations governing real estate investment trusts.
The Trust has entered into interest rate swap agreements and a interest rate cap
agreement which are designed to reduce the impact of changes in interest rates
on its floating rate revolving credit notes. The Trust has three outstanding
swap agreements, two in the amount of $5 million each which mature in April,
1997, and May, 1999, and another in the amount of $1,580,000 which matures May,
2001. These swap agreements effectively fix the interest rate on $11,580,000 of
variable rate debt at 7.55%. The interest rate cap, for which the Trust paid
$622,750, (unamortized premium of $436,000 at December 31, 1995) matures in
June, 1999 and fixes the maximum rate on $15 million of variable rate revolving
credit notes at 7.75%. The interest rate swap and cap agreements were entered
into in anticipation of certain borrowing transactions made by the Trust during
1994, 1995 and 1996. The effective rate on the Trust's revolving credit notes
including commitment fees and interest rate swap expense was 7.5%, 6.7%, and
8.3% during 1995, 1994 and 1993, respectively. Additional interest expense
recorded as a result of the Trust's hedging activity was $69,000, $109,000, and
$411,000 in 1995, 1994 and 1993, respectively. The Trust is exposed to credit
loss in the event of nonperformance by the counterparties to the interest rate
swap and cap agreements. These counterparties are major financial institutions
and the Trust does not anticipate nonperformance by the counterparties which are
rated A or better by Moody's Investors Service. Termination of the interest rate
swaps at December 31, 1995 would have resulted in payments to the counterparties
of approximately $450,000 and termination of the interest rate cap would have
resulted in a payment to the Trust of approximately $100,000. The fair value of
F-12
<PAGE>
the interest rate swap and cap agreements at December 31, 1995 reflects the
estimated amounts that the Trust would pay or receive to terminate the contracts
and one based on quotes from the counterparties.
(6) Dividends
Dividends of $1.68 per share were declared and paid in 1995, of which $1.575 per
share was ordinary income and $.105 was a return of capital distribution.
Dividends of $1.665 per share were declared and paid in 1994, of which $1.528
was ordinary income and $0.137 was a return of capital distribution. Dividends
of $1.66 per share were declared and paid in 1993, of which $0.75 was ordinary
income, $0.81 was a return of capital distribution and $0.10 was capital gain to
the shareholders for income tax purposes.
(7) Financing
During the fourth quarter of 1993, the Trust funded $6.5 million for the
purchase of the real assets of the Madison Irving Medical Center, by Crouse
Irving Memorial Properties, located in Syracuse, New York. The loan, which can
be prepaid without penalty at any time, has a fifteen-year repayment term. The
Trust has received prepaid commitment fees related to this mortgage note
receivable totaling $65,000. The unearned portion ($56,000 as of December 31,
1995) is being recognized as income over the fifteen-year repayment term. The
loan accrues interest monthly at a margin over the one month LIBOR or at a
margin over the five-year Treasury rate. The interest rate is selected at the
borrower's option. Interest on the mortgage loan, including amortization of
prepaid commitment fees, accrued at an average rate of 11.5% during 1995 and
9.8% during 1994.
During the second quarter of 1995, the Trust received free and clear title to
Lake Shore Hospital, on which the Trust held a mortgage loan receivable. During
1994, the Trust reached a settlement agreement with Lake Shore Hospital, Inc.
and Community Care Systems, Inc. concerning the default of their obligations
under the Trust's mortgage loan with Lake Shore Hospital. Under the terms of the
settlement agreement, the Trust received $1.5 million in cash payments during
1994, of which $1,050,000 was included in net income as recovery of investment
losses and $450,000 was reserved for future expenses related to the settlement
of the facility. The Trust continues to market the property of Lake Shore
Hospital in an effort to sell or lease the facility to a qualified operator.
(8) Incentive Plans
During 1988, the Trustees approved a Key Employees' Restricted Share Purchase
Plan. Under the terms of this plan, which expires in 1998, up to 50,000 shares
have been reserved for issuance to key employees (47,500 shares available for
grant as of December 31, 1995). Eligible employees may purchase shares of the
Trust at par value subject to certain restrictions. The restrictions lapse over
four years if the employee remains employed by the Trust.
In 1991, the Trustees adopted a share compensation plan for Trustees who are
neither employees nor officers of the Trust ("Outside Trustees"). Pursuant to
the plan, each Outside Trustee may elect to receive, in lieu of all or a portion
of the quarterly cash compensation for services as a Trustee, shares of the
Trust based on the closing price of the shares on the date of issuance. As of
December 31, 1995, no shares have been issued under the terms of this plan.
F-13
<PAGE>
During 1992, the Trust amended the 1988 Non-Statutory Stock Option Plan to
increase the number of shares reserved under the plan from 50,000 to 200,000. As
of December 31, 1995, options to purchase 95,000 shares of beneficial interest
were outstanding, of which 85,000 were granted to officers of the Trust during
1992 at an exercise price of $16.875 per share and 10,000 were granted to an
officer of the Trust during 1993 at an exercise price of $16.125. As of December
31, 1995, none of the options had been exercised. As of December 31, 1995, all
of the options were exercisable at an aggregate purchase price of $1,595,625.
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation." The Statement encourages a fair
value based method of accounting for employee stock options and similar equity
instruments, which generally would result in the recording of additional
compensation expense in an entity's financial statements. The Statement also
allows an entity to continue to account for stock-based employee compensation
using the intrinsic value based method in APB Opinion No. 25. The Trust intends
to continue its accounting for equity instruments using APB No. 25. As a result,
beginning in 1996, the Trust will be required to make pro forma disclosures of
net income and earnings per share as if the fair value based method of
accounting had been applied.
(9) Sale of Marketable Securities
During 1994, the Trust received $107,000 related to a class action lawsuit
settlement filed against a real estate investment trust in which the Trust owned
marketable securities. Also during the year, the Trust sold the remainder of its
investment in the marketable securities of the real estate investment trust for
total net proceeds of $77,000. The entire $184,000 generated from the settlement
and sale transactions are included in net income (recovery of investment losses)
since the carrying value of this investment was reduced to zero in 1990.
F-14
<PAGE>
(10) Quarterly Results (Unaudited)
<TABLE>
<CAPTION>
1995
- - -----------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $4,914,000 $5,129,000 $5,215,000 $5,159,000 $20,417,000
Net Income $3,303,000 $3,452,000 $3,451,000 $3,378,000 $13,584,000
Earnings Per Share $0.37 $0.39 $0.38 $0.38 $1.52
1994
- - -----------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- - -----------------------------------------------------------------------------------------------------------------------
Revenues $4,653,000 $4,820,000 $4,661,000 $4,692,000 $18,826,000
Net Income $3,632,000 $4,199,000 $3,232,000 $3,249,000 $14,312,000
Earnings Per Share $0.41 $0.47 $0.36 $0.36 $1.60
</TABLE>
During 1994, the Trust received $1.5 million in cash payments (recorded as
recovery of investment losses) related to the settlement agreement on Lake Shore
Hospital (see Note 7) of which $600,000 was received during the first quarter
and $900,000 was received during the second quarter. Partially offsetting the
net income effect of these cash proceeds was a $450,000 increase in the reserve
established for future expenses related to the settlement of Lake Shore Hospital
(recorded as provision for investment losses) of which $300,000 was recorded in
the first quarter of 1994 and $150,000 was recorded in the second quarter.
F-15
<PAGE>
Universal Health Realty Income Trust
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charged to Balance
beginning costs and at end
Description of period expenses Other of period
----------- --------- -------- ----- ---------
Reserve for Investment Losses:
<S> <C> <C> <C> <C>
Year ended December 31, 1995 $490,000 -- ($332,000)(a) $158,000
======= ======== ======== ========
Year ended December 31, 1994 $77,000 $450,000 ($37,000)(a) $490,000
======= ======== ======== ========
Year ended December 31, 1993 $250,000 -- ($173,000)(a) $77,000
======= ======== ======== ========
</TABLE>
(a) Amounts charged against the reserve.
F-16
<PAGE>
Schedule III
Universal Health Realty Income Trust
Real Estate and Accumulated Depreciation - December 31, 1995
(amounts in thousands)
<TABLE>
<CAPTION>
Initial Cost to
Universal Health Cost capitalized Gross amount at which
Realty Income Trust subsequent to acquisition carried at close of period
------------------------ ------------------------- ------------------------------
Building Land & Carrying Building &
Description Land & Improv. Improv. Costs Land Improvements Total
- - ----------- ------ ---------- -------- -------- ----- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Chalmette Medical Centers
Virtue Street Campus $1,825 $9,445 -- -- $1,770 $9,445 $11,215
Patricia Street Campus 2,000 7,473 -- -- 2,000 7,473 9,473
Chalmette, Louisiana
Inland Valley Regional Medical Center
Wildomar, California 2,050 10,701 2,868 -- 2,050 13,569 15,619
McAllen Medical Center
McAllen, Texas 4,720 31,442 10,188 -- 6,281 40,069 46,350
Wellington Regional Medical Center
West Palm Beach, Florida 1,190 14,652 4,822 -- 1,663 19,001 20,664
The Bridgeway
North Little Rock, Arkansas 150 5,395 499 -- 150 5,894 6,044
Meridell Achievement Center
Austin, Texas 1,350 3,782 4,139 -- 1,350 7,921 9,271
Tri-State Rehabilitation Hospital
Evansville, Indiana 500 6,945 1,062 -- 500 8,007 8,507
THC - Chicago
Chicago, Illinois 158 6,404 1,907 -- 158 8,311 8,469
Fresno-Herndon Medical Plaza
Fresno, California 1,073 5,266 24 -- 1,073 5,290 6,363
Family Doctor's Medical Office
Building Shreveport, Louisiana 54 1,526 -- -- 54 1,526 1,580
Kelsey-Seybold Clinic at King's Crossing 439 1,618 -- -- 439 1,618 2,057
Professional Center at King's Crossing 439 1,837 -- -- 439 1,837 2,276
Kingwood, Texas
------- -------- ------- ------- ------- ------- --------
TOTALS $15,948 $106,486 $25,509 $ -- $17,927 $129,961 $147,888
======= ======== ======= ======= ======= ======== ========
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
Accumulated Date of construction
Depreciation or most recent Average
as of significant expansion Date Depreciable
Description Dec. 31, 1995 or renovation Acquired Life
- - ----------- ------------- -------------------- ---------- ------------
<S> <C> <C> <C> <C>
Chalmette Medical Centers
Virtue Street Campus $2,434 1975 1986 35 Years
Patricia Street Campus 1,705 1981 1988 34 Years
Chalmette, Louisiana
Inland Valley Regional Medical
Center
Wildomar, California 2,186 1986 1986 43 Years
McAllen Medical Center
McAllen, Texas 6,426 1994 1986 42 Years
Wellington Regional Medical Center
West Palm Beach, Florida 2,999 1986 1986 42 Years
The Bridgeway
North Little Rock, Arkansas 1,496 1983 1986 35 Years
Meridell Achievement Center
Austin, Texas 1,868 1991 1986 28 Years
Tri-State Rehabilitation Hospital
Evansville, Indiana 1,210 1993 1989 40 Years
THC - Chicago
Chicago, Illinois 2,504 1993 1986 25 Years
Fresno-Herndon Medical Plaza
Fresno, California 128 1992 1994 45 Years
Family Doctor's Medical Office
Building Shreveport, Louisiana 17 1991 1995 45 Years
Kelsey-Seybold Clinic at King's
Crossing 9 1995 1995 45 Years
Professional Center at King's
Crossing
Kingwood, Texas 4 1995 1995 45 Years
-------
$22,986
=======
TOTALS
</TABLE>
F-18
<PAGE>
Universal Health Realty Income Trust
Notes to Schedule III
December 31, 1995
(1) Reconciliation of Real Estate Properties
The following table reconciles the Real Estate Properties from January 1,
1993 to December 31, 1995:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1 $143,069,000 $136,784,000 $137,033,000
Acquisitions 7,794,000 6,340,000 2,969,000
Dispositions (2,975,000)(a) (55,000) (3,218,000)
------------ ------------ ------------
Balance at December 31 $147,888,000 $143,069,000 $136,784,000
============ ============ ============
</TABLE>
(2) Reconciliation of Accumulated Depreciation
The following table reconciles the Accumulated Depreciation from January 1,
1993 to December 31, 1995:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Balance at January 1 $22,646,000 $19,519,000 $16,867,000
Current year depreciation expense 3,315,000 3,127,000 3,023,000
Dispositions (2,975,000)(a) -- (371,000)
----------- ----------- -----------
Balance at December 31 $22,986,000 $22,646,000 $19,519,000
=========== =========== ===========
</TABLE>
(a) The real property of Westlake Medical Center (original cost of approximately
$20 million and accumulated depreciation of approximately $3 million) was
exchanged during 1995 for additional real estate assets (valued at approximately
$20 million) of three acute care facilities owned by the Trust and operated by
UHS. The swapping of these assets was accounted for as an exchange, and
therefore no gain was recognized.
The aggregate cost basis and net book value of the properties for Federal
income tax purposes at December 31, 1995 are approximately $137,000,000 and
$113,000,000, respectively.
F-19
<PAGE>
INDEX TO EXHIBITS
10.2 Agreement, effective January 1, 1996, to renew Advisory Agreement
dated as of December 24, 1986 between Universal Health Realty
Income Trust and UHS of Delaware, Inc.
10.18 Sale Agreement, dated as of September 1, 1995, by and among Universal
Health Realty Income Trust and Desert Commercial Properties Limited
Partnership.
10.19 Operating Agreement of DSMB Properties, L.L.C., dated as of
September 1, 1995, by and among Universal Health Realty Income Trust
and Desert Commercial Properties Limited Partnership.
10.20 Agreement and Escrow Instructions, dated as of August 15, 1995, by
and between Phase III Desert Samaritan Medical Building Partners and
Desert Commercial Properties Limited Partnership.
27. Financial Data Schedule.
<PAGE>
January 10, 1996
Mr. Alan B. Miller
President
UHS of Delaware, Inc.
367 South Gulph Road
King of Prussia, PA 19406
Dear Alan:
The Board of Trustees of Universal Health Realty Income Trust at their
December 1, 1995, meeting authorized the renewal of the current Advisory
Agreement between the Trust and UHS of Delaware, Inc. ("Agreement") upon the
same terms and conditions.
This letter constitutes the Trust's offer to renew the Agreement until
December 31, 1996, upon the same terms and conditions. Please acknowledge UHS of
Delaware, Inc.'s acceptance of this offer by signing in the space provided below
and returning one copy of this letter to me.
Sincerely yours,
/s/ Kirk E. Gorman
------------------------------
Kirk E. Gorman
President and Secretary
KEG/jds
cc: Warren J. Nimetz, Esquire
Charles Boyle
Agreed to and Accepted:
UHS of Delaware, Inc.
By: /s/ Alan B. Miller
-------------------------
Alan B. Miller, President
<PAGE>
SALE AGREEMENT
(Desert Samaritan Medical Buildings I and II)
This AGREEMENT is entered into effective the 1st day of
September, 1995, by and between DESERT COMMERCIAL PROPERTIES LIMITED
PARTNERSHIP, an Arizona limited partnership ("Seller") and UNIVERSAL HEALTH
REALTY INCOME TRUST, a Maryland real estate investment trust ("Buyer"):
RECITALS
A. Seller: (1) holds the tenant's/lessee's interest (the
"Ground Lease Interest") under those ground leases described on Exhibit "B"
attached hereto (the "Ground Leases"), applicable to that real property
described on Exhibit "A" attached hereto (the "Real Property"); (2) owns,
subject to the terms of the Ground Leases, certain of the fixtures and
improvements located on the Real Property (the "Improvements"); (3) holds the
landlord's/lessor's interest (the "Tenant Lease Interests") under all tenant
leases ("Tenants") for sublease of the Real Property and Improvements ("Tenant
Leases"), together with the security deposits paid by such Tenants pursuant to
those Tenant Leases (the "Security Deposits"); (4) holds an interest under
certain service and other contracts applicable to the Real Property and
Improvements (the "Contract Interests"); and (5) owns or holds an interest in
certain personal property ("Personal Property") and intangible property and
other rights appurtenant to the Real Property and Improvements (the "Intangible
Property"), with the Ground Lease Interest, Improvements, Tenant Lease
Interests, Deposits, Contract Interests, Personal Property and Intangible
Property sometimes referred to herein as the "Property".
B. That portion of the Property commonly known as Desert
Samaritan Medical Building I, located at 1450 South Dobson Road, Mesa, Arizona,
is sometimes referred to herein as "Building I", and that portion of the
Property commonly known as Desert Samaritan Medical Building II, located at 1500
South Dobson Road, Mesa, Arizona, is sometimes referred to herein as "Building
II".
C. Certain of the Property is encumbered by that $11,500,000.00
original principal amount loan (the "Loan") made by United States Leasing
International, Inc. ("Lender") to Seller, evidenced by Promissory Note dated
September 15, 1993, secured by, among other things, Deed of Trust, Security
Agreement, Assignment of Leases and Rents, Fixture Filing and Financing
Statement dated September 15, 1993, and recorded September 16, 1993 as
Instrument No. 93-0626122, Office of the Maricopa County Recorder, Arizona and
related documents (the "Loan Documents").
D. Seller desires to sell and transfer to Buyer, and Buyer
desires to purchase and accept transfer from Seller, of an undivided 10.720%
ownership in the Property, exclusive of the encumbrance of or any liability for
the Loan (the "Subject Interest"), on the terms and conditions set forth herein
-1-
<PAGE>
TERMS AND CONDITIONS
NOW, THEREFORE, for and in consideration of the mutual
covenants and provisions set forth herein, and other good and valuable
consideration, the receipt of which by all parties is hereby acknowledged, the
parties, intending to be legally bound, agree as follows:
1. Sale. Seller agrees to sell to Buyer, and Buyer agrees to
purchase from Seller, the Subject Interest on the terms and conditions set forth
in this Agreement.
2. Purchase price. The purchase price payable by Buyer to
Seller for the Subject Interest is One Million, Seven Hundred Forty-One
Thousand, Four Hundred Thirty-One and No/100 Dollars ($1,741,431.00) (the
"Purchase Price"), payable in cash at Closing (as herein defined). The Purchase
Price shall be allocated to the Property as set forth on Exhibit "C" attached
hereto.
3. Closing. Closing pursuant to this Agreement, shall take
place effective as of ___________________, 1995 (the "Closing"). At Closing,
Seller and Buyer shall:
A. Take all acts, and execute all documents,
necessary to transfer the Subject Interest from Seller to
Buyer, including:
(1) Assignment of Leasehold Interest, in
the form of Exhibit "D" attached
hereto, conveying the Ground Lease
Interest portion of the Subject
Interest;
(2) Special Warranty Deed in the form of
Exhibit "E" attached hereto,
conveying the Subject Interest
portion of the Improvements.
(3) Affidavit of Property Value, as
required by Arizona law.
(4) Non-Foreign Affidavit (in compliance
with Section 1445 of the Internal
Revenue Code) in the form of Exhibit
"F" attached hereto.
(5) Rent Roll, in the form of Exhibit
"G" attached hereto, completed to
reflect current status of all Tenant
Leases and Deposits.
-2-
<PAGE>
(6) Assignment and Assumption of Leases
and Contracts, in the form of
Exhibit "H" attached hereto, as to
the Subject Interest portion of all
Tenant Lease Interests, Deposits and
Contract Interests.
(7) Bill of Sale in the form of Exhibit
"I" attached hereto, as to the
Subject Interest portion of all
Personal Property.
(8) Assignment of Rights in the form of
Exhibit "J" attached hereto as to
the Subject Interest portion of all
Intangible Property.
B. Prorations. All income and expense items
(excluding the Loan and principal and interest payments
thereon, but including any real estate tax, insurance and
similar impound payments or accounts) applicable to the
Subject Interest shall be prorated between Seller and Buyer as
of the Closing (based on the latest available information, to
be updated and reprorated when actual information becomes
known), such that Seller is entitled to all income and bears
all expenses for the period up to Closing, and Buyer is
entitled to all income and bears all expenses for the period
from and after Closing; provided that no prorations shall be
made for the Loan. Specific proration items include:
(1) Real estate taxes, prorated based on
1994 figures if 1995 figures are not
known as of Closing, to be
reprorated when 1995 figures become
known.
(2) The Subject Interest portion of all
Deposits, to be transferred to or
for the account of Buyer.
(3) All rents and other Tenant payments
(including expense overage and
impounds) prorated based on
scheduled payments required under
Tenant Leases.
C. Loan Liability. The Subject Interest shall not
include, and neither the provisions of this Agreement nor any
document executed in connection therewith shall in any way
obligate or be interpreted so as to have Buyer assume or in
any way be responsible for, any liability under the Loan. As a
material consideration for Buyer's purchase of the Subject
Interest, Seller agrees, from and after Closing, to in all
respects be liable for and timely pay each and all of the
payments required under the Loan and Loan Documents (the "Loan
Payment Obligation"), excepting only impound or similar
payments for real estate taxes, insurance and other payments
or performances related to ownership and operation of the
Property and not to the Loan or any payments required in
connection therewith (including but not limited to principal,
interest, late charges, default interest, prepayment
penalties, costs, attorneys' fees, advancement cost and
similar matters).
-3-
<PAGE>
D. Non-Consent. Buyer acknowledges review of
provisions of the Loan Documents, including but not limited to
the restrictions on transfer and further encumbrance without
the Lender's approval (the "Transfer Restrictions"). Seller
and Buyer acknowledge and agree the Subject Interest shall be
transferred from Seller to Buyer at Closing without compliance
with the Transfer Restrictions, with each of Seller and Buyer
hereby releasing the other from any and all claims or
liability deriving from any non-compliance by Seller or Buyer
with the Transfer Restrictions to the extent applicable to
transfer of the Subject Interest pursuant to this Agreement,
but without releasing Seller from the Loan Payment Obligation.
E. Authorization. Seller and Buyer shall each provide
to the other appropriate evidence of their authority to
execute this Agreement and all documents referenced herein
("Related Documents"), and to perform each and all of their
obligations thereunder.
F. Survival. The provisions of this paragraph 3 shall
survive the Closing.
G. Feasibility. Prior to or concurrently with the
full execution of this Agreement, Seller has delivered or
caused to be delivered to Buyer the following:
(1) A title commitment in favor of Buyer
in the amount of the Purchase Price
issued by a title insurance company
mutually acceptable to Buyer and
Seller that commits to issue Buyer a
standard owners' policy of title
insurance at the Closing insuring
that Buyer is the owner of the
Subject Interest and that lists all
exceptions to title to the Subject
Interest;
(2) Legible copies of all documents
evidencing the exceptions to title
to the Subject Interest which are
set forth in the aforementioned
title commitment;
(3) Any environmental reports or
assessments affecting the Property;
(4) The rent roll, as of the date of
this Agreement and any other
information pertaining to the
tenancies and operations of the
Property that is in Seller's
possession and which Buyer requests
in writing.
-4-
<PAGE>
Buyer shall have the right to terminate this Agreement if, in
its sole discretion, it does not approve of the matters set
forth above by sending written notice of such termination
prior to the expiration of the fifth day after its receipt of
all such matters. In the event of such a termination, Buyer
and Seller shall have no further obligations to each other
under this Agreement.
H. Title Policy. At the Closing, Seller shall cause
to be issued to Buyer a standard owners' title insurance
policy in the amount of the Purchase Price insuring that Buyer
is the owner of the Subject Interest subject only to those
matters set forth in the commitment for title insurance
referenced in Section 3.G above. This title insurance policy
shall include an endorsement allowing the benefits of the
coverage to be transferred at no additional cost to any
limited liability company formed by Buyer and Seller and to
which the Property is conveyed.
4. Representations. Seller and Buyer each represent and
warrant to the other that:
A. They are duly organized pursuant to their
organizational documents, with full power and authority to
enter into and perform each and all of their obligations under
this Agreement and Documents.
B. Execution of this Agreement, and Related
Documents, and performance of each and all of their
obligations thereunder, does not breach or contravene any
agreement, law or other arrangement by which they are bound.
C. Seller has disclosed to Buyer, and Buyer has
reviewed or had the opportunity to review, all pertinent
materials and information pertaining to the Property,
including but not limited to physical condition, zoning,
title, tenancies, environmental compliances, and related
matters.
5. Commissions. Seller and Buyer each represent to the other
that no broker has been involved with the transaction evidenced by this
Agreement, other than CB Commercial Real Estate, and each agrees to indemnify
and hold the other harmless from for and against any commission or other fee
claimed by a third party as a result of its acts or failure to act. Seller shall
be solely responsible for any commission due CB Commercial.
6. Attorneys' Fees. In the event of any litigation between the
parties hereto arising out of this Agreement, all reasonable attorneys' fees,
costs and related expenses shall be awarded to the prevailing party therein, and
such attorneys' fees, costs and expenses shall be included in any judgment
obtained by the prevailing party.
7. Invalidity. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be valid under applicable
law, but if any provision of this Agreement shall be invalid or prohibited
hereunder, such provision shall be ineffective to the extent of such prohibition
or invalidation but shall not invalidate the remainder of such provision or the
remaining provisions of this Agreement.
-5-
<PAGE>
8. Successors. This Agreement shall be binding upon and inure
to the benefit of the successors in interest and assigns of the parties hereto,
provided, however, that: (a) Buyer shall not in any way transfer any of its
interest under this Agreement without the prior written consent of Seller; and
(b) Seller shall not in any way transfer any of its interest under this
Agreement without the prior written consent of Buyer.
9. Entire Agreement. This Agreement contains the entire
agreement of the parties hereto with respect to the matters set forth herein,
and supersedes all prior arrangements and understandings between the parties,
and no other agreement, statement or promise made by either party hereto which
is not contained herein shall be binding or valid.
10. Controlling Law. This Agreement shall be construed and
interpreted under, and governed and enforced according to the laws of the State
of Arizona.
11. Notices. Any and all notices or demands by or from the
parties hereto shall be in writing and deemed given upon personal receipt, or if
served by certified mail, seventy-two (72) hours after deposit in the United
States mail, postage prepaid, to the address set forth below, or any other
addresses duly noticed in accordance with this paragraph.
12. Tax Deferred Exchange. Buyer ("Accommodator") shall
cooperate with Seller ("Requesting Party") in effectuating disposition of the
Property pursuant to a tax deferred exchange under Section 1031 of the Internal
Revenue Code of 1986, as and if amended (an "Exchange"), subject to the
following limitations:
A. The Requesting Party shall have the right to
proceed with an Exchange at any time prior to the Closing
Date, provided it gives reasonable advance notice of its
desire to have Accommodator participate in the Exchange,
together with each and all of the documents to be executed by
Accommodator with respect to the Exchange.
B. Neither the Closing, nor consummation of any other
aspect of this Agreement, shall in any way be predicated or
conditioned on the Exchange or completion thereof.
C. Any documents to be executed by Accommodator in
connection with an Exchange shall not cause Accommodator to
incur any additional cost, expense or liability.
D. Accommodator shall have the right, as a condition
to participation in the Exchange, to require Requesting Party
to provide advance payment to Accommodator of the reasonably
anticipated extra costs, including attorneys' fees, to be
incurred by Accommodator solely by reason of participation in
the Exchange.
-6-
<PAGE>
E. Accommodator does not make any representation or
warranty to Requesting Party or any other third party,
including state or federal tax authorities, that the Exchange
will qualify for any particular or deferred tax treatment.
F. Requesting Party shall indemnify and hold
Accommodator harmless for, from and against any and all
liability, damages, or costs, including actual attorneys'
fees, incurred or that may be incurred by Accommodator by
virtue of Accommodator's participation in the Exchange.
G. The Exchange shall not in any way limit, terminate
or otherwise affect all or any of any party's rights or
obligations, under this Agreement.
13. Exhibits. Exhibits "A" through "J" attached are by this
reference incorporated herein.
IN WITNESS WHEREOF, this Agreement has been executed on the day
and year first set forth above.
SELLER
DESERT COMMERCIAL PROPERTIES LIMITED
PARTNERSHIP, an Arizona limited partnership
By: ROKMAR CAPITAL, L.L.C., an Arizona limited
liability company, its Managing General Partner
By: /s/ XXXXXXXXXXX
------------------------------------
Its: Manager
------------------------------------
Tax I.D. No. 95-4266623
Address: 2525 East Camelback Road,
Suite 950
Phoenix, Arizona 85016
Telephone: (602) 275-7500
Facsimile: (602) 912-8945
-7-
<PAGE>
BUYER
UNIVERSAL HEALTH REALTY INCOME TRUST, a
Maryland real estate investment trust
By: /s/ XXXXXXXX
------------------------------------
Its: Vice President
------------------------------------
Tax I.D. No. 23-6858580
Address: 367 South Gulph Road
King of Prussia, Pennsylvania 19406
Telephone: (610) 265-0688
Facsimile: (610) 768-3318
-8-
<PAGE>
LIST OF EXHIBITS
Exhibits Description
- - -------- -----------
"A" Legal Description of Real Property
"B" Ground Leases
"C" Purchase Price Allocation
"D" Assignment of Leasehold Interest
"E" Special Warranty Deed
"F" Rent Roll
"G" Non-Foreign Affidavit
"H" Assignment and Assumption of Leases and Contracts
"I" Bill of Sale
"J" Assignment of Rights
-9-
<PAGE>
OPERATING AGREEMENT
OF
DSMB PROPERTIES, L.L.C.
This OPERATING AGREEMENT OF DSMB PROPERTIES, L.L.C. (the "Agreement")
is entered into effective as of the 1st day of September, 1995 (the "Effective
Date"), by and among UNIVERSAL HEALTH REALTY INCOME TRUST, a Maryland real
estate investment trust ("UHT"), and DESERT COMMERCIAL PROPERTIES LIMITED
PARTNERSHIP, an Arizona limited partnership ("DCP").
SECTION 1.
DEFINITIONS
1.1. DEFINED TERMS. Unless otherwise stated, the terms used in this
Agreement shall have the usual and customary meanings associated with their use,
and shall be interpreted in the context of this Agreement. The following terms
when used in this Agreement and capitalized shall have the meanings stated
below:
"ACT" means the Arizona Limited Liability Company Act, as set
forth in Arizona Revised Statutes ss.ss.29-601, et seq., as amended from time to
time (or any corresponding provisions of succeeding law).
"AFFILIATE" means, with respect to any Person: (i) any Person
directly or indirectly controlling, controlled by or under common control with
such Person; (ii) any Person owning or controlling ten percent or more of the
outstanding voting securities of such Person; (iii) any officer, director or
general partner of such Person; (iv) any person referred to in Sections 267(B)
and (C), 414, 707 (B) (substituting 10% for 50% whenever such appears therein),
1563, and 4975 (E)(2), (3), (4), (5) and (6), of the Code; or (v) any Person who
is an officer, director, general partner, trustee or holder of ten percent or
more of the voting securities of any Person described in clauses (i) through
(iv) of this sentence.
"ANNUAL BUDGET" means a budget for each fiscal year of the
Company (or portion thereof) approved by all Members and including, among other
items, the following: (i) an operating budget; (ii) a capital improvement
budget; (iii) a reserve utilization schedule for capital improvements; (iv)
parameters for Leasing (including lease rates, tenant improvement allowances and
similar matters); and (v) a schedule for distributions. The initial Annual
Budget, for the period through December 31, 1995 will be approved by all Members
prior to any acquisition of any Property by the Company.
"ARTICLES" means the Articles of Organization of the Company
as adopted and amended from time to time by the Members and filed (initial
filing on September 9, 1995) with the Arizona Corporation Commission.
<PAGE>
"BUILDING I" means that real property (interest of "Tenant"
under Building I Ground Lease), improvements located thereon, and rights and
other personal property appurtenant thereto, described on Exhibit "A-1" attached
hereto.
"BUILDING II" means that real property (interest of "Tenant"
under Building II Ground Lease), improvements located thereon, and rights and
other personal property appurtenant thereto, described on Exhibit "A-2" attached
hereto.
"BUILDING III" means that real property (interest of "Tenant"
under Building III Ground Lease), improvements located thereon, and rights and
other personal property appurtenant thereto, described on Exhibit "A-3" attached
hereto.
"BUILDING I GROUND LEASE" means that Ground Lease, as amended,
for Building I as described on Exhibit "B-1" attached hereto.
"BUILDING II GROUND LEASE" means that Ground Lease, as
amended, for Building II as described on Exhibit "B-2" attached hereto.
"BUILDING III GROUND LEASE" means that Ground Lease, as
amended, for Building III as described on Exhibit "B-3" attached hereto.
"BUILDING(S)" means Building I, Building II and/or Building
III, as appropriate.
"BUILDING III PURCHASE AGREEMENT" means that Agreement and
Escrow Instructions for the Purchase and Sale of Certain Assets dated
September 1, 1995, as amended, by and between Phase III Desert Samaritan Medical
Building Partners as "Seller" and DCP as "Buyer", for the purchase and sale of
Building III, including assignment of the interest of "Tenant" under the
Building III Ground Lease.
"CAPITAL ACCOUNT" means, with respect to any Member, the
Capital Account maintained for such Member in accordance with Regulations
Section 1.704-1(b). In the event the Company shall determine that it is prudent
to modify the manner in which the Capital Accounts, or any debits or credits
thereto, are computed in order to comply with such Regulations, the Company may,
upon mutual approval of the Members, make such modification, provided that it is
not likely to have a material effect on the amounts distributable to any Member
upon the dissolution of the Company. The Company 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
modification in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b).
<PAGE>
"CAPITAL CONTRIBUTION" means, with respect to any Member, the
total amount of cash or net fair market value (as mutually agreed upon by the
Members) of any property (other than cash) contributed to the Company with
respect to the Interest in the Company held by such Member.
"CASH AVAILABLE FROM OPERATIONS" means any cash held by the
Company, whether generated from operating, financing, or investment activity,
which exceeds the amount needed for: (i) prudent operation of the Company; and
(ii) investments and prudent reserves, all consistent with the then applicable
Annual Budget (including required installment payments on Financing and Member
Loans), but in any event excluding Net Financing Proceeds and Net Sales
Proceeds.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time (or any corresponding provisions of succeeding law).
"COMPANY" means the limited liability company formed pursuant
to this Agreement and the limited liability company continuing the business of
this Company in the event of dissolution as herein provided.
"COMPANY DEBT" means any debt of the Company (including
Financing and Member Loans) whether or not secured by Company Property.
"COMPANY MINIMUM GAIN" has the meaning set forth in
Regulations Section 1.704-2(b)(2).
"CONTRIBUTION BALANCE" means, with respect to each Member, the
aggregate of all Capital Contributions made by such Member, less the aggregate
of all Distributions to such Member constituting or characterized as a return of
Capital Contributions pursuant to Sections 4.1.2(b) and 4.1.3(c).
"DISTRIBUTIONS" means the distributions by the Company to the
Members pursuant to Section 4.
"EXISTING FINANCING" means the current financing in favor of
United States Leasing, International, Inc. encumbering Building I and Building
II, as evidenced by the Promissory Note dated September 15, 1993, in the
original principal amount of $11,500,000.00, and also secured or evidenced by
Deed of Trust, Security Agreement, Assignment of Leases and Rents, Fixture
Filing and Financing Statement dated September 15, 1993, and recorded September
16, 1993, at Instrument No. 93-0626122, Office of the Maricopa County Recorder,
Arizona, and related documents.
"FINANCING" means any finance or refinance of all or any
portion of the Project.
<PAGE>
"FINANCING PROCEEDS" means the proceeds payable to or for the
benefit of the Company from a Financing.
"GROSS PROCEEDS" means the gross price payable by a buyer
participating in a Sale, before any deductions for closing costs, commissions or
other items.
"GROUND LEASE(S)" means the Building I Ground Lease, Building
II Ground Lease and/or Building III Ground Lease, as appropriate.
"INITIAL CAPITAL CONTRIBUTION" means the Capital Contribution
in property and/or cash made or to be made by the Members in the amounts and at
the times required in accordance with Section 3.1.2.
"INITIAL FINANCING" means that Financing, to be obtained by
the Company to finance the acquisition and ownership of the Buildings (including
the acquisition of Building III and the payoff of the Existing Financing, except
for the prepayment penalty associated therewith to be paid by DCP), on the
following basic terms: (i) principal amount not to be more than $17,900,000.00
nor less than $17,775,000.00; (ii) final maturity date of not less than ten (10)
years following Closing and funding thereof; (iii) amortization term of not less
than twenty-five (25) years; and (iv) interest rate no greater than eight and
one-half percent (8-1/2%).
"INTEREST" means the entire ownership interest of a Member in
the Company at any particular time, including the right of such Member to any
and all benefits to which a Member may be entitled as provided in this
Agreement, together with the obligations of such Member to comply with all of
the terms and provisions of this Agreement.
"INTEREST RATE" means a per annum rate of interest equal to:
(i) one percent (1%) in excess of the Prime Rate for a Member Loan having a
principal balance of $250,000.00 or less; and (ii) two percent (2%) in excess of
the Prime Rate for a Member Loan having a principal balance in excess of
$250,000.00.
"KEYSTONE" means Keyman Realty Group, L.L.C., an Arizona
limited liability company, doing business as Keystone Management Services, an
Affiliate of DCP.
"KEYSTONE CAPITAL" means Keystone Capital Group, Inc., an
Arizona corporation, and affiliate of DCP.
"KEYSTONE FINANCING ARRANGEMENT" means engagement by the
Company of Keystone Capital or a duly licensed affiliate of Keystone Capital or
DCP, to obtain the Initial Financing for the Project on an exclusive basis,
pursuant to a separate agreement.
"KEYSTONE MANAGEMENT ARRANGEMENT" means engagement by the
Company of Keystone, or a duly licensed Affiliate of Keystone or DCP, under a
fifteen (15) year management contract for the Project providing, among other
<PAGE>
things, for the following: (i) management fee payable monthly equal to three and
one-half percent (3-1/2%) of gross cash receipts, excluding Tenant security
deposits and lump sum Tenant Improvement reimbursements; (ii) Leasing
commissions of one and one-quarter percent (1-1/4%) on Lease renewals and two
and one-half percent (2-1/2%) on new Leases (five percent [5%] if an outside
broker is involved with a co-brokerage arrangement); and (iii) a cancellation
clause, pursuant to which UHT, on behalf of the Company, has the right to
unilaterally cancel the Keystone Management Arrangement if a Keystone Removal
Event occurs.
"KEYSTONE REMOVAL EVENT" means that time at which the
Company's actual receipt of net operating income (as defined in the applicable
Annual Budgets) in each of two consecutive calendar years is an amount less than
seventy-five percent (75%) of the amount estimated in the applicable Annual
Budget.
"LEASES" or "LEASING" (or equivalent terms) means lease
arrangements by which Tenants lease portions of the Project from the Company.
"MEMBER" means any Person: (i) who executes this Agreement as
a Member or who has been admitted as an additional or Substitute Member pursuant
to the terms of this Agreement; and (ii) who is the owner of an Interest in the
Company. "Members" means all such Persons, with the initial members to be UHT
and DCP. All references in this Agreement to a "majority in interest" means all
Members.
"MEMBER LOANS" means the loans from time to time made to the
Company by a Member (the "MEMBER LENDERS") pursuant to Section 3.2, which shall
be accounted for by the Company, be an obligation of the Company payable to the
Member Lenders, bear interest at the applicable Interest Rate, and require
scheduled (but not necessarily full) payments (applied first to accrued interest
and then to reduction of principal) from time to time (pro rata to each Member
Lender based on Member Loans then outstanding) as appropriate prior to
determination and distribution of Cash Available from Operations, Net Financing
Proceeds or Net Sales Proceeds. Member Loans shall not be treated as Capital
Contributions to the Company.
"NET FINANCING PROCEEDS" AND "NET SALES PROCEEDS" means that
portion of Financing Proceeds or Sales Proceeds, respectively, from time to time
actually received by the Company, after deduction for any and all closing costs
(including but not limited to legal, title, escrow and similar fees and
charges), payment of Financing (including Member Loans) refinanced thereby,
commissions, loan costs or fees, and similar matters, and retention or payment
by the Company of all or any portion thereof to pay expenses of the Company or
to fund reasonable Company reserves.
"NONRECOURSE DEDUCTIONS" has the meaning set forth in, and
shall be determined in accordance with, Regulations Section 1.704-2(b)(1) and
shall be computed in accordance with Regulations Section 1.704-2(c).
<PAGE>
"NONRECOURSE DEBT" has the meaning set forth in Regulations
Section 1.704-2(b)(3).
"PERCENTAGE INTEREST" means, with respect to each Member, the
following (subject to adjustment as from time to time provided in this
Agreement):
UHT - 50%
DCP - 50%
"PERSON" means any individual, partnership, corporation,
trust, or other entity.
"PREAPPROVED LEASES" means Leases which comply with the
Leasing requirements and parameters set forth in a then applicable Annual
Budget.
"PREFERRED RETURN" means an amount equal to ten and one-half
percent (10-1/2%) per annum simple, non-compounded interest, computed on the
from time to time outstanding Contribution Balance for each Member based on a
365-day year (or 366-day year if applicable) applied to the actual number of
days until such referenced return is paid.
"PREFERRED RETURN ARREARAGE" means any Preferred Return from
time to time payable but not paid for a fiscal year of the Company, which shall
be separately accounted by the Company and not bear interest.
"PRIME RATE" means the "prime rate" as from time to time
published in the Wall Street Journal as the "base rate on corporate loans posted
by at least 75% of the nation's 30 largest banks".
"PROFITS" and "LOSSES" means, for each fiscal year or other
period, an amount equal to the Company's taxable income or loss for such year or
period, 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 ss.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 Profits or Losses pursuant to this definition shall
be added to such taxable income or loss;
(b) Any expenditures of the Company described in Code
ss.705(a)(2)(B) or treated as Code ss.705(a)(2)(B)
expenditures pursuant to Regulations ss.1.704-1(b)(2)(iv)(i),
and not otherwise taken into account in computing Profits or
Losses pursuant to this definition shall be subtracted from
such taxable income or loss; and
<PAGE>
(c) Notwithstanding any other provisions of this
definition of Profits and Losses, any items which are
specially allocated pursuant to Section 4.2 hereof shall not
be taken into account in computing Profits or Losses.
"PROJECT" means the ownership and operation, including
Leasing, of the Buildings as a medical office complex, and related amenities
(both onsite and offsite).
"PROJECT AGREEMENTS" means the Financing, Building III
Purchase Agreement, Leases, Keystone Financing Arrangement, Property Management
Arrangement, and any other contractual arrangements from time to time entered
into by the Company in connection with the Project.
"PROPERTY" or "COMPANY PROPERTY" means all real and personal
property, tangible and intangible, acquired by the Company (whether leased
through the Ground Lease(s) or otherwise) and any improvements thereon,
including without limitation the real and other property described on Exhibit
"A".
"PROPERTY MANAGEMENT ARRANGEMENT" means whichever of the
following is from time to time applicable: (i) the Keystone Management
Arrangement; or (ii) a Replacement Management Arrangement.
"PRO RATA" means (as of the applicable time) the proportion
that a referenced participation of a Member (whether Percentage Interest,
Contribution Balance or otherwise) bears to the aggregate referenced
participations of all Members, and shall not, unless expressly so stated, be
based on the number of Members in the Company.
"REGULATIONS" means the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
"REPLACEMENT MANAGEMENT ARRANGEMENT" means replacement of
Keystone pursuant to the Keystone Management Arrangement and as a result of a
Keystone Termination Event, with a duly licensed management company, and on
terms, designated by UHT and approved by DCP (with such approval not to be
unreasonably withheld).
"SALE" means a sale or other disposition of all or any portion
of the Project, including by condemnation or other governmental taking, but
excluding any Financing, Refinancing or Leasing of all or any portion of the
Project in the ordinary course of operation thereof.
"SALE PROCEEDS" means any and all sums (or cash equivalent of
all property) payable to the Company as a result of a Sale (including
condemnation or insurance proceeds not applied to reconstruction).
<PAGE>
"SUBSTITUTE MEMBER" means any Person admitted to the Company
as a Substitute Member pursuant to Section 8 hereof.
"TAX MATTERS MEMBER" means the "tax matters partner" as
defined in Section 6231(a)(7) of the Code, who shall be UHT (or its individual
designee).
"TENANT(S)" means lessees (sublessees pursuant to the Ground
Leases) of portions of the Project from the Company.
"TENANT IMPROVEMENTS" means leasehold, tenant or similar
improvements to be made to the Project by the Company for Tenants pursuant to
Leases.
"TERM" shall mean the term of the Company, as set forth in
Section 2.2.
SECTION 2.
FORMATION; PURPOSE
2.1. ORGANIZATION. The Company is a limited liability company. The
Company has been or will be formed, pursuant to the provisions of the Act, by
the filing of the Articles with the Arizona Corporation Commission, and upon the
terms and conditions set forth in the Articles and in this Agreement.
2.2. TERM. The term of the Company shall commence on the date the
Articles are or were filed as described in Section 2.1 and shall continue until
the first to occur of: (a) the winding up and liquidation of the Company; (b)
the occurrence of a Liquidating Event as provided in Section 10 of this
Agreement; or (c) December 31, 2045.
2.3. NAME. The business of the Company shall be carried on under the
name "DSMB Properties, L.L.C", "Desert Samaritan Medical Buildings", or any
other fictitious name or tradename from time to time utilized or adopted by the
Company.
2.4. PURPOSE. Purpose and character of the business of the Company
shall be to acquire, operate, market, and dispose of, the Project as follows:
2.4.1. BUILDING I AND BUILDING II. As a part of their Initial
Capital Contributions: (a) DCP will contribute an undivided 89.280% ownership
interest in Building I and Building II; and (b) UHT will acquire from DCP,
pursuant to a separate Purchase Agreement between DCP and UHT, an undivided
10.720% ownership interest, in Building I and Building II, and contribute such
interest to the Company.
2.4.2. BUILDING III. The Company will acquire Building III
pursuant to an assignment of the interest and obligations of DCP under the
Building III Purchase Agreement.
<PAGE>
2.4.3. FINANCING. The Company will from time to time finance
its acquisition, Leasing and ownership of the Project, with the Initial
Financing to refinance repayment of the Existing Financing on Building I and
Building II, and to finance acquisition of Building III; provided, that DCP (and
not the Company or UHT) shall be fully responsible for and shall pay, at or
prior to the closing of the Initial Financing, any prepayment penalty applicable
to the payoff of the Existing Financing.
2.4.4. POST-ACQUISITION. Upon completion of the acquisition of
the Buildings and the Initial Financing, the Company will proceed with Leasing
and management of the Project.
2.4.5. DISPOSITION ACTIVITIES. At such time as shall be
mutually acceptable to all Members, the Company shall commence marketing and
sale or other disposition of each or all of the Buildings.
2.4.6. NATURE OF INCOME. The Company will receive only income
which is enumerated in Code ss.ss.856(c)(2) and 856(c)(3), and will receive no
income enumerated in Code ss.856(c)(4). The Company will not, directly or
indirectly, acquire any assets other than those enumerated in Code ss.856(c)(5).
Moreover, the Company will not take any action or enter into any agreement which
is inconsistent with UHT's status or qualification as a real estate investment
trust, as defined in Code ss.856(a) (a "REIT"), or take any action which would
cause (or be one of the causes for) UHT to lose its status or qualification as a
REIT.
2.5. PLACE OF BUSINESS. The Company's principal place of business shall
be at the Phoenix, Arizona office of DCP, currently located at 2525 E. Camelback
Road, Suite 950, Phoenix, Arizona 85018. The Company may have other or
additional places of business within or without the State of Arizona. The name
and address of the agent for service of process is S.A. One Ltd., 2111 East
Highland, Suite 255, Phoenix, Arizona 85016.
2.6. NATURE OF MEMBERS' INTERESTS. The Interests of the Members in the
Company shall be personal property for all purposes. All property owned by the
Company, whether real or personal, tangible or intangible, shall be owned by the
Company as an entity, and no Member shall have any direct ownership of such
property or any right to use such property for any purpose other than a purpose
of the Company.
2.7. SPECIFIC PERFORMANCE. Each and all of the provisions of this
Agreement shall be specifically enforceable (in addition to all other rights and
remedies available under this Agreement or applicable laws).
2.8. CONTINGENCY. The obligations of UHT and DCP hereunder shall be
expressly conditioned upon the Company obtaining a commitment for the Initial
Financing on or before October 30, 1995, as and if such date is extended by
mutual agreement of UHT and DCP (the "Initial Financing Contingency"). UHT and
DCP each agree to proceed diligently and in good faith to apply for and obtain
commitment for the Initial Financing; provided, that in the event the Initial
<PAGE>
Financing Contingency is not timely satisfied, this Agreement shall be deemed
terminated and of no further force and effect, with UHT and DCP to each be
released from any and all rights or obligations hereunder, and with UHT and DCP
each to bear and pay fifty percent (50%) of the cost incurred to date with
respect to the Company.
SECTION 3.
CONTRIBUTIONS; CAPITAL ACCOUNTS
3.1. MEMBER CAPITAL ACCOUNTS AND CONTRIBUTIONS.
3.1.1. CAPITAL ACCOUNTS. A separate capital account shall be
maintained for each Member. The Capital Account of each Member shall be
increased by its Capital Contributions to the Company and by such Member's share
of Profits of the Company, and shall be decreased by any Distributions of cash
or other property to such Member and by such Member's share of Losses of the
Company, as allocated under Section 4 hereof. This Section and the other
provisions of this Agreement relating to the maintenance of Capital Accounts are
intended to comply with Regulation Section 1.704-1(b), and shall be interpreted
and applied in a manner consistent with such Regulations.
3.1.2. INITIAL CAPITAL CONTRIBUTIONS. As and for their
respective Initial Capital Contributions, the Members shall contribute the
following to the Company upon and as a condition to their respective entrance
into the Company:
(a) UHT: Upon UHT's acquisition of an
undivided 10.720% ownership interest in Building I
and Building II and concurrently with DCP's
contribution set forth in (b) below, UHT shall
contribute:
(1) an undivided 10.720% ownership
interest in Building I and Building II for a
deemed Capital Contribution of
$1,741,431.00; and
(2) $3,240,000.00 in cash.
(b) DCP: Upon UHT's acquisition of an
undivided 10.720% ownership interest in Building I
and Building II and concurrently with UHT's
contribution set forth in (a) above, DCP shall
contribute an undivided 89.280% ownership interest in
Building I and Building II for a deemed Capital
Contribution of $3,133,569.00.
DCP's contribution set forth in (b) above shall be subject to the Existing
Financing and the obligation of DCP to pay any prepayment penalty applicable to
the payoff of the Existing Financing. Neither the Company nor UHT shall have any
obligation in connection with such prepayment penalty. Prior to the funding of
<PAGE>
Initial Capital Contributions, as described above, expenses of forming and
operating the Company and preparing for the planned acquisitions (including
escrow and loan deposits) shall be borne equally by the Members and be Member
Loans to the Company, for repayment upon closing of the Initial Financing.
3.1.3. ADDITIONAL CAPITAL CONTRIBUTIONS. To the extent the
Members by mutual agreement determine additional Capital Contributions are
required for Company purposes, the Members shall each then make additional
Capital Contributions, Pro Rata to their then applicable Percentage Interests.
3.2. MEMBER LOANS. Any Member may, with the approval of all Members, or
as otherwise permitted by Section 9 of this Agreement, lend or advance money to
the Company as Member Loans. If any Member shall make any Member Loan to the
Company, the amount of any such Member Loan shall not be treated as a Capital
Contribution to the Company but shall be an indebtedness of the Company payable
to such Member, repayable out of the Company's cash and bear interest at the
Interest Rate during the period such loan is outstanding unless a different rate
of interest is specifically agreed to by the Members. Member Loans or an agreed
portion of such Member Loans shall be payable prior to any Distributions to be
made after such Member Loans are funded.
3.3. WITHDRAWAL OR RETURN OF CONTRIBUTIONS. Except as otherwise
specifically provided in this Agreement, or as otherwise provided by law, no
Member shall have the right to withdraw from the Company or to demand or receive
a return of his capital without the consent of all Members. No Member shall have
the right to receive return of any Capital Contribution in any form other than
cash except as may be specifically provided herein.
3.4. OTHER MATTERS.
3.4.1. No Member or Affiliate of a Member shall receive any
interest, salary or draw with respect to its Capital Contributions or its
Capital Account or for services rendered on behalf of the Company or otherwise
in its capacity as a Member or otherwise, except as specifically provided for in
the Keystone Management Arrangement, Keystone Financing Arrangement, this
Agreement or as otherwise approved by all Members.
3.4.2. Except as otherwise provided by this Agreement or by
separate agreement with third party creditors, no Member shall be liable for the
debts, liabilities, contracts or any other obligations of the Company. Except as
otherwise provided by this Agreement, a Member shall not be required to lend any
funds, or to make any additional Capital Contributions, to the Company.
3.4.3. None of the provisions of this Agreement, whether in
regard to contributions, loans or otherwise, are intended for the benefit of,
nor shall such provisions be enforceable by, person or entities not a party to
this Agreement (including but not limited to creditors of the Company).
<PAGE>
SECTION 4.
DISTRIBUTIONS AND ALLOCATIONS
4.1. DISTRIBUTIONS AND ALLOCATIONS TO MEMBERS.
4.1.1. DISTRIBUTIONS OF CASH AVAILABLE FROM OPERATIONS. The
Members shall seek to establish the Annual Budget for each fiscal year of the
Company in a manner that provides for Distributions to Members from operating
activity on a monthly basis. Cash Available From Operations, if any, shall be so
distributed to Members as follows:
(a) First, to UHT until UHT has received any
accrued but unpaid Preferred Return (including any
Preferred Return Arrearage) on its Contribution
Balance;
(b) Second, to DCP until DCP has received
any accrued but unpaid Preferred Return (including
any Preferred Return Arrearage) on its Contribution
Balance; and
(c) Third, the remainder to the Members Pro
Rata to their respective Percentage Interests.
Notwithstanding the foregoing, in the event Distributions of Cash Available From
Operations fall below that specified by the then applicable Annual Budget, by
fifteen percent (15%) or more (with the date thereof referred to herein as the
"Deficit Date"), at any time during the course of the involved fiscal year, the
Annual Budget will be adjusted, to provide for modified Distributions consistent
with the adjusted Annual Budget, by mutual agreement of the Members within
forty-five (45) days following the Deficit Date. From and after the Deficit
Date, DCP will not have the right to receive the Preferred Return on its
Contribution Balance, until such approval of an adjusted Annual Budget, if and
to the extent the Preferred Return to UHT is impaired or is projected to be
impaired pending implementation of the adjusted Annual Budget.
4.1.2. DISTRIBUTIONS OF NET SALES PROCEEDS. Net Sales
Proceeds, if any, shall be distributed from time to time promptly following
receipt by the Company to Members in the following priorities:
(a) First, to UHT until UHT has received any
and all accrued and unpaid Preferred Return
(including any Preferred Return Arrearage) on its
Contribution Balance;
(b) Second, to the Members, Pro Rata to
their respective Contribution Balances, until the
Members have received return (pursuant to this
Section 4.1.2(b) and Section 4.1.3(c)) equal to their
aggregate Capital Contributions;
<PAGE>
(c) Third, to DCP until DCP has received any
and all accrued and unpaid Preferred Return
(including any Preferred Return Arrearage) on its
Contribution Balance; and
(d) Fourth, the remainder Pro Rata to the
Members in accordance with their respective
Percentage Interests.
4.1.3. DISTRIBUTIONS OF NET FINANCING PROCEEDS. Net Financing
Proceeds, if any, shall be distributed from time to time promptly following
receipt by the Company to Members in the following priorities:
(a) First, to UHT until UHT has received any
and all accrued and unpaid Preferred Return
(including any Preferred Return Arrearage) on its
Contribution Balance;
(b) Second, to DCP until DCP has received
any and all accrued and unpaid Preferred Return
(including any Preferred Return Arrearage) on its
Contribution Balance;
(c) Third, to the Members, Pro Rata to their
respective Contribution Balances, until the Members
have received return (pursuant to this Section
4.1.3(c) and Section 4.1.2(b)) equal to their
aggregate Capital Contributions; and
(d) Fourth, the remainder Pro Rata to the
Members in accordance with their respective
Percentage Interests.
4.1.4. ALLOCATION OF LOSSES. Losses shall be allocated to the
Members, Pro Rata to their respective Percentage Interests.
4.1.5. ALLOCATION OF PROFITS.
(a) First, a specific allocation of income
shall be nade to each Member in each fiscal year in
an amount equal to the Distributions received by such
Member during such year under Sections 4.1.1(a),
4.1.1(b), 4.1.2(a), 4.1.2(c), 4.1.3(a) and 4.1.3(b).
(b) Second, Profits shall be allocated to
the Members, Pro Rata to the extent to which Losses
were allocated to the Members, until all Members have
been allocated Profits pursuant to this priority
equal to all Losses allocated to such Members.
<PAGE>
(c) Third, all remaining Profits shall be
allocated to the Members Pro Rata to their respective
Percentage Interests.
4.2. SPECIAL ALLOCATIONS. The special allocations set forth in this
Section 4.2 shall, if necessary, be made in the following order:
4.2.1. COMPANY MINIMUM GAIN CHARGEBACK. Notwithstanding any
other provision of this Section 4, if there is a net decrease in Company Minimum
Gain during any Company 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 the portion of such Person's share of the net
decrease in Company Minimum Gain, determined in accordance with Regulations
Section 1.704-2(g), that is allocable to the disposition of Company Property
subject to Nonrecourse Liabilities, determined in accordance with Regulations
Section 1.704-2(iv)(e). 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 Section 1.704-2(f) of the Regulations. This Section 4.2.1 is
intended to comply with the minimum gain chargeback requirement in such Section
of the Regulations and shall be interpreted consistently therewith.
4.2.2. MEMBER MINIMUM GAIN CHARGEBACK. Notwithstanding any
other provision of this Section 4 except Section 4.2.1, if there is a net
decrease in Member Minimum Gain attributable to Member Nonrecourse Debt during
any Company 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 the portion of such Person'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)(5), that is allocable to the
disposition of Company Property subject 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 Section 1.704-2(i)(4) of
the Regulations. This Section 4.2.2 is intended to comply with the minimum gain
chargeback requirement in such Section of the Regulations and shall be
interpreted consistently therewith.
4.2.3. QUALIFIED INCOME OFFSET. In the event any Member
unexpectedly receives any adjustment, allocation, or distribution described in
Sections 1.704-1(b)(2)(ii)(d)(4) through 1.704-1(b)(2)(ii)(d)(6) of the
Regulations which causes or increases a deficit in such Member's Capital Account
as of the end of the tax year to which the adjustment, allocation or
distribution relates, items of Company income and gain shall be specially
allocated to each such Member in an amount and manner sufficient to eliminate,
to the extent required by the Regulations, the Capital Account deficit of such
Member as quickly as possible, provided that an allocation pursuant to this
Section 4.2.3 shall be made if and only to the extent that such Member would
<PAGE>
have a Capital Account deficit after all other allocations provided for in this
Section 4 have been tentatively made as if this Section 4.2.3 were not in the
Agreement.
4.2.4. CODE SECTION 704(C) ALLOCATIONS.
(a) In accordance with Code ss.704(c) and
the Regulations thereunder, income, gain, loss and deduction
with respect to any property contributed to the capital of the
Company shall, solely for tax purposes, be allocated among the
Members and assignees so as to take account of any variation
between the adjusted basis of such property to the Company for
federal income tax purposes and its initial Gross Asset Value.
(b) In the event the Gross Asset Value of
any Company asset is adjusted pursuant to this Agreement,
subsequent allocations of income, gain, loss and deduction
with respect to such asset shall take account of any variation
between the adjusted basis of such asset for federal income
tax purposes and its Gross Asset Value in the same manner as
under Code ss.704(c) and the Regulations thereunder.
(c) Any elections or other decisions
relating to such allocations shall be made by the Members in
any manner that reasonably reflects the purpose and intention
of this Agreement. With respect to the Initial Capital
Contributions, consisting of the interests of the Members in
Building I and Building II, the allocation made pursuant to
Code ss.704(c) shall be made in accordance with the
"traditional method". Allocations pursuant to this Section
4.2.4 are solely for purposes of federal, state and local
taxes and shall not affect, or in any way be taken into
account in computing, any Member's Capital Account or share of
Profits, Losses, other items or distributions pursuant to any
provision of this Agreement.
4.2.5. SECTION 754 ADJUSTMENTS. To the extent 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), to be taken into account in determining Capital Accounts,
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 a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.
4.3. OTHER ALLOCATION RULES.
4.3.1. For purposes of determining the Profits, Losses, or any
other items allocable to any period, Profits, Losses, and any such other items
shall be determined on a daily, monthly, or other basis, as determined by the
Members using any permissible method under Code Section 706 and the Regulations
thereunder.
<PAGE>
4.3.2. The Members are aware of the income tax consequences of
the allocations made by this Section 4 and hereby agree to be bound by the
provisions of this Section 4 in reporting their shares of Company income and
loss for income tax purposes.
SECTION 5.
MANAGEMENT AND RESPONSIBILITIES
5.1. AUTHORITY OF THE MEMBERS. Except to the extent otherwise provided
herein, the Members shall have the sole and exclusive right to manage the
business of the Company and shall have all of the rights and powers which may be
possessed by a member or manager under the Act.
5.2. DAY-TO-DAY OPERATIONS. Except as otherwise expressly provided by
this Agreement, DCP shall be responsible for the day-to-day management of
Company business, with all rights and powers generally conferred by this
Agreement, the Act, by law, or as necessary, advisable or consistent with the
proper management of Company affairs, including but not limited to, the
following:
5.2.1. Enter into Leases, contracts and other agreements with
third parties consistent with the then applicable Annual Budget.
5.2.2. Engage and retain legal counsel and other third parties
(excluding accountants, the engagement and retention of which shall be governed
by Section 5.3) for appropriate representation of, and providing of other
reasonable and necessary services to the Company.
5.2.3. Keep the other Member informed of status of operation
of the Company, and any actions and events causing material deviations from the
Annual Budget.
5.2.4. Implement, supervise and carry out the Leasing of the
Project to Tenants (including installation of Tenant Improvements), in
accordance with the then applicable Annual Budget.
5.2.5. Correspond and interface, as appropriate, on behalf of
the Company with Samaritan Health System, with respect to the Project and Ground
Leases.
5.2.6. Issue to the Members monthly operating reports for the
Project.
5.2.7. Control and administer (including deposits and
withdrawals) all cash accounts for the Company, except those maintained pursuant
to the Property Management Arrangement, and maintain all books and records for
the Company and its activities, which shall be open to inspection at all
reasonable times by all Members and, unless otherwise agreed by UHT, be
physically located or available for such inspection within Phoenix, Arizona.
<PAGE>
Third parties transacting with the Company or DCP shall in all respects be
entitled to rely upon the signature of DCP as having authority to bind the
Company, with the exception of those actions set forth in Section 5.3 which
shall require resolution (or equivalent action) signed by all Members. DCP shall
devote to the Company such time as may be necessary for the proper performance
of its duties hereunder, but DCP shall not be required to devote full time to
the performance of such duties.
5.3. MEMBER APPROVALS. The affirmative vote of all Members shall be
required:
5.3.1. To sell, exchange, encumber or otherwise dispose of all
or a material portion of the Project.
5.3.2. To approve the Annual Budget.
5.3.3. To commit the Company to any Financing, including the
Initial Financing.
5.3.4. To commit the Company to any Leases other than
Preapproved Leases.
5.3.5. To do any act in contravention of this Agreement.
5.3.6. To do any act which would make it impossible to carry
on the ordinary business of the Company (including filing of any bankruptcy
petition), except as otherwise provided in this Agreement.
5.3.7. To amend or change this Agreement, or any other
document or agreement relating to operation of the Property in any manner.
5.3.8. To possess Company Property, or assign rights in
specific Company Property, for other than a Company purpose.
5.3.9. To permit the Company to engage in any activities
inconsistent with or in addition to the stated purposes of the Company.
5.3.10. To acquire or contract to acquire any property in
addition to, and not reasonably related to use and operation of, the Buildings.
5.3.11. To approve a settlement of any lawsuit, condemnation
action, or insurance claim not set forth in a then applicable Annual Budget
involving the payment or receipt of greater than $10,000.00.
5.3.12. To engage and retain accountants for the Company.
<PAGE>
5.3.13. To enter into or modify the Keystone Management
Agreement or Keystone Financing Agreement.
5.4. DUTIES AND OBLIGATIONS OF MEMBERS.
5.4.1. The Members shall take all actions which may be
necessary or appropriate: (i) for the continuation of the Company's valid
existence as a limited liability company under the laws of the State of Arizona;
and (ii) for the accomplishment of the Company's purposes, including the
maintenance, preservation, and operation of the Company Property in accordance
with the provisions of this Agreement and applicable laws and regulations.
5.4.2. Members or their Affiliates may provide services to the
Company and be compensated therefor only as provided in this Agreement
(including the Keystone Management Arrangement), or with the approval of all
Members. All Company transactions with Affiliates shall be on competitive,
market rate terms.
5.5. EXPENSES OF MEMBERS. The Members shall be entitled to payment of,
or reimbursement for, all reasonable bona fide out-of-pocket business expenses
approved by all Members incurred with or to a non-affiliate third party in
connection with and reasonably related to Company business (including but not
limited to any and all loan commitment and other financing fees, attorneys,
accounting, appraisal, engineer and other professional fees, cost of fundings,
and other costs incurred in negotiating and finalizing the Company, this
Agreement, the Initial Financing, the Building III Purchase Agreement and
similar matters), upon presentation of satisfactory documentation as to time,
place, amount, nature and purpose of such expense; provided, the foregoing shall
not apply to expenses required to be borne other than by the Company pursuant to
the Keystone Financing Arrangement and the Project Management Arrangement. All
of the expenses of the Company shall be paid from Company funds or, in the event
that a Member shall advance his own funds to pay any such expenses of the
Company, the Company shall reimburse such Member for all such advances within
thirty (30) days of request if and to the extent it is within the then
applicable Annual Budget.
5.6. OTHER ACTIONS. Unless otherwise specifically provided by this
Agreement, all actions of the Company shall require approval by all Members.
SECTION 6.
MEETINGS; VOTING
6.1. MEETINGS OF THE MEMBERS. Meetings of the Members, or a vote of the
Members without a meeting, may be called by any Member. The call shall state the
nature of the business to be transacted or, if no meeting is to be held, the
matter to be voted on and the day that the votes shall be counted. Notice of any
<PAGE>
such meeting shall be given to all Members not less than ten (10) business days
or more than thirty (30) days prior to the date of such meeting. Whenever the
vote or consent of Members is permitted or required under the 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 6.3. Meetings will, unless
all Members agree otherwise, be held at a mutually acceptable location or by
telephonic conference call.
6.2. RECORD DATE. For the purpose of determining the Members entitled
to vote on a matter, or to vote at any meeting of the Members or any adjournment
thereof, the Company may fix, in advance, a date as the record date for any such
determination. Such date shall not be more than thirty (30) days nor less than
ten (10) business days before any such meeting.
6.3. METHOD OF VOTING. With respect to each matter for which a vote is
required, each Member may cast the number of votes equal to such Member's
Percentage Interest. A Member may vote in person at a meeting, by written proxy
or by a signed writing directing the manner in which such Member desires its
vote to be cast, which writing must be received by the Company prior to the date
on which votes are to be counted. The proxy of a Member may authorize any Person
or Persons to act for him 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 his attorney-in-fact.
No proxy shall be valid after the expiration of 11 months from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the Member executing it. The Members shall at all times be permitted
to act without a formal meeting or voting whenever there is unanimous consent
signed by all Members on a resolution of the Company.
6.4. MEETINGS. Each meeting of Members shall be conducted by such
Person as the Members may appoint pursuant to such rules for the conduct of the
meeting as the Members deem appropriate.
6.5. REQUIRED MEETING. Unless otherwise agreed or waived in writing by
all Members, semi-annual meetings of the Members shall be held on the second
Tuesday of each December and July during the Term.
SECTION 7.
BOOKS AND RECORDS
7.1. BOOKS AND RECORDS. The Company shall keep adequate books and
records at either the principal place of business of the Company setting forth a
true and accurate account of all business transactions arising out of and in
connection with the conduct of the Company. Such books and records shall be kept
in accordance with the accrual method of accounting with Federal Tax Principles
consistently applied. Any Member or its designated representative shall have the
right, at any reasonable time, to have access to and inspect and copy the
contents of such books and records. Portions of the books and records under the
necessary and reasonable control of the Property Manager may be kept at the
principal place of business of the Property Manager.
<PAGE>
7.2. TAX INFORMATION. Necessary tax information shall be delivered to
each Member after the end of each fiscal year of the Company. Every effort shall
be made to furnish such information within seventy-five (75) days after the end
of each fiscal year. In addition, UHT (or any individual designated by UHT if
the Tax Matters Member must be an individual) is specifically authorized to
represent the Members and act as the "Tax Matters Partner," as that term is used
under the Code and in any similar capacity under state or local law.
7.3. AUDITS. The books and records of the Company for each fiscal year
shall be audited by an independent accounting firm approved by all Members.
7.4. FISCAL YEAR. The fiscal year of the Company shall be the Calendar
Year.
SECTION 8.
TRANSFER OF INTERESTS
8.1. TRANSFER OF COMPANY INTEREST. Except as otherwise expressly
provided in this Section 8, no Member may voluntarily withdraw from the Company
and no Interest in the Company may be transferred without the consent of all
Members. As used in this Section, "Transfer" means to directly or indirectly
(including by transfer of controlling equity or other ownership interest in a
Member) transfer, sell, assign, pledge, hypothecate, or otherwise dispose of any
interest in the Company.
8.2. PERMITTED TRANSFERS. Subject to the conditions and restrictions
set forth in Section 8.3 hereof, all or any portion of the Interest in the
Company of a Member may be subjected to a transfer only to: (i) any other Member
to the extent expressly allowed by this Section 8 or Section 9; (ii) in the case
of UHT, transfers of the publicly-held ownership of UHT; (iii) any Affiliate of
the transferor; or (iv) any Purchaser as defined in and pursuant in accordance
with Sections 8.4 and 8.5.
8.3. CONDITIONS TO TRANSFERS. The Company shall not be required to
acknowledge and be bound by a Transfer (including but not limited to a Transfer
pursuant to Section 8.4) unless and until the following conditions are
satisfied:
8.3.1. Except in the case of a Transfer of an Interest at
death or involuntarily by operation of law, the transferor and transferee shall
execute and deliver to the Company such documents and instruments of conveyance
as may be necessary or appropriate in the opinion of counsel to the Company to
effect such Transfer and to confirm the agreement of the transferee to be bound
by the provisions of this Section 8. In any case not described in the preceding
sentence, the Transfer shall be confirmed by presentation to the Company of
legal evidence of such Transfer, in form and substance satisfactory to counsel
to the Company. In all cases, the Company shall be reimbursed by the transferor
and/or transferee for all costs and expenses that it reasonably incurs in
connection with such Transfer.
<PAGE>
8.3.2. Except in the case of a Transfer at death or
involuntarily by operation of law, the transferor may be required to furnish the
Company an opinion of counsel, which counsel and opinion shall be reasonably
satisfactory to the Company, that the Transfer will not cause the Company to
terminate for federal income tax purposes.
8.3.3. The transferor and transferee shall furnish the
transferee's taxpayer identification number, sufficient information to determine
the transferee's initial tax basis in the interest transferred, and any other
information reasonably necessary to permit the Company to file all required
federal and state tax returns and other legally required information statements
or returns.
8.4. PURCHASE AND SALE. Each Member shall have the right, but not the
obligation, at any time such Member (an "Offering Member") is not in material
breach of its obligations under this Agreement or with respect to the Company,
to make an offer (the "Offer") to any other Member or Members (the "Non-Offering
Members") to either: (i) sell the Entire Interest of the Offering Member to the
Non-Offering Members (an "Offer to Sell"); or (ii) purchase the Entire Interest
of the Non-Offering Members (an "Offer to Purchase"), subject to the following:
8.4.1. The "Entire Interest" with respect to a Member shall
mean the Interest of such Member, together with any or all Member Loans or
similar matters payable or to such Member to or from the Company or the other
Members.
8.4.2. Subject to the Minimum Purchase Price (as herein
defined) requirement set forth in Section 8.5.1 below, the Offer shall specify a
price to be paid for each point of Percentage Interest (to be adjusted for
partial percentage points to the thousanth place) for the Interest subject to
the Offer, which shall be the same for a sale or purchase of an Interest (the
"Percentage Price").
8.4.3. The Non-Offering Members shall have sixty (60) days
following receipt of the Offer (the "Acceptance Period"), to agree in writing to
the Offering Member to accept either the Offer to Sell or the Offer to Purchase;
provided, that if the Non-Offering Members fail to so accept either the Offer to
Sell or the Offer to Purchase, the Non-Offering Members will be deemed to have
accepted the Offer to Purchase.
8.4.4. The Non-Offering Members shall have the right only to
accept either, and not both, the Offer to Sell or Offer to Purchase.
8.4.5. The acceptance, or deemed acceptance, by the
Non-Offering Members of the Offer to Sell or Offer to Purchase shall constitute
a binding agreement between the Offering Member and the Non-Offering Members for
such transaction, to be consummated in accordance with this Section 8.
8.5. SALE TRANSACTION. Closing ("Closing") of transfer of an Entire
Interest pursuant to Section 8.4 (a "Sale Transaction") shall occur within sixty
<PAGE>
(60) days following the acceptance or deemed acceptance by the Non-Offering
Members of the Offer at 10:00 o'clock local time, or at such other time and
place as shall be mutually agreed upon by the Offering Member and Non-Offering
Members as follows:
8.5.1. The purchase price to be paid by the purchaser in a
Sale Transaction (the "Purchaser") to the selling Member (the "Seller") for the
Entire Interest (the "Purchase Price") shall be an amount equal to the
Percentage Price times the Percentage Interest within the Entire Interest,
increased or decreased, as appropriate, for the following:
(a) Any disparity, dollar for dollar, in the
Contribution Balance between the respective Interests subject
to the Offer to the extent required to equalize the
Contribution Balances (but without adjustment for any accrued
but unpaid Preferred Returns) between Seller and Purchaser
(with an example of the application of this Section 8.5.1(a)
being attached as Exhibit "C"); and
(b) The unpaid balance (principal and
interest) of any Member Loans or other amounts payable to or
by the Seller, whether to or from the Members or the Company.
Notwithstanding any other provision of Sections 8.4 or 8.5 to the contrary, the
Purchase Price before adjustment pursuant to Section 8.5.1.(a) shall never be
less than the Contribution Balance of the Seller (the "Minimum Purchase Price").
8.5.2. Closing of the Sale Transaction shall be conditioned
upon obtaining any consents required by material contracts (including Project
Agreements) to which the Company is a party which in any way would be breached
by, or cause a material adverse change in the terms thereof in the event of the
completion of, a Sale Transaction, with provisions of any Financing being deemed
such a material contract. The Seller and Purchaser will each exert diligent and
good faith efforts, prior to Closing, to obtain any necessary consents or
approvals required to satisfy such contingency. In the event such contingency
cannot be so satisfied, the Sale Transaction shall be deemed withdrawn and
terminated, with neither the Seller nor the Purchaser to have any further right
or liability as to the other thereunder.
8.5.3. The Seller and Purchaser shall execute any and all
documents and take any and all acts reasonably required to complete the Sale
Transaction, including but not limited to the following:
(a) The documents otherwise required by this
Section 8 in connection with Transfers.
(b) Amendment to this Agreement and filings,
as required by applicable law.
<PAGE>
(c) Indemnification by the Purchaser of the
Seller of any and all liabilities pertaining to the Entire
Interest accruing from and after the Closing, and
indemnification by the Seller to the Purchaser of any and all
liabilities pertaining to the Entire Interest accruing prior
to the Closing.
(d) Evidence of authority to execute any and
all documents and take such further acts as shall be required
to complete the Sale Transaction.
8.5.4. The Seller shall, if and to the extent requested by the
Purchaser, cancel or cause its Affiliates to cancel, effective as of Closing,
all contracts (including but not limited to the Property Management Arrangement)
between the Seller or its Affiliates and the Company.
8.5.5. The Seller and Purchaser shall each bear their
respective expenses, including attorneys' fees, in connection with the Sale
Transaction and the Purchaser and Seller shall each pay, as a part of Closing of
the Sale Transaction, one-half of any expenses, including attorney, accounting
and tax preparation fees, incurred by the Company in connection with the Sale
Transaction. While an Offer is outstanding or a Sale Transaction is pending, the
Entire Interest of the Offering Member and Non-Offering Members shall not be
subject to an Offer by any other Member pursuant to this Section 8.
8.6. PROHIBITED TRANSFERS. Any purported Transfer of an Interest not in
compliance with this Section 8 shall be null and void and of no effect whatever;
provided that, if the Company is required by law to recognize a Transfer (or if
the Company, in its sole discretion, elects to recognize a Transfer) the
Interest transferred shall be strictly limited to the transferor's rights to
allocations and distributions as provided by this Agreement with respect to the
transferred interest, which allocations and distributions may be applied
(without limiting any other legal or equitable rights of the Company) to satisfy
any debts, obligations, or liabilities for damages that the transferor or
transferee of such interest may have to the Company.
8.7. NON-COMPLIANCE INDEMNITY. In the case of a Transfer not in
compliance with this Section 8, the parties engaging or attempting to engage in
such Transfer shall be liable to indemnify and hold harmless the Company and the
other Members from all cost, liability, and damage that any of such indemnified
Persons may incur (including, without limitation, incremental tax liability and
lawyers fees and expenses) as a result of such Transfer or attempted Transfer
and efforts to enforce the indemnity granted hereby.
8.8. RIGHTS OF UNADMITTED ASSIGNEES. A Person who acquires a Company
Interest but who is not admitted as a Substituted Member pursuant to Section 8.9
hereof shall be entitled only to allocations and distributions with respect to
such interest in accordance with this Agreement, but shall have no right to any
information or accounting of the affairs of the Company, shall not be entitled
to inspect the books or records of the Company, and shall not have any of the
rights of a Member under the Act or this Agreement.
<PAGE>
8.9. ADMISSION OF TRANSFEREES AS MEMBERS. Subject to compliance with
the other provisions of this Section 8, a transferee of a Company Interest may
be admitted to the Company as a Substituted Member only if each of the following
conditions is satisfied:
8.9.1. All existing Members unanimously consent to such
admission;
8.9.2. The Interest with respect to which the transferee is
being admitted was acquired by means of a Permitted Transfer;
8.9.3. The transferee becomes a party to this Agreement and
executes such documents and instruments as the Company may reasonably request to
confirm such transferee as a Member and such transferee's agreement to be bound
by the terms and conditions hereof;
8.9.4. The transferee pays or reimburses the Company for all
reasonable legal, filing, and publication costs that the Company incurs in
connection with the admission of the transferee as a Member with respect to the
transferred interest; and
8.9.5. The transferee executes a statement that it is
acquiring such Interest in the Company interest for investment and not for
resale.
8.10. DISTRIBUTIONS AND ALLOCATIONS IN RESPECT TO TRANSFERRED
INTERESTS. If any Interest in the Company is Transferred during any accounting
period in compliance with the provisions of this Section 8, all Profits, Losses,
each item thereof, and all other items attributable to the transferred interest
for such period shall be divided and allocated between the transferor and the
transferee by taking into account their varying interests during the period in
accordance with Code Section 706(d), using any convention permitted by law and
selected by the Company. All distributions on or before the date of such
Transfer shall be made to the transferor, and all distributions thereafter shall
be made to the transferee.
8.11. COVENANT NOT TO OTHERWISE WITHDRAW OR DISSOLVE. Notwithstanding
any provision of the Act, each Member recognizes that the Members have entered
into this Agreement based on their mutual expectation that all Members will
continue as Members and carry out the duties and obligations undertaken by them
hereunder and that, except as otherwise expressly required or permitted hereby,
each Member hereby covenants and agrees not to: (a) take any action to file a
certificate of dissolution or its equivalent with respect to itself; (b) take
any action that would cause a voluntary bankruptcy of such Member; (c)
voluntarily withdraw or attempt to withdraw from the Company; (d) exercise any
power under the Act to dissolve the Company; (e) petition for judicial
dissolution of the Company; or (f) demand a return of such Member's
contributions or profits without the unanimous consent of the Members.
<PAGE>
SECTION 9.
FAILURE TO MAKE CAPITAL CONTRIBUTIONS
9.1. OCCURRENCE AND DILUTION. In the event any Member (a "Non-Paying
Member") shall at any time fail to timely fund to the Company any additional
Capital Contribution required by Section 3.1.3 (an "Unpaid Contribution"), the
other Members ("Other Members") shall have the right, but not the obligation, to
give written notice to the Non-Paying Member requesting that the Unpaid
Contribution be paid and, if the Unpaid Contribution is not paid by the
Non-Paying Member within ten (10) days following the giving of such notice, the
Other Members shall have the right, but not the obligation, to fund all or any
portion of the Unpaid Contribution (the "Dilution Funding"), providing to the
Non-Paying Member concurrent written notice of such funding as being pursuant to
this Section 9.1 (the "Dilution Notice"). To the extent the Non-Paying Member
does not repay the Other Members the Dilution Funding (together with interest
thereon at the Interest Rate from the date of funding until repaid) within sixty
(60) days following the Dilution Notice (the "Dilution Date"), the Percentage
Interest of the Non-Paying Member shall be decreased, and the Percentage
Interest of the Other Members increased (a "Dilution"), by the basis of one
percent (1%) of Percentage Interest for the number of Capital Increment Units
within a Dilution Funding (adjusted pro rata for partial Capital Increment
Units), determined as of the Dilution Date.
9.2. CAPITAL INCREMENT UNIT. A Capital Increment Unit shall be an
amount, calculated as of a certain date, obtained by dividing: (a) the product
of ninety percent (90%) multiplied by the aggregate Contribution Balances
of all Members as of such date; by (b) 100.
9.3. EXAMPLE. By way of illustration of the operation of Sections 9.1
and 9.2, in the event that, as of a Dilution Date, Member One and Member Two
each hold a 50% Percentage Interest, Member One has a Contribution Balance of
$600,000.00 and Member Two has a Contribution Balance of $400,000.00, and Member
Two funds an Unpaid Contribution of Member One of $120,000.00, the Dilution
would be calculated as follows:
(a) The Capital Increment Unit would be
$9,000.00, being: (i) 90% multiplied by $1,000,000.00
(aggregate of $600,000.00 Contribution Balance of
Member One and $400,000.00 Contribution Balance for
Member Two), divided by (ii) 100;
(b) Dilution Funding of $120,000.00 by
Member Two would equate to Percentage Interest of
13.333% ($120,000.00 divided by $9,000.00 per Capital
Increment Unit);
(c) Percentage Interest of Member One would
be decreased by 13.333% from 50% to 36.667%, and
Percentage Interest of Member Two would be increased
by 13.333% from 50% to 63.333%.
<PAGE>
SECTION 10.
DISSOLUTION OF COMPANY
10.1. LIQUIDATING EVENTS. The Company shall dissolve and commence
winding up and liquidating upon the first to occur of any of the following
("Liquidating Events"):
10.1.1. December 31, 2045;
10.1.2. Sale of all of the Project (including receipt of all
proceeds therefrom);
10.1.3. The written consent of all Members to dissolve, wind
up, and liquidate the Company;
10.1.4. The happening of any other event that makes it
unlawful or impossible to carry on the business of the Company;
10.1.5. Any event which causes there to be only one Member;
10.1.6. An event of withdrawal of a Member, unless the
remaining Member(s) elect to continue the Company in accordance with the
provisions set forth in this Section 10.1, below; or
10.1.7. The occurrence of any dissolution event set forth in
Section 29-271 of the Act, or the entry of a judgment of dissolution under
Section 29-785 of the Act.
The Members hereby agree that, notwithstanding any provision of the Act, the
Company shall not dissolve prior to the occurrence of a Liquidating Event.
Furthermore, if an event specified in Sections 10.1.6 or 10.1.7 hereof occurs,
the remaining Member(s) may, within sixty (60) days of the date such event
occurs, elect to continue the Company's business by the affirmative vote of a
such remaining Member(s), in which case the Company shall not dissolve and shall
continue to operate.
10.2. NOTICE OF DISSOLUTION. As soon as possible following the
occurrence of a Liquidating Event, a written notice of dissolution signed on
behalf of the Company shall be filed with the Corporation commission giving
notice of the dissolution of the Company and the commencement of the winding up
of its business affairs.
10.3. WINDING UP. 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. 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 Members shall each be responsible for overseeing the
winding up and dissolution of the Company and shall take full account of the
Company's liabilities and Company Property and the Company Property shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom, to the extent sufficient therefor, shall be applied
and distributed in the following order:
<PAGE>
10.3.1. First, to the payment and discharge of all of the
Company's debts and liabilities to creditors other than Members;
10.3.2. Second, to the payment and discharge of all of the
Company's debts and liabilities to Members; then
10.3.3. The balance, if any, to the Members in accordance with
their respective rights to receive Distributions pursuant to Section 4.1.2 of
this Agreement.
10.4. DEEMED DISTRIBUTION AND RECONTRIBUTION. Notwithstanding any other
provision of this Section 10, in the event the Company is liquidated within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(i) but no Liquidating Event has
occurred, the Company 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, the Company shall be deemed to have distributed the
Company Property in kind to the Members, who shall be deemed to have assumed and
taken subject to all Company liabilities, all in accordance with their
respective rights to receive Distributions pursuant to this Agreement.
Immediately thereafter, the Members shall be deemed to have recontributed the
Company Property in kind to the Company, which shall be deemed to have assumed
and taken subject to all such liabilities.
10.5. ARTICLES OF TERMINATION. At such time as all of the debts,
liabilities and obligations of the Company have been paid, discharged or
otherwise provided for, written articles of Termination signed on behalf of the
Company shall be filed with the Corporation Commission in accordance with
Section 29-783 of the Act.
10.6. NEGATIVE CAPITAL ACCOUNTS. Notwithstanding anything to the
contrary in this Agreement, upon a liquidation within the meaning of Regulations
ss.1.704-1(b)(2)(ii)(g), if any Member has a negative Capital Account balance
(after giving effect to all contributions, distributions, allocations and other
Capital Account adjustments for all taxable years, including the year during
which such liquidation occurs), such Member shall have no obligation to make any
contributions to the capital of the Company, and the negative balance of such
Member's Capital Account shall not be considered a debt owed by such Member to
the Company or to any other Person for any purpose whatsoever.
SECTION 11.
REMEDIES
11.1. DEFAULT. In the event a Member (the "Defaulting Party") fails to
timely perform any material duty or obligation required under the terms of this
Agreement, the Members shall have the right to pursue such legal remedies as are
available under the Act and the laws of the State of Arizona in such manner and
to such extent deemed to be in the best interest of the Company under the
prevailing facts and circumstances, including, but not limited to, the
<PAGE>
institution of legal proceedings to specifically enforce the obligation of the
Defaulting Party in accordance with this Agreement; provided, however, before
pursuing such remedies the Defaulting Party shall be given written notice of the
default and a period of ten (10) days after such notice is given in which to
cure the default.
11.2. SUSPENSION OF RIGHTS. Subsequent to the material default by the
Defaulting Party and until such time as the default has been cured, the
Defaulting Party shall have no right to receive any Distribution from the
Company or to vote or otherwise participate in the management of Company
affairs.
SECTION 12.
MISCELLANEOUS
12.1. NOTICES. Any notice, payment, demand, or communication required
or permitted to be given by any provision of this Agreement shall be in writing
and shall be delivered personally to the Person or to an officer of the Person
to whom the same is directed, or sent by regular, registered, or certified mail,
or by a nationally recognized overnight delivery service to the address set
forth below or to such other address as such Person may from time to time
specify by notice to the Company and the Members.
UHT: Kirk E. Gorman, President
Universal Health Realty Income Trust
367 South Gulph Road
King of Prussia, Pennsylvania 19406
Telephone: (610) 265-0688
Facsimile: (610) 768-3318
with copies to:
Timothy J. Fowler
Universal Health Realty Income Trust
7 Piedmont Center, Suite 202
3525 Piedmont Road, N.E.
Atlanta, Georgia 30305
Telephone: (404) 816-1936
Facsimile: (404) 816-9329
and
Scott Henderson, Esq.
Gallagher & Kennedy
2600 North Central
Phoenix, Arizona 85004-3020
Telephone: (602) 530-8000
Facsimile: (602) 257-9459
<PAGE>
DCP: Attn: Kambiz Babaoff
Rokmar Capital, L.L.C.
2525 East Camelback road, Suite 950
Phoenix, Arizona 85016
Telephone: (602) 275-7500
Facsimile: (602) 912-8945
with copies to:
Robert L. Shaw, Esq.
Byrne, Beaugureau, Shaw, Zukowski & Hancock, PC
2111 East Highland, Suite 255
Phoenix, Arizona 85016
Telephone: (602) 956-4438
Facsimile: (602) 957-6935
If a notice is sent to the Company, it shall be sent to the Company's principal
place of business. Any such notice shall be deemed to be delivered, given, and
received for all purposes as of the date so delivered, if delivered personally
or if sent by regular mail, or as of the date on which the same was deposited in
a regularly maintained receptacle for the deposit of United States mail, if sent
by registered or certified mail, postage and charges prepaid.
12.2. SEVERABILITY. Every provision of this Agreement is intended to be
severable. If any portion of this Agreement is determined to be illegal or
invalid for any reason, such determination shall not affect the validity or
legality of the remainder of this Agreement.
12.3. GOVERNING LAW; PARTIES IN INTEREST. This Agreement will be
governed by and construed according to the laws of the State of Arizona, and
(subject to the restrictions on transfers of Interests herein) will bind and
inure to the benefit of the heirs, successors, assigns and personal
representatives of the Members.
12.4. AMENDMENT. Unless otherwise required by this Agreement, a
proposed amendment to this Agreement shall be adopted and effective as an
amendment if it receives the affirmative vote of all Members.
12.5. WAIVER OF LIS PENDENS AND PARTITION. The Members recognize that
no Member has any direct right in the Company Property but only an interest in
the Company which is deemed to be personal property. Nevertheless, because the
Company may suffer irreparable financial injury if a lis pendens or an action
for partition were filed with respect to the Company Property in connection with
a Company dispute, each Member does hereby agree to waive any such right to file
a lis pendens against the Company Property or an action for partition thereof.
<PAGE>
12.6. EXECUTION IN COUNTERPART. This Agreement or the Certificate may
be executed in counterparts, all of which taken together shall be deemed one
original.
12.7. INCORPORATION BY REFERENCE. Every exhibit, schedule and other
appendix attached to this Agreement referred to herein is deemed incorporated in
this Agreement by reference.
12.8. COMPUTATION OF TIME. In computing any period of time pursuant to
this Agreement, the day of the act, date of notice, event or default from which
the designated period of time begins to run will not be included. The last day
of the period so computed will be included, unless it is a Saturday, Sunday or
legal holiday in the State of Arizona, in which event the period shall run until
the end of the next day which is not a Saturday, Sunday or such legal holiday.
12.9. TITLES AND CAPTIONS. All article, section or paragraph titles or
captions contained in this Agreement are for convenience only and are not deemed
part of the context hereof.
12.10. PRONOUNS AND PLURALS. All pronouns and any variations thereof
are deemed to refer to the masculine, feminine, neuter, singular or plural as
the identity of the person or Persons may require.
12.11. CONSTRUCTION. Every covenant, term and provision of this
Agreement shall be construed simply according to its fair meaning and not
strictly for or against any Member.
12.12. ENTIRE AGREEMENT. This Agreement contains the entire
understanding between the Members, and supersedes any prior understandings and
agreements (including but not limited to Letter Agreement dated June 14, 1995)
previously entered into (whether oral or written) between them representing the
subject matter contained herein.
12.13. OTHER TRANSACTIONS. Each Member acknowledges and agrees that the
other Members or their respective Affiliates currently are or may be engaged in
other transactions and projects ("Other Projects") including projects of a
similar nature or in some manner competitive with the Project ("Similar
Projects"). Neither the Company nor the Members shall have any right or
obligation to in any way participate in, or preclude any Member or its Affiliate
from being involved with, any Other Projects, including Similar Projects;
provided, that in the event any Member or its Affiliate (an "Opportunity
Member") hereafter possesses the opportunity, right or option to purchase or
develop a medically oriented property (an "Opportunity") within a five (5) mile
radius of the Project (the "Radius Area"), the Opportunity Member shall offer
the other Members ("Other Members") participation with the Opportunity Member to
jointly develop, own and operate the Opportunity within this Company (in the
case of an Opportunity on the Desert Samaritan Hospital Campus, Mesa, Arizona)
or, if the Opportunity involves property located elsewhere within the Radius
Area, in a similarly structured company or joint venture to this Company (the
"Opportunity Offer"). The Opportunity Offer will be deemed rejected by the Other
Members unless the Other Members, within twenty (20) days following receipt of
the Opportunity Offer, in writing to the Opportunity Member accept the
Opportunity Offer and thereafter proceed continuously, diligently and in good
<PAGE>
faith, with the Opportunity Member, to negotiate, participate and finalize the
Opportunity transaction.
12.14. UHT TRUSTEES' LIABILITY. This Agreement is made on behalf of UHT
by Trustees of UHT, not individually, but solely in their capacity in such
office as authorized by the Trustees pursuant to UHT's Declaration of Trust, and
the obligations of this Agreement are not binding upon, nor shall resort be had
to, the private property of any of the Trustees, shareholders, officers,
employees or agents of UHT personally, but bind only UHT's property. The
provision contained in the foregoing sentence is not intended to, and shall not,
limit any right that DCP or any third parties might otherwise have to obtain
injunctive relief against UHT or UHT's successors in interest, or any action not
involving the personal liability of the Trustees, shareholders, officers,
employees or agents of UHT (original or successor).
12.15. CONFIDENTIALITY. Each of the Members agrees to maintain the
confidentiality of this Agreement and the terms of their respective
participation in the Company, except to the extent required: (a) for carrying
out the activities of the Company, including but not limited to obtaining
financing; (b) for filing tax returns and other tax-related financing; (c) for
internal disclosures among the various participants in each Member; or (d) by,
or to insure compliance with, applicable law.
12.16. EXHIBITS. Exhibits "A" through "C" attached hereto are by this
reference incorporated herein.
IN WITNESS WHEREOF, the Members have executed this Agreement as of the
date first set forth above.
UNIVERSAL HEALTH REALTY INCOME
TRUST, a Maryland real estate
investment trust
By: /s/ XXXXXXXXXX
--------------------------------
Its: Vice President
--------------------------------
Tax I.D. No. 23-6858580
DESERT COMMERCIAL PROPERTIES
LIMITED PARTNERSHIP, an Arizona
limited partnership
<PAGE>
By: ROKMAR CAPITAL, L.L.C., an Arizona
limited liability company, its
Managing General Partner
By: /s/ XXXXXXXXX
--------------------------------
Its: Manager
--------------------------------
Tax I.D. No 95-4266623
<PAGE>
AGREEMENT AND ESCROW INSTRUCTIONS
-------------------------------------------
Desert Samaritan Medical Building III
1520 South Dobson Road
Mesa, Arizona
------------------------------------------
Aug. 15, 1995
Exhibit A -- Legal Description of Property
Exhibit B -- Ground Lease and Amendments
Exhibit C -- List of Personal Property
Exhibit D -- List of Tenant Leases and Tenant Deposits
Exhibit E -- Escrow Instructions
Exhibit F -- Promissory Note
Exhibit G -- Rent Roll Format
Exhibit H -- Estoppel Certificate
Exhibit I -- List of Partner Tenants New Lease Terms
Exhibit J -- Bill of Sale
Exhibit K -- Assignment of Tenant Leases
Exhibit L -- General Assignment
Exhibit M -- Non-Foreign Status Certificate
Exhibit N -- Assignment of Ground Lease/Estoppel
Exhibit O -- Special Warranty Deed
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<PAGE>
THIS AGREEMENT AND ESCROW INSTRUCTIONS (this "Agreement") is
entered into on this 15th day of August, 1995 in Phoenix, Arizona by
and between Phase III Desert Samaritan Medical Building Partners, an Arizona
general partnership ("Seller") and Desert Commercial Properties Limited
Partnership, an Arizona limited partnership or its Permitted Assignee ("Buyer")
with respect to the following facts:
RECITALS
A. Seller is the ground lessee of certain property more
particularly described on Exhibit "A" attached to this Agreement (the "Real
Property")), pursuant to a Ground Lease dated July 3, 1984 with Samaritan Health
System (formerly known as Samaritan Health Service and Samaritan Health
Services), an Arizona non-profit corporation ("Samaritan") and evidenced by
Memorandum of Ground Lease recorded July 3, 1984, as Instrument No. 84-543286,
and a First Amendment to Ground Lease dated January 1, 1992 and subject, among
other things, to Second Amendment to Reciprocal Easement Agreement recorded
December 23, 1993, as Instrument No. 93-900503, all as described in Exhibit "B"
attached to this Agreement (collectively, the "Ground Lease, with the lessee's
interest thereunder referred to as the "Ground Lessee's Interest").
B. In addition, Seller owns, or has interest in: (i) various
plans, licenses, permits and other personal property as more particularly
described in Exhibit "C" attached to this Agreement ("Personal Property"); (ii)
various leases with tenants ("Tenants") at the Property as more particularly
described in Exhibit "D" attached to this Agreement ("Tenant Leases"); (iii) the
fixtures, equipment and improvements, generally consisting of a commercial
medical building commonly known as 1520 South Dobson Road, Mesa, Arizona (the
"Improvements"); (iv) security and other deposits ("Tenant Deposits") paid by
Tenants pursuant to Tenant Leases; and (v) other rights and interests
constituting a part of or appurtenant to the foregoing, including but not
limited to warranties, name of and telephone number for "Desert Samaritan
Medical Building III" or equivalent, easements, licenses, parking areas, tax,
insurance and condemnation awards and other matters (with any or all of the
foregoing including the Ground Lessee's Interest, sometimes referred to herein
as the "Property").
C. Buyer desires to purchase, and Seller desires to sell, the
Property, including the assignment of the Ground Lessee's Interest and Tenant
Leases to Buyer, on the terms and conditions set forth in this Agreement.
AGREEMENT AND ESCROW INSTRUCTIONS
NOW, THEREFORE, incorporating herein by this reference the
foregoing recitals and in consideration of the terms and conditions of this
Agreement, and the mutual covenants herein contained, Seller and Buyer hereby
agree as follows:
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<PAGE>
1. Escrow.
(a) Opening Of Escrow.
The escrow for the consummation of the transaction
contemplated by this Agreement (the "Escrow") shall be opened on that date
("Opening of Escrow") on which a copy or copies of this Agreement signed by
Seller and Buyer together with Buyer's Deposit (as defined in paragraph 3(b)(i)
are delivered to Chicago Title Insurance Company located at 2020 North Central
Avenue, Suite 300, Phoenix, Arizona, (FAX: (602) 382-2261 Attn: Clifford
Dieckoff ("Escrow Holder"). This Agreement, together with any additional escrow
instructions provided for herein or executed pursuant hereto, shall: (i)
constitute escrow instructions to the Escrow Holder; and (ii) evidence the
agreement of Seller and Buyer with respect to the purchase and sale of the
Property.
(b) Requests Of Escrow Holder.
Seller and Buyer hereby adopt escrow
instructions for the escrow in the form attached as Exhibit "E", and each agree
to execute such additional escrow instructions and other documents, and take
such other steps, not inconsistent herewith, as the other or Escrow Holder may
reasonably require in order to perform its functions and close the transactions
contemplated herein in a timely manner; provided, however, that: (i) any such
additional escrow instructions shall not include the customary thirteen (13) day
cancellation provision usually contained in Arizona escrows and this Agreement
shall control to the extent of any conflict or inconsistency with such escrow
instruction or documents.
2. Purchase And Sale Of The Property And Personal
Property.
Seller hereby agrees to sell and convey to Buyer,
and Buyer hereby agrees to purchase from Seller, the Property, all upon the
terms and subject to the conditions set forth in this Agreement.
3. Consideration To Seller.
(a) The Purchase Price.
The purchase price payable by Buyer to
Seller for the Property shall be Eight Million Nine Hundred Thousand and No/100
Dollars U.S. ($8,900,000.00) (the "Purchase Price").
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<PAGE>
(b) Terms Of The Purchase.
(i) Deposit.
Concurrent with the Opening of
Escrow, Buyer shall deposit with Escrow Holder the amount of Fifty Thousand
Dollars ($50,000.00) ("Deposit"). The Deposit shall be deposited in a segregated
interest bearing account titled for this transaction and Escrow with interest
thereon accruing for the benefit of Buyer if Close of Escrow occurs and, if
Close of Escrow does not occur, for the benefit of the party that is entitled to
the Deposit pursuant to this Agreement. Prior to the Close of Escrow (or
earlier, if requested by Escrow Holder), Buyer, or its Permitted Assignee, shall
provide its tax identification number to Escrow Holder for purposes of reporting
interest earned.
(ii) Payment Upon Close Of Escrow.
At or prior to the Close of Escrow, Buyer
shall deliver or cause to be delivered to Escrow Holder: (i) cash or immediately
available funds in an amount equal to Seller's Required Payments (as herein
defined); (ii) a Promissory Note in the form of Exhibit "F" (the "Note"),
completed to reference an original principal amount equal to the Purchase Price
less the sum of the Deposit and the Seller's Required Payments (the "Note
Amount"), duly executed and delivered by Buyer; and (iii) a Letter of Credit in
an amount equal to the total of the Note Amount plus interest accruing thereon
from Close of Escrow until the Maturity Date, issued by an Acceptable Bank (as
those terms are herein defined). Seller shall pay the Letter of Credit Fee;
provided, that should Seller not pay the Letter of Credit Fee prior to Close of
Escrow, Buyer shall have the right to reduce the Note Amount by an amount equal
to the Letter of Credit Fee, with the Letter of Credit amount to be adjusted
accordingly, and Buyer to pay the Letter of Credit Fee.
(c) Definitions.
For purposes of Paragraph 3(b)(ii), the
following terms shall have the following meanings:
"Letter of Credit" shall mean a standby, irrevocable,
non-transferable and non-negotiable Letter of Credit issued by an Acceptable
Bank and secured by a certificate of deposit maturing on the Maturity Date
obtained and funded by Buyer at Close of Escrow and pledged in favor of
Acceptable Bank to secure the Letter of Credit (with the rate of interest
payable by Acceptable Bank on such certificate of deposit referred to herein as
the "CD Rate"), available for draw by Seller at any time on or within thirty
(30) days following the Maturity Date at Phoenix, Arizona, upon default in
payment of the Promissory Note.
"Acceptable Bank" shall mean Bank One, N.A., Morgan
Guaranty Trust or other financial institution reasonably acceptable to Seller
and Buyer, as designated by Seller to Buyer not later than twenty (20) days
prior to Close of Escrow, and willing to issue the Letter of Credit.
-4-
<PAGE>
"Maturity Date" shall mean January 3, 1996.
"Letter of Credit Fee" shall mean all fees and costs
charged by Acceptable Bank in issuing the Letter of Credit.
(d) Seller Required Payments.
At or prior to Close of Escrow, Seller shall pay the
following ("Seller's Required Payments"): (i) all costs to pay off any and all
existing liens and encumbrances against the Property (including pre-payment,
defeasance and other fees and costs), including but not limited to the then
remaining principal balance and accrued interest under, that $8,200,000.00
obligation evidenced by Deed of Trust dated November 29, 1984 and recorded
December 18, 1984, as Instrument No. 84-543287 and Assignment of Rents and
Leases dated November 29, 1984 and recorded December 18, 1984, as Instrument No.
84-543289, both made by Seller in favor of First Interstate Bank of Arizona,
N.A., as Trustee under Indenture of Trust dated as of November 29 1984, as
successor-in-interest to the Industrial Development Authority of the City of
Mesa, Arizona, and related documents (the "IDA Obligations"); (ii) all escrow
fees, title insurance premiums, recording costs and similar costs payable by
Seller pursuant to this Agreement; (iii) all real estate commissions payable by
Seller pursuant to this Agreement; (iv) all Tenant Deposits, rent pro-rations,
and similar payments payable by Seller pursuant to this Agreement; and (v) all
other payments payable by Seller, pursuant to this Agreement, at or prior to
Close of Escrow.
4. Seller's Deliveries.
(a) Seller's Initial Deliveries.
Within seven (7) days following the Opening
of Escrow (unless otherwise provided), Seller shall deliver or cause to be
delivered to Buyer, originals or legible copies of the following documents
pertaining to the Property to the extent not previously delivered to Buyer:
(i) Preliminary Title Report for the
Real Property together with all documents referenced therein ("Preliminary Title
Report") issued by Chicago Title Insurance Company ("Title Company"), to be
delivered by Escrow Holder to Seller;
(ii) the Ground Lease, and any other
documents pertaining to the Ground Lease;
(iii) All income and expense records for
the fiscal years 1992, 1993, 1994 and 1995 to date;
(iv) Current real, personal property and
rent tax bills including any prior or pending appeal information;
-5-
<PAGE>
(v) All maintenance records, service
contracts and other documents concerning maintenance for 1993, 1994 and 1995;
(vi) A schedule of all renovations and
construction costs, together with all contracts and warranties with respect
thereto, for 1993, 1994 and 1995;
(vii) All existing Tenant Leases, and a
schedule of all of the Deposits, which shall be set forth on Exhibit "D";
(viii) All equipment leases or contracts;
(ix) All existing asbestos reports or
other hazardous material reports, including test results, if any ("Environmental
Reports");
(x) Any existing surveys, including,
any which identify compliance and non-compliance items under the Americans with
Disability Act of 1992;
(xi) All plans and specifications that
Seller has in its possession or control, including all mechanical and electrical
drawings;
(xii) Current rent roll for all Tenants
and Tenant Leases (to be updated not less often than each thirty (30) days until
Close of Escrow, and not earlier than three (3) days prior to the Close of
Escrow) disclosing all pertinent terms of the Tenant Lease, including but not
limited to, Tenant Deposits, term, premises, options and similar rights,
delinquencies, concessions, rent and rental increases, in the basic format of
Exhibit "G" (the "Rent Roll"); and
(xiii) any other documents and information
in Seller's custody or control pertaining to the Property, including the
operation and condition thereof.
All of the documents set forth in paragraph 4(a)
above shall collectively be referred to as "Initial Deliveries".
(b) Certification Of Seller's Initial
Deliveries.
Upon Seller's completion of delivery of the
Initial Deliveries to Buyer, Seller shall provide to Buyer and Escrow Holder a
written certification for all of the Initial Deliveries which shall certify that
the Initial Deliveries provided to Buyer constitute all of the documents in
Seller's possession or control with respect to each category referred to in
paragraph 4(a) ("Delivery Certification").
(c) Confidentiality.
Buyer shall maintain the confidentiality of
the Initial Deliveries; provided, that the foregoing shall not preclude Buyer
-6-
<PAGE>
from providing the Initial Deliveries, information contained therein, or
extrapolations thereof, to third parties reasonably connected to Buyer's
acquisition and financing of the Property, including but not limited to,
attorneys, accountants, appraisers, prospective investors or partners,
prospective property managers, prospective lenders, mortgage brokers or bankers
for prospective financing, or otherwise as required by applicable law (the
"Confidentiality Obligation"). The Confidentiality Obligation shall
automatically terminate on Close of Escrow except with respect to that portion
of the Initial Deliveries constituting or disclosing the financial affairs of
Seller other than ownership and operation of the Property (the "Continuing
Obligation"). The Confidentiality Obligation (including the Continuing
Obligation) shall survive any termination of this Agreement prior to Close of
Escrow. and the Continuing Obligation shall survive Close of Escrow.
(d) Redelivery.
Upon any termination of this Agreement,
other than due to Seller's default, Buyer shall promptly deliver to Seller all
Initial Deliveries obtained from Seller, and either deliver to Seller or destroy
any copies thereof in the possession of Seller or its agents.
5. Contingencies.
(a) Buyer's Contingencies.
Notwithstanding any other provision,
covenant or agreement set forth herein to the contrary, Buyer's obligations
under this Agreement shall be subject to Buyer's satisfaction (or waiver),
review and approval of the matters set forth in this paragraph 5(a) (the
"Contingencies"), in Buyer's sole and absolute discretion, as evidenced by
written notice of Buyer's approval or waiver thereof (the "Approval Notice"),
given to Escrow Holder on or before 5:00 p.m., Mountain Standard Time, on the
day which is sixty (60) days after the Opening of Escrow ("Contingency Period"),
subject to extension pursuant to the objection and cure provisions set forth in
paragraph (b) below. If Buyer has not given the Approval Notice to Escrow Holder
prior to the expiration of the Contingency Period, or if Buyer at any time prior
to the Contingency Date gives written notice of disapproval of any of the
Contingencies to Escrow Holder (a "Disapproval Notice"), then the Escrow Holder
shall, without further consent from Seller, deliver the Deposit (including any
interest earned thereon) to Buyer, Buyer shall be deemed to have terminated this
Agreement pursuant to the provisions of this paragraph, and all rights and
obligations of the parties under this Agreement shall be terminated. The
Contingencies shall include:
(i) Initial Deliveries.
Buyer's receipt and approval of the Initial
Deliveries.
(ii) Property Inspection.
Buyer's inspection and approval of the
physical condition of the Property ("Property Inspection") including, without
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limitation, the conducting of soil tests, surveys, engineering and structural
studies and tests for hazardous wastes and hazardous substances as defined in
applicable Arizona and federal laws.
(iii) Title Insurance.
Receipt and approval by Buyer of the
Preliminary Title Report committing to issue to Buyer an ALTA standard coverage
owner's policy of title insurance or, at Buyer's election, an ALTA extended
coverage owner's policy of title insurance (the "Title Policy"), naming Buyer as
the insured, in a policy amount equal to the Purchase Price, as the Ground
Lessee's Interest. At Close of Escrow, Seller shall pay that portion of the
Title Policy premium attributable to standard owner's coverage (the "Standard
Premium") and Buyer shall pay the excess in premium (the "Extended Premium")
attributable to the obtaining of such ALTA owner's extended coverage policy of
title insurance and any endorsements thereto. In the event Title Company shall,
following issuance of the Initial Preliminary Title Report, issue an Amendment
or update to the Preliminary Title Report (an "Amended Commitment") disclosing
new or additional Title Exceptions to be shown on the Title Policy not caused by
Buyer ("New Exceptions"), Buyer shall have until the later (the "Amended
Approval Date") of five (5) business days following receipt of the Amended
Commitment (including legible copies of the New Exceptions) or the expiration of
the Contingency Period, to review and approve, in Buyer's sole and absolute
discretion, the New Exceptions, with Buyer deemed to have approved the New
Exceptions unless Buyer, on or prior to the Amended Approval Date, delivers a
Disapproval Notice, with respect to the New Exceptions, to Escrow Holder. Any
such Disapproval Notice timely delivered by Buyer with respect to the New
Exceptions shall terminate this Agreement in the same manner as for a
Disapproval Notice timely given in accordance with paragraph 5(a).
(iv) Commitment for New Financing;
Receipt by Buyer of a commitment letter
from an institutional lender ("New Lender") to provide a new loan ("New
Financing") secured by a first trust deed on the Property (with the Ground Lease
subordinated to such first trust deed) in an amount not less than $6,200,000 and
otherwise on terms acceptable to Buyer in Buyer's sole discretion.
(b) Objection Matters
Buyer shall have the right, in addition to
its right to give a Disapproval Notice, to tender an Approval Notice or a
Disapproval Notice, pursuant to which Buyer expressly requests Seller to attempt
to cure, prior to a specified date (the "Cure Date"), without obligation on the
part of Seller to do so, any matters objected to by Buyer ("Objection Matters")
as a part of Buyer's review of the Contingencies (a "Conditional Approval
Notice" and "Conditional Disapproval Notice", respectively). Seller shall then
have ten (10) business days following its receipt of the Conditional Approval
Notice or Conditional Disapproval Notice to elect, by written notice to Buyer
and Escrow Holder (the "Election Notice"), to either cure the Objection Matters
by the Cure Date, or not to attempt cure of the Objection Matters (with Seller
deemed to have elected to not attempt such cure if Seller fails to timely give
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the Election Notice). Buyer will then have until the later of five (5) business
days following receipt of the Election Notice or expiration of the ten (10)
business days for Seller to give the Election Notice to elect, by written notice
to Escrow Holder, to either terminate this Agreement (in the same manner as if
Buyer timely gives Disapproval Notice pursuant to paragraph 5(a)), or to elect
to waive its objection to the Objection Matters (with Buyer's failure to give
notice of such election to be deemed to be Buyer's election to have given a
Disapproval Notice pursuant to paragraph 5(a)).
(c) Tenant Estoppel Certificates and Subordination Agreements Buyer's
obligations under this Agreement shall also be conditioned upon Buyer obtaining
(or waiving requirement for) execution of: (1) Estoppel Certificates in
substantially the form of Exhibit "H" attached hereto (the "Estoppel
Certificates"); and (2) Estoppel Certificates/Subordination and Non-Disturbance
Agreements (or equivalent documents) in the form requested by New Lender for the
New Financing (the "Subordination Agreement") by either: (i) Tenants
representing Tenant Leases for not less than ninety percent (90%) of the leased
area of the Property; plus (ii) Estoppel Certificates executed by Seller, as
"Landlord" for the remaining Tenant Leases for which Tenant executed Estoppel
Certificates are not so obtained. The Estoppel Certificates shall be in a
"clean" form, not referencing or disclosing any default by either the Seller, as
landlord or Tenant under the involved Tenant Lease and consistent with the Rent
Roll provided by Seller to Buyer.
Provided Buyer has delivered the forms of the
Estoppel Certificates and Subordination Agreements to Seller for execution by
Tenants at least thirty-five (35) days prior to the Close of Escrow, and in the
event Buyer does not receive such Estoppel Certificates and Subordination
Agreements executed by Tenants or Landlord in compliance with subparagraphs (i)
and (ii) above, dated not earlier than thirty (30) days prior to the Close of
Escrow and not later than ten (10) days prior to the Close of Escrow, then Buyer
may elect, by written notice to Escrow Holder given after the date ten (10)
days, and before the date five (5) days, prior to the Close of Escrow to
terminate this Agreement, in which event the Deposit (and any interest earned
thereon) shall be returned to Buyer, and neither Seller nor Buyer shall have any
further right or obligation as to the other under this Agreement except as
expressly set forth herein.
(d) New Tenant Leases
Seller obtaining, and delivering to Buyer,
execution of new or, where appropriate, extension of existing, Tenant Leases on
the terms, and utilizing the lease form referenced on Exhibit "I", from those
Tenants being partners or affiliates of Seller (the "Affiliated Leases");
provided, that the Affiliated Leases may be conditioned upon Buyer completing
Close of Escrow. In the event that Seller does not so deliver the Affiliated
Leases to Buyer within thirty (30) days following Opening of Escrow, Buyer shall
thereafter have the right to issue a Disapproval Notice with respect to the
Affiliated Leases. This Agreement shall not obligate any individual partner of
Seller to enter into an Affiliated Lease prior to any such partner executing and
actually delivering an Affiliated Lease pursuant to this paragraph.
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(e) Seller's Contingencies.
Notwithstanding any other provision,
covenant or agreement set forth herein to the contrary, Seller's obligations
under this Agreement shall be subject to satisfaction of the following
conditions ("Seller Contingencies") within the time limits specified:
(i) Samaritan Release.
Seller being released at Close of
Escrow by Samaritan from its obligations under the Ground Lease, on the terms,
and by execution by Samaritan of, the Landlord's Consent and Release attached to
and forming a part of the Assignment of Leasehold Interest (Phase III) attached
as Exhibit "N" to this Agreement ("Seller's Liability Release").
(ii) Partner Approval.
Seller obtaining the requisite
approval (as set forth in the Partnership Agreement or equivalent organizational
control document for Seller) from its partners for the transaction evidenced by
this Agreement (the "Seller's Partners Approval") within ten (10) days following
the Opening of Escrow (the "Seller's Approval Date"). Seller agrees, promptly
following Opening of Escrow, to submit this Agreement, and such other additional
information as shall be requested by the partners in Seller to properly consider
the request for Seller's Partners Approval, to all partners in Seller, and to
diligently pursue obtaining of Seller's Partners Approval.
(f) Satisfaction of Seller's Contingencies.
In the event binding agreement of Samaritan
to the Seller's Liability Release has not been obtained and delivered to Seller
on or prior to expiration of the Contingency Period, or in the event Seller has
not obtained the Seller's Partners Approval on or prior to the Seller's Approval
Date, this Agreement will be deemed terminated, in which event the Deposit (and
any interest earned thereon) shall be returned to Buyer, and neither Seller nor
Buyer shall have any further right or obligation as to the other under this
Agreement except as expressly set forth herein. In the event such binding
agreement of Samaritan to the Seller's Liability Release and Seller's Partners
Approval are so timely obtained, those contingencies will be deemed satisfied.
6. Warranties And Representations.
(a) Representations And Warranties Of Seller.
Seller warrants and represents to Buyer as
of the date hereof and as of the Closing Date as follows (with such warranties
and representations to survive the Close of Escrow):
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(i) Title To The Property.
To the actual knowledge of Herbert H.
Bunchman II, M.D., Michael A. Chasin, M.D., and Mark Stern, M.D. (the "Managing
Partners", with all references herein to "actual knowledge" of Seller deemed to
refer only to the actual knowledge of any of the Managing Partners), Seller is
the holder of the Ground Lessee's Interest, and has good and marketable title to
the remainder of the Property, all free and clear of restrictions, conditions,
transfers, assignments liens, pledges, charges, encumbrances, covenants and
claims, except those which are (i) specifically set forth in this Agreement, or
(ii) referenced in the Title Commitment, or (iii) revealed by an Arizona Uniform
Commercial Code Search conducted under Seller's name.
(ii) Authority And Consent.
Seller: (a) acting through all
three (3) of the Managing Partners, has all right, power, legal capacity, and
authority to enter into this Agreement, with any two (2) of the Managing
Partners authorized to execute any and all documents and to take all such acts
required for Seller to perform its obligations under this Agreement; and (b) has
obtained all necessary approvals and consents in connection herewith and shall
provide to Escrow Holder and Buyer a partnership resolution, in a form
acceptable to Escrow Holder for issuance of the Title Policy, authorizing the
Managing Partners to so execute this Agreement and any and all additional
documents as may be reasonably required to effectuate this transaction.
(iii) No Known Violations.
Seller has not received any notices,
of any, and to Seller's actual knowledge, no governmental authority or any
employee or agent thereof considers any, construction of the Improvements, or
the operation, use or ownership of the Property, to have violated or be in
violation of any ordinance, rule, law, regulation or order of any government or
any agency, body or subdivision thereof or that any investigation has been
commenced or is contemplated respecting any such possible violation.
(iv) Agreements.
Seller has no actual knowledge of
any commitments to, agreements with or any plans proposed or discussed by any
government authority or agency (federal, state or local) affecting the Property
which have not been disclosed by Seller to Buyer in writing as a part of the
Initial Deliveries.
(v) Representations.
The representations or warranties
of Seller in this Agreement and the Initial Deliveries furnished or to be
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furnished to Buyer pursuant hereto, or in connection with the transactions
contemplated hereby, to Seller's actual knowledge will not and do not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements of fact contained therein not misleading.
(vi) Litigation.
Seller is not involved in, nor is
there to Seller's actual knowledge any, pending or threatened litigation which
will affect its ability to perform under this Agreement, or which in any way
affects any of the Property.
(vii) Foreign Affidavit.
Seller is not a foreign person and
is a "United States Person" as those terms are defined in Section 7701(a)(3) of
the Internal Revenue Code of 1954, as amended.
(viii) Leases.
Seller has no actual knowledge that
any third party has any interest in any Tenant Leases or the Ground Lessee's
Interest affecting any of the Property other than those referred to in Exhibit
D, the Preliminary Title Report, or that would be revealed by an Arizona Uniform
Commercial Code Search conducted under Seller's name.
(ix) Special Assessments.
To Seller's actual knowledge, there
are not presently pending any special assessments or condemnation actions
against the Property or any part thereof, nor has Seller received any notice of
any special assessments or condemnation actions being contemplated.
(x) Operation of the Property as Part
of the Close of Escrow.
Seller shall continue to operate
and maintain the Property or cause the Property to be operated and maintained up
to the Close of Escrow in the usual and customary manner and in order to assure
preservation of the business relationship and good will with, among others, the
Tenants, and shall ensure that the Property is used and maintained in good
operating condition at all levels required for normal operation up to the Close
of Escrow. Seller shall not cause or permit any material changes in its
policies, management, format or operation of the Property.
(xi) Security Deposits.
Seller shall maintain the Tenant
Deposits in the amount represented in Exhibit "D" and shall not utilize the
Tenant Deposits to offset any delinquencies or other sums due and owing from the
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Tenants. After the Close of Escrow, Seller shall retain the right to collect
from Tenants any and all sums due and delinquent under the Tenant Leases for
periods prior to the Close of Escrow; provided, Seller shall not initiate any
legal proceedings to collect any such delinquent rents for any Tenants while
such Tenants remain tenants in the Property. At all times prior to Close of
Escrow, Seller shall promptly notify Buyer in writing of any defaults that any
Tenants may commit, or claim to have been committed on behalf of the landlord
thereunder, under the Tenant Leases.
(xii) Hazardous Waste.
To Seller's actual knowledge (with
Seller not having undertaken any independent investigation thereof), and except
as set froth in any Environmental Reports: (a) there are not any violations of
any Federal, state or local law, ordinance or regulation relating to the
industrial hygiene, presence or use of hazardous waste (as herein defined) on,
or to the environmental condition on, under, or about the Property, including,
but not limited to, the soil and underground water; and (b) during the time the
Seller has owned the Property, neither the Seller, nor any third party has
improperly or illegally used, generated, manufactured, stored, disposed of, on
or under or about, the Property or transported to or from the Property in an
improper or illegal manner, any flammable, explosive, radioactive, hazardous
waste, toxic substances or related materials or other substances regulated by
applicable law. For purposes of this Agreement, "hazardous waste" shall include
but not be limited to, substances defined as "hazardous substances", "hazardous
materials", "hazardous wastes" or "toxic substances", or that are or become
regulated under, or that are classified as hazardous or toxic (or equivalent
designation), in or under any and all federal law including but not limited to
the Comprehensive Environmental Response, Compensation and Liability Act, 49 USC
Section 1801, et seq., the Resource regulations adopted in publications
promulgated pursuant to such laws, and any and all laws of the State of Arizona
including but not limited to the Arizona Public Health and Safety Act, Title 36,
and Arizona Environmental Quality Act, Title 49, Arizona Revised Statutes, and
all rules and regulations adopted and guidelines promulgated pursuant to the
foregoing.
(xiii) Employment.
With respect to Seller's ownership,
management, maintenance and operation of the Property (but excluding any
business conducted by Seller as a Tenant on the Property, any employees of
Samaritan, or any employees of Seller's manager for the Property), Seller has no
salaried or hourly employees, union or collective bargaining agreements, or
current labor disputes. As of the Close of Escrow, all of the applicable real
estate taxes, rent taxes, personal property taxes, withholding taxes, employment
taxes, social security taxes, sales taxes, excise taxes and other applicable
Federal, state, and municipal taxes applicable to the Property for the period
through Close of Escrow or for which Seller is otherwise responsible has or will
have been paid.
(b) Warranties And Representations Of Buyer.
Buyer has the power, legal capacity
and authority to enter into and perform its obligations under this Agreement and
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has obtained, or will obtain by Close of Escrow, all approvals and consents
necessary in connection herewith and shall provide to Escrow Holder such
resolutions as Escrow Holder may reasonably require.
7. Close Of Escrow.
(a) Time And Place.
The closing of the purchase and sale
transaction contemplated by this Agreement (the "Close of Escrow" or "Closing")
shall take place, at the location designated by the Escrow Holder, by 5:00 p.m.
on November 15, 1995 or such earlier date as designated upon not less than five
(5) days notice by Buyer to Escrow Holder and Seller, provided, Buyer shall have
the right to extend Closing for up to two (2) consecutive and successive periods
of thirty (30) days each by written notice to Seller given not later than five
(5) days prior to the date then set for Close of Escrow.
(b) Seller's Obligations At Closing.
At the Close of Escrow, in addition to all
documents reasonably required to be obtained or recorded by Escrow Holder,
Seller shall deliver to Escrow Holder or, as appropriate, cause to be delivered,
the following documents and instruments:
(i) Possession of the Property subject
only to the terms of the Ground Lease, matters referenced in the Preliminary
Title Report and the rights of Tenants under the Tenant Leases;
(ii) The Title Policy or a commitment to
issue the Title Policy from the Title Company in a form reasonably acceptable by
Buyer;
(iii) A Bill of Sale duly executed by
Seller conveying to Buyer all of Seller's right, title and interest in and to
the Personal Property ("Bill of Sale") in the form set forth in Exhibit "J" to
the Agreement;
(iv) An Assignment of Tenant Leases duly
executed by Seller assigning to Buyer all of Seller's right, title and interest
in and to the Tenant Leases (to the extent accruing from and after the Close of
Escrow) and Tenant Deposits, in the form of and upon the terms and conditions
contained in, Exhibit "K" to this Agreement (the "Tenant Lease Assignment");
(v) An Assignment duly executed by
Seller assigning to Buyer all of Seller's right, title, interest and obligations
under, in and to all service agreements and the like (to the extent such are
assignable), for the period from and after Close of Escrow ("General
Assignment"); provided however, Seller shall cancel, at its expense any
management arrangement for the Property effective as of Close of Escrow, and
Buyer shall have the right to request that Seller cancel any and all such
service agreements effective at the Close of Escrow in lieu of assignment.
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The General Assignment shall be in the form of and upon the terms and conditions
contained in Exhibit "L" to this Agreement;
(vi) A Certificate of Non-Foreign Status,
sworn under penalty of perjury containing Seller's United States Tax
Identification Number and stating that Seller is not a foreign person and is a
United States person as defined in the Internal Revenue Code including Section
1445. The Certificate of Non-Foreign Status shall be in the form of and upon the
terms and conditions contained in Exhibit "M" to this Agreement;
(vii) A Seller's Estoppel Certificate with
respect to any such Tenants for which a Tenant Estoppel Certificate was not
provided, if requested by and to the extent acceptable to Buyer;
(viii) An Assignment duly executed by
Seller assigning to Buyer all of Seller's right, title, interest and obligations
under, in and to the Ground Lease to the extent accruing from or after the Close
of Escrow ("Ground Lease Assignment"), and including release by Samaritan of
Seller from all post-Closing liability under the Ground Lease, in the form of
and otherwise upon the terms and conditions contained in Exhibit "N" to this
Agreement;
(ix) A Special Warranty Deed executed by
Seller conveying to Buyer all of Seller's right, title and interest in and to
all fixtures and improvements located on, and rights appurtenant to, the Real
Property, in the form set forth on Exhibit "O" to this Agreement;
(x) Such other documents as may be
requested or required by Buyer and/or Escrow Holder to effectuate the purchase
and sale contemplated in this Agreement;
(xi) Originals of all Initial Deliveries,
and of all other agreements, and of all records and plans maintained in
connection with the ownership and operation of the Property together with all
originals of all licenses and permits, including all governmental licenses and
all warranties relating to the Property;
(xii) Keys to all entrance doors to the
Property and keys to all Personal Property located on the Property, which keys
shall properly be tagged for identification;
(xiii) Such resolutions, authorizations,
bylaws and other documents to reasonably authorize Seller to enter into and
complete all performances and documents required for this transaction; and
(xiv) Such payoff statements, releases,
or other documents as are required to fully release the property from the
encumbrance of the IDA Obligations as of Close of Escrow, subject to payment
thereof by Seller as provided in Paragraph 3.
(c) Buyer's Obligations At Closing.
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At the Closing, Buyer shall execute and
deliver to Escrow the following:
(i) The Purchase Price and such
additional funds as are required to be paid by Buyer at the Close of Escrow as
provided for in this Agreement;
(ii) The Note (with Escrow Agent hereby
directed to complete the Note to insert the CD Rate as the "Effective Rate" in
paragraph 1 of the Note) and the Letter of Credit (each for delivery to Seller
at Close of Escrow); and
(iii) Assumptions for the Ground Lease
Assignment, Tenant Lease Assignment and General Assignment, and such other
documents as may be reasonably requested or required by Seller and/or Escrow
Holder to effectuate the purchase and sale contemplated by this Agreement.
8. Costs.
The following items shall be paid at the Close of
Escrow as indicated:
(a) Seller's Costs.
Seller shall pay for the Standard Premium
for the Title Policy, the documentary transfer tax (if any), one-half of the
Escrow costs and any other expenses incurred in Escrow customarily paid by
sellers of real property in Maricopa County, Arizona. In addition, Seller shall
pay its prorated share of real property taxes, insurance, utility and service
contracts and arrangements. In the event Buyer desires an extended coverage
Title Policy, the Extended Premium shall be paid by Buyer. All improvement
district special or similar assessments shall be paid by Seller in full at or
prior to the Closing.
(b) Buyer's Costs.
Buyer shall pay one-half of the Escrow
costs, and any other expenses incurred in Escrow which are customarily paid by
buyers of real property in Phoenix, Arizona. Buyer shall pay it's prorated share
of real property taxes, insurance, utility and service contracts and
arrangements.
(c) Prorations.
Rents, revenues and other income actually
paid to and received by Seller, if any, from the Property, any payments due,
including property taxes, service contract fees, installment payments, insurance
premiums and other expenses, if any, and any impounds and/or deposits shall be
prorated as of the Close of Escrow.
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(d) Tenant Deposits.
All Tenant Deposits shall be delivered by
Seller to Buyer through Escrow.
9. Remedies.
If Seller fails to perform any of its obligations in
accordance with this Agreement, Buyer shall have all rights or remedies under
applicable law, including but not limited to the right to waive such default and
demand specific performance, terminate this Agreement (with Buyer to thereupon
be released from any further obligations and liabilities hereunder), or pursue
an action for damages. In the event of any such default by Seller, the Deposit
(including accrued interest) will be returned to Buyer upon demand from Buyer.
If Buyer fails to perform any of its obligations in accordance with the
Agreement, Seller's sole remedy (and Buyer's sole liability) shall be to
terminate this Agreement and to receive and retain the Deposit theretofore paid
by Buyer; provided, the foregoing limitation shall not apply to the Inspection
Indemnity or Brokerage Indemnity (as herein defined).
10. Rights Of Escrow Holder.
(a) Event Of Litigation.
If this Escrow shall be in any litigation or
controversy, Buyer and Seller shall hold Escrow Holder free from, and harmless
against, any loss or expense (except to the extent due to the negligence,
intentional or other culpable act or failure to act of Escrow Holder) that may
be suffered by Escrow Holder by reason of such litigation or controversy.
(b) Conflicting Demands.
Except as otherwise provided in this
Agreement, in the event conflicting demands are made or notices served upon
Escrow Holder with respect to this Escrow, Buyer and Seller agree that Escrow
Holder shall have the absolute right, at its election, after five (5) days
written notice to Seller and Buyer, to do either or both of the following:
(i) Withhold and stop all further
proceedings in, and performance of, this Escrow; or,
(ii) File a suit in interpleader and
obtain an order from the court of competent jurisdiction requiring the parties
to interplead and litigate in such court their several claims and rights amongst
themselves with respect to this Escrow and Agreement. In the event such
interpleader suit is brought, Escrow Holder shall, upon appropriate delivery of
all documents and sums then held by Escrow Holder to such court, be fully
released and discharged from all obligations to perform any and all further
duties and obligations imposed upon Escrow Holder as a result of this Agreement.
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(c) Facsimile Transmissions.
The Escrow Holder shall have the right to
rely upon any party's signature on this Agreement and/or any documents relating
to this Escrow transmitted by facsimile machine from any of the parties as
though it were an original.
11. Broker's Fees.
Any and all brokerage commissions or other broker
fees with respect to this transaction shall be paid by Seller. Seller hereby
represents that it has a contingent brokerage commission obligation to CB
Commercial Real Estate Group, Inc. ("CB") which shall be payable if and when the
transaction contemplated by this Agreement closes. Buyer hereby represents that
it has not dealt with any real estate brokers other than CB with respect to this
transaction. The parties hereto each agree to indemnify and hold harmless the
other for, from and against any and all loss, liability, damage, cost, claim or
expense, including interest, and reasonable attorneys' fees, that shall be
incurred or suffered by reason of a brokerage commission or finder's fee payable
to the extent of any act, omission or statement of the indemnifying party. CB
will not be deemed a third party beneficiary of this Agreement nor will its
consent or joinder to any amendment or cancellation of this Agreement be
required except with respect to an amendment of the commission amount payable to
CB.
12. Notices.
Unless applicable law requires a different method of
giving notice, any and all notices, demands or other communications required or
desired to be given hereunder by any party shall be in writing and shall be
deemed given upon personal delivery, completion of facsimile transmission if by
facsimile, one (1) business day following delivery to a recognized overnight
courier service (such as Federal Express) designated for next business day
delivery, or two (2) days following deposited in the United States mail,
certified with a return receipt requested and postage pre-paid, addressed to the
party to whom such notice, demand or other communication is to be given as
follows:
Buyer: Desert Commercial Properties Limited Partnership
c/o Rockmar Capital, L.L.C.
2525 Camelback Road
Suite 950
Phoenix, Arizona 85016
Fax No.: (602) 912-8945
With copies to: Robert L. Shaw, Esq.
Byrne, Beaugureau, Shaw, Zukowski & Hancock, P.C.
2111 East Highland Road
Suite 255
Phoenix, Arizona 85016
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Seller: Attn: Herbert H Bunchman II, M.D.
1520 South Dobson Drive
Suite 314
Mesa, Arizona
Fax No.: (602) 969-4316
With copies to: David Case, Esq.
Ryley, Carlock & Applewhite
101 North 1st Avenue, Suite 2700
Phoenix, Arizona 85003
Fax No.: (602) 257-9582
Any party hereto may change its address for the
purpose of receiving notices, demands or other communications as herein provided
by not less than five (5) says prior written notice given in the manner
aforesaid to the other party or parties hereto.
13. Right Of Entry.
Buyer shall have the reasonable right of entry during
normal business hours to the Property upon at least forty-eight (48) hours
notice to Seller for the purpose of making inspections of the Property. Such
inspections or other tests shall be at Buyer's sole expense. Buyer shall
indemnify and hold Seller harmless in connection with and for, from and against
any claims, loss or liability (including costs and attorney's fees) suffered,
threatened or caused as a result of or to the extent deriving from such
inspection(s), test(s), ingress, egress and/or other activities of Buyer, its
contractors or agents, on or with respect to the Property (the "Inspection
Indemnity"). The Inspection Indemnity shall survive the Close of Escrow, and any
cancellation or termination of this Agreement. Seller shall have the right, but
not the obligation, to have a representative of the Seller accompany Buyer on
any inspection. Any such inspection must be carried out in a manner which does
not unreasonably interfere with the Tenants of the Property.
14. Condemnation Or Destruction.
(a) Damage by Fire, Explosion, Disaster or Other
Casualty.
If prior to the Closing any part of the
Property shall be destroyed or damaged by fire, explosion, earthquake, disaster,
accident, disturbance or act of God, then Seller shall promptly give Buyer
written notice thereof. If the cost of repairing such damage or destruction is
less than $100,000.00, or if Buyer decides to proceed with the purchase of the
Property notwithstanding the amount of such cost of repair, then the Closing
shall proceed, and Seller at the Closing shall assign and transfer to Buyer all
applicable insurance proceeds (including rent loss for the period from and after
Close of Escrow) payable as a result of such damage or destruction, and pay
Buyer the deductible sum, if any, prescribed by such insurance policy or any
otherwise uninsured portion of such loss. If the cost of repairing such damage
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<PAGE>
or destruction is $100,000.00 or greater, or is not covered by available
insurance proceeds, then Buyer may, at its option, within ten (10) days
following Buyer's receipt of Seller's notice, terminate this Agreement by
written notice to Escrow Holder, in which event the Escrow Holder is directed to
return to Buyer any Deposit with each party to then be released from any further
right or obligation hereunder. Following any assignment by Seller of any
insurance proceeds pursuant to this paragraph, Seller shall cooperate reasonably
with Buyer in any loss adjustment negotiations with the insurance carrier. If
Buyer shall not so elect to terminate this Agreement, the Closing shall proceed
and Seller, at the Closing, shall assign and transfer to Buyer all applicable
insurance proceeds (including rent loss for the period from and after Close of
Escrow) payable as a result of such damage or destruction, and pay Buyer the
deductible sum, if any prescribed by such insurance policy.
(b) Condemnation.
If prior to the Closing, any legal action
shall be initiated or threatened by the United States of America, the State of
Arizona or any municipality thereof or any other governmental body or by any
other corporation or person for the taking of any material part (in excess of
$100,000.00) of the Property under the power of eminent domain or otherwise,
Seller shall promptly give Buyer written notice thereof, and Buyer may, at its
option, within ten (10) days following the receipt of such notice, terminate
this Agreement by giving Seller and Escrow Holder written notice thereof, in
which event the Escrow Holder is directed to return to Buyer Deposit and with
each party to then be released from any further obligation or liability
hereunder. If Buyer shall not so elect to terminate this Agreement, or if the
taking is $100,000.00 or less, then the Closing shall proceed and Seller, at the
Closing, shall assign and deliver to Buyer all of Seller's rights (including
proceeds received at or prior to Closing) arising by reason of such legal
action, including but not limited to, all rights to award, compensation or other
proceeds payable by reason of such action.
15. Survival Of Representations And Warranties.
All representations, warranties, covenants and
agreements of the parties contained in this Agreement, or in any instrument or
other writing provided for herein, shall, except as otherwise set forth herein,
survive the execution and delivery of this Agreement and the Close of Escrow.
16. Attorneys' Fees.
Should any party hereto institute any action or
proceeding at law or in equity to enforce any provision of this Agreement,
including any action for declaratory relief, or for damages by reason of an
alleged breach of any provision of this Agreement, or any provision thereof, the
prevailing party shall be entitled to recover from the losing party or parties
reasonable attorneys' fees and costs incurred by the prevailing party in such
action or proceeding.
-20-
<PAGE>
17. Time Is Of The Essence and Dates.
Time is of the essence of this Agreement and all of
the terms, provisions, covenants and conditions hereof. If the date of
performance by any party to this Agreement occurs on a weekend or holiday, then
such performance shall occur on the next business day. A business day shall mean
any day the State of Arizona and Maricopa County are regularly open for the
conduct of business.
18. Assignment.
Buyer shall have the right until the Close of Escrow
to assign Buyer's rights under this Agreement (an "Assignment") only to an
entity (a "Permitted Assignee") which either: (a) has Desert Commercial
Properties Limited Properties, or its principals, as a principal and managing
member, partner, shareholder or similar participant therein; or (b) is otherwise
approved by Seller, such approval not to be unreasonably withheld. An Assignment
shall not be effective unless and until: (i) a copy of the Assignment document,
duly executed by both Buyer and the Permitted Assignee, has been delivered to
both Seller and Escrow Holder; (ii) in the Assignment the Permitted Assignee
agrees to assume all of the obligations of Buyer and provide for continuation
of the Deposit as set forth in this Agreement; and (iii) written confirmation is
obtained from Samaritan that it satisfies the requirements of Samaritan for
Seller's Liability Release.
19. Tax Deferred Exchange.
Either party ("Accommodator") shall upon request of
the other ("Requesting Party") cooperate in effectuating transfer of the
Property to a tax deferred exchange under Section 1031 of the Internal Revenue
Code of 1986, as and if amended (an "Exchange"), subject to the following:
(a) The Requesting Party shall have the right
to proceed with an Exchange at any time prior to Close of Escrow, provided it
gives reasonable advance notice (in any event not less than five (5) business
days) of its desire to have Accommodator participate in the Exchange, together
with each and all of the documents to be executed by Accommodator, with respect
to the Exchange.
(b) Neither the Closing, nor consummation of
any other aspect of this Agreement, shall in any way be predicated or
conditioned on the Exchange or completion thereof.
(c) Any documents to be executed by
Accommodator in connection with an Exchange shall not cause Accommodator to
incur any additional cost, expense or liability in any way or manner
(irrespective of whether indemnified against by Requesting Party).
(d) Accommodator shall have the right, as a
condition to participation in the Exchange, to require Requesting Party to
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<PAGE>
provide advance payment to Accommodator of the reasonably anticipated extra
costs, including attorney fees, to be incurred by Accommodator solely by reason
of participation in the Exchange.
(e) Accommodator does not make any
representation or warranty to Requesting Party or any other third party,
including state or federal tax authorities that the exchange will qualify for
any particular or deferred tax treatment.
(f) Requesting Party shall indemnify and hold
Accommodator harmless for, from and against any and all liability, damages, or
costs, including actual attorneys' fees, incurred or that may be incurred by
Accommodator by virtue of Accommodator's participation in the Exchange.
(g) The Exchange shall not in any way limit,
terminate or otherwise effect all or any of any party's rights or obligations
under this Agreement.
20. Miscellaneous.
(a) Independent Legal Advice.
Each of the parties to this Agreement does
hereby warrant, represent to and agree with the other that it executes this
document with full knowledge of its rights under this Agreement, and that it has
received, or had the opportunity to receive, independent legal advice as to
these rights.
(b) Applicable Law.
This Agreement shall in all respects, be
governed by the laws of the State of Arizona applicable to agreements executed
and to be wholly performed within Arizona.
(c) Severability.
Nothing contained herein shall be construed
so as to require the commission of any act contrary to law, and wherever there
is any conflict between any provisions contained herein and any present or
future statute, law, ordinance or regulation contrary to which the parties have
no legal right to contract, the latter shall prevail; but the provision of this
Agreement which is affected shall be deemed deleted and limited only to the
extent necessary to bring it within the requirements of the law.
(d) Further Assurances.
Each of the parties hereto shall execute
and deliver any and all additional papers, documents and other assurances, and
shall do any and all acts and things reasonably necessary in connection with the
performance of their obligations hereunder to carry out the intent of the
parties hereto.
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<PAGE>
(e) Modifications and Amendments.
This Agreement, including this paragraph,
may be modified or amended only by an agreement in writing signed by the Buyer
and Seller.
(f) Entire Agreement.
This Agreement contains all representations
and the entire agreement and understanding between the parties, and supersedes
any and all other agreements, either oral or in writing, between the parties
hereto, concerning the subject matter of this Agreement.
(g) Counterparts.
This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute the Agreement, notwithstanding the fact that all the
parties have not been signatories either on the same date or to the same
counterpart; provided, however, that the Agreement shall not become effective
until completely conforming counterparts have been signed by each of the parties
hereto.
(h) Number and Gender.
In this Agreement, the masculine, feminine
or neuter gender, and the singular or plural number, shall each be deemed to
include the others whenever the context so requires.
(i) Captions and Recording References.
The captions appearing at the commencement
of the sections hereof are descriptive only and for convenience in reference.
Should there be any conflict between any such caption and the section at the
head of which it appears, the section and not such caption shall control and
govern in the construction of this Agreement. Set recordation references herein
refer, unless otherwise expressly stated, to the Office of the Maricopa County
Recorder, State of Arizona.
(j) Exhibits.
Exhibits "A" through "O" attached are
hereby incorporated herein by this reference.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement on the date and place first written above.
SELLER:
PHASE III DESERT SAMARITAN MEDICAL BUILDING
PARTNERS
An Arizona General Partnership
By: /s/ Herbert H. Bunchman II, M.D.
------------------------------------------
Herbert H. Bunchman II, M.D.
Its: Managing Partner
By: /s/ Michael A. Chasin, M.D.
------------------------------------------
Michael A. Chasin, M.D.
Its: Managing Partner
By: /s/ Mark Stern, M.D.
------------------------------------------
Mark Stern, M.D.
Its: Managing Partner
BUYER:
DESERT COMMERCIAL PROPERTIES LIMITED PARTNERSHIP
an Arizona limited partnership
By: Rokmar Capital, L.L.C.
an Arizona limited liability company
Its: General partner
By: /s/ Kambiz Babaoff
------------------------------------------
Kambiz Babaoff, Manager
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<PAGE>
BROKER:
CB COMMERCIAL REAL ESTATE GROUP, INC.
By: /s/ Robert L. Young
------------------------------------------
ITS: Vice President
------------------------------------------
ACCEPTED:
/s/ C.D. Dieckhoff Aug. 15, 1995
- - ------------------------------- ----------------------
Chicago Title Insurance Company Date
C.D. DIECKHOFF
SENIOR ESCROW OFFICER
-25-
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<PAGE>
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<NAME> UNIVERSAL HEALTH REALTY INCOME TRUST
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
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0
0
<COMMON> 89
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<TOTAL-LIABILITY-AND-EQUITY> 132,770
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