<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 19, 1998
REGISTRATION NO. 333-59907
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------------
HEALTHCARE REALTY TRUST INCORPORATED
(Exact Name of Registrant as Specified In Its Charter)
<TABLE>
<S> <C> <C>
MARYLAND 6798 62-1507028
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Code Number) No.)
</TABLE>
3310 WEST END AVENUE, SUITE 700
NASHVILLE, TENNESSEE 37203
(615) 269-8175
(Address, Including Zip Code, and Telephone Number, including
Area Code, of Registrant's Principal Executive Offices)
DAVID R. EMERY
HEALTHCARE REALTY TRUST INCORPORATED
3310 WEST END AVENUE, SUITE 700
NASHVILLE, TENNESSEE 37203
(615) 269-8175
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
---------------------
WITH COPIES TO:
<TABLE>
<S> <C>
THEODORE W. LENZ, ESQ. JOHN H. COOPER, ESQ.
WALLER LANSDEN DORTCH & DAVIS, PLLC SIROTE & PERMUTT, P.C.
511 UNION STREET, SUITE 2100 2222 ARLINGTON AVENUE S.
NASHVILLE, TENNESSEE 37219 BIRMINGHAM, ALABAMA 35205
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a Registration Statement filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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<PAGE> 2
(HEALTHCARE REALTY TRUST LOGO)
(CAPSTONE CAPITAL LOGO)
August 24, 1998
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Healthcare Realty Trust Incorporated and
Capstone Capital Corporation have agreed on a merger designed to create one of
the leading publicly traded healthcare real estate investment trusts. The merger
is structured so that Healthcare Realty will be the surviving publicly traded
company and Capstone will become a wholly owned subsidiary of Healthcare Realty.
Capstone common stockholders will receive .8518 shares of Healthcare Realty
common stock for each share of Capstone common stock that they own, and
Healthcare Realty common stockholders will continue to own their existing
shares. Capstone preferred stockholders will receive one share of Healthcare
Realty voting preferred stock for each share of Capstone preferred stock that
they own. We estimate that the shares of Healthcare Realty common stock to be
issued to Capstone common stockholders will represent approximately 48% of the
outstanding common stock of Healthcare Realty after the merger. Likewise, the
shares of Healthcare Realty common stock held by Healthcare Realty stockholders
prior to the merger will represent approximately 52% of the outstanding common
stock of Healthcare Realty after the merger. The shares of Healthcare Realty
preferred stock to be issued to Capstone preferred stockholders will represent
100% of the outstanding preferred stock of Healthcare Realty after the merger.
Stockholders of Healthcare Realty are being asked, at Healthcare Realty's
special meeting of stockholders, to approve the issuance of shares of Healthcare
Realty common stock and preferred stock in the merger. Stockholders of Capstone
are being asked, at Capstone's special meeting of stockholders, to approve the
merger. Whether or not you plan to attend your meeting, please take the time to
vote by completing and mailing the enclosed proxy card to us.
The merger cannot be completed unless the holders of Healthcare Realty
common stock approve the issuance of shares and the holders of Capstone common
stock and preferred stock approve the merger. YOUR VOTE IS VERY IMPORTANT.
IF YOU SIGN, DATE AND MAIL YOUR PROXY CARD WITHOUT INDICATING HOW YOU WANT
TO VOTE, YOUR PROXY WILL BE COUNTED AS A VOTE IN FAVOR OF THE PROPOSAL(S)
SUBMITTED AT YOUR MEETING. IF YOU ARE A CAPSTONE STOCKHOLDER AND FAIL TO RETURN
YOUR CARD, THE EFFECT WILL BE A VOTE AGAINST THE MERGER, UNLESS YOU VOTE IN
PERSON AT THE CAPSTONE SPECIAL MEETING. IF YOU ARE A HEALTHCARE REALTY
STOCKHOLDER AND FAIL TO RETURN YOUR CARD, THERE WILL BE NO EFFECT ON THE RESULT
OF THE VOTE UNLESS YOU VOTE IN PERSON AT THE HEALTHCARE REALTY SPECIAL MEETING.
<PAGE> 3
Only stockholders of record of Healthcare Realty common stock, Capstone
common stock and Capstone preferred stock as of August 24, 1998, are entitled to
attend and vote at the meetings. The dates, times and places of the meetings are
as follows:
FOR CAPSTONE STOCKHOLDERS:
Sheraton Perimeter Park South Hotel
The Ballroom
8 Perimeter Park Drive
Birmingham, Alabama 35243
October 14, 1998
3:00 p.m. (local time)
FOR HEALTHCARE REALTY STOCKHOLDERS:
Healthcare Realty Trust Incorporated
The Board Room
3310 West End Avenue, Suite 700
Nashville, Tennessee 37203
October 15, 1998
10:00 a.m. (local time)
This Joint Proxy Statement-Prospectus provides you with detailed
information about the proposed merger. We encourage you to read this entire
document carefully. In addition, you may obtain information about our companies
from documents that we have filed with the Securities and Exchange Commission.
<TABLE>
<S> <C>
/s/ David R. Emery /s/ Richard M. Scrushy
David R. Emery Richard M. Scrushy
Chairman and Chief Executive Officer Chairman
Healthcare Realty Trust Incorporated Capstone Capital Corporation
</TABLE>
NEITHER THE SEC NOR ANY STATE SECURITIES REGULATORS HAVE APPROVED THE HEALTHCARE
REALTY COMMON STOCK OR PREFERRED STOCK TO BE ISSUED UNDER THIS JOINT PROXY
STATEMENT-PROSPECTUS OR DETERMINED IF THIS JOINT PROXY STATEMENT-PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Joint Proxy Statement-Prospectus is dated August 24, 1998, and is
first being mailed to the stockholders of Healthcare Realty and Capstone on or
about August 28, 1998.
<PAGE> 4
(HEALTHCARE REALTY TRUST LOGO)
3310 WEST END AVENUE, SUITE 700
NASHVILLE, TENNESSEE 37203
(615) 269-8175
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 15, 1998
TO THE STOCKHOLDERS OF
HEALTHCARE REALTY TRUST INCORPORATED:
Notice is hereby given that a special meeting of the stockholders of
Healthcare Realty Trust Incorporated ("Healthcare Realty") will be held on
Thursday, October 15, 1998, at 10:00 a.m. (local time) at Healthcare Realty
Trust Incorporated, The Board Room, 3310 West End Avenue, Suite 700, Nashville,
Tennessee, to consider and vote on a proposal to issue shares of common stock
and 8 7/8% Series A Voting Cumulative Preferred Stock of Healthcare Realty in
connection with the transactions contemplated in the Plan and Agreement of
Merger, dated as of June 8, 1998, among Healthcare Realty, HR Acquisition I
Corporation and Capstone Capital Corporation. Healthcare Realty stockholders may
call 1-800-848-3405 with questions or requests regarding proxies or related
materials.
The Board of Directors has fixed the close of business on August 24, 1998
as the record date for determining stockholders entitled to notice of and to
vote at the meeting and at any adjournment thereof.
By Order of the Board of Directors
/s/ DAVID R. EMERY
David R. Emery
Chairman and Chief Executive Officer
Nashville, Tennessee
August 28, 1998
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, TO ASSURE THE
PRESENCE OF A QUORUM, PLEASE COMPLETE, DATE, SIGN AND MAIL THE ENCLOSED PROXY AS
SOON AS POSSIBLE. IF YOU ATTEND THE MEETING AND WISH TO VOTE YOUR SHARES
PERSONALLY, YOU MAY DO SO AT ANY TIME BEFORE THE PROXY IS EXERCISED.
<PAGE> 5
(CAPSTONE CAPITAL LOGO)
CAPSTONE CAPITAL CORPORATION
1000 URBAN CENTER DRIVE, SUITE 630
BIRMINGHAM, ALABAMA 35242
(205) 967-2092
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 14, 1998
TO THE STOCKHOLDERS OF
CAPSTONE CAPITAL CORPORATION:
Notice is hereby given that a special meeting of the holders of common
stock and 8 7/8% Series A Cumulative Preferred Stock of Capstone Capital
Corporation ("Capstone") will be held on Wednesday, October 14, 1998, at 3:00
p.m. (local time) at the Sheraton Perimeter Park South Hotel, The Ballroom, 8
Perimeter Park Drive, Birmingham, Alabama. At the meeting, holders of Capstone
common stock and preferred stock will consider and vote on a proposal to approve
the merger as described in the Plan and Agreement of Merger, dated as of June 8,
1998, among Capstone, Healthcare Realty Trust Incorporated and HR Acquisition I
Corporation. Capstone stockholders may call 1-800-829-6554 with questions or
requests regarding proxies or related materials.
The Board of Directors has fixed the close of business on August 24, 1998
as the record date for determining stockholders entitled to notice of and to
vote at the meeting and at any adjournment thereof.
By Order of the Board of Directors
/s/ Richard M. Scrushy
Richard M. Scrushy
Chairman
Birmingham, Alabama
August 28, 1998
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, TO ASSURE THE
PRESENCE OF A QUORUM, PLEASE COMPLETE, DATE, SIGN AND MAIL THE ENCLOSED PROXY AS
SOON AS POSSIBLE. IF YOU ATTEND THE MEETING AND WISH TO VOTE YOUR SHARES
PERSONALLY, YOU MAY DO SO AT ANY TIME BEFORE THE PROXY IS EXERCISED.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 3
The Companies............................................. 3
Special Stockholders Meetings............................. 3
Recommendations to Stockholders........................... 3
Record Dates; Voting Powers............................... 3
Vote Required............................................. 3
The Merger................................................ 4
Background of the Merger.................................. 4
Reasons for the Merger.................................... 4
Opinions of Financial Advisors............................ 4
Federal Income Tax Consequences........................... 4
Accounting Treatment...................................... 5
Interests of Certain Persons in the Merger................ 5
Conditions to Completion of the Merger.................... 5
Termination of the Merger Agreement....................... 5
Comparative Per Share Market Price Information............ 6
Forward-Looking Statements May Prove Inaccurate........... 6
Ownership of Healthcare Realty Following the Merger....... 7
Board of Directors and Management of Healthcare Realty
After the Merger....................................... 7
Termination Fee........................................... 7
No Appraisal Rights....................................... 7
Listing of Healthcare Realty Stock........................ 7
Dividends After the Merger................................ 7
Summary Historical Consolidated Financial Information..... 8
Summary Pro Forma Consolidated Financial Information...... 9
Comparative Per Share Data................................ 10
THE SPECIAL MEETINGS OF STOCKHOLDERS........................ 11
Voting Rights; Votes Required for Approval................ 11
Proxies................................................... 12
Solicitation of Proxies................................... 12
THE MERGER.................................................. 14
Description of the Merger................................. 14
Capstone Securities....................................... 14
Healthcare Realty Securities.............................. 15
Exchange of Certificates.................................. 15
Background of the Merger.................................. 16
Capstone's Reasons for the Merger; Recommendation of the
Capstone Board......................................... 22
Healthcare Realty's Reasons for the Merger; Recommendation
of the Healthcare Realty Board......................... 25
Opinion of Capstone's Financial Advisor................... 26
Opinion of Healthcare Realty's Financial Advisor.......... 30
Accounting Treatment...................................... 34
Certain Federal Income Tax Consequences................... 35
Interests of Certain Persons in the Merger................ 36
Comparison of Rights of Stockholders...................... 36
No Appraisal Rights....................................... 36
Board of Directors and Management of Healthcare Realty
After the Merger....................................... 36
Restrictions on Resales by Affiliates..................... 36
THE MERGER AGREEMENT........................................ 37
Conditions to the Merger.................................. 37
Conduct of Business Prior to the Merger and Other
Covenants.............................................. 38
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Termination of the Merger Agreement....................... 38
Non-Solicitation.......................................... 39
Termination Fee; Expenses................................. 39
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND
INFORMATION............................................... 40
Market Prices............................................. 40
Dividends................................................. 42
CERTAIN TRANSACTIONS........................................ 43
Restricted Stock and Stock Options........................ 43
Consulting and Non-Competition Agreements................. 43
Office Furniture, Fixtures and Equipment.................. 44
INFORMATION ABOUT HEALTHCARE REALTY......................... 44
Recent Developments....................................... 44
INFORMATION ABOUT CAPSTONE.................................. 44
DESCRIPTION OF HEALTHCARE REALTY COMMON STOCK............... 45
Restrictions on Transfer.................................. 45
Business Combinations..................................... 46
Control Share Acquisitions................................ 46
Dividend Reinvestment Plan and Employee Stock Purchase
Plan................................................... 47
Transfer Agent and Registrar.............................. 47
DESCRIPTION OF HEALTHCARE REALTY PREFERRED STOCK............ 47
Rank...................................................... 48
Dividends................................................. 48
Redemption................................................ 48
Liquidation Preference.................................... 50
Voting Rights............................................. 50
Restrictions on Transfer.................................. 50
Transfer Agent and Registrar.............................. 50
COMPARATIVE RIGHTS OF COMMON STOCKHOLDERS OF CAPSTONE AND
HEALTHCARE REALTY......................................... 51
Voting Rights............................................. 51
Change of Control......................................... 51
Board of Directors........................................ 52
Removal of Directors...................................... 52
Limitation on Personal Liability of Directors and
Officers; Indemnification.............................. 52
Rights of Stockholders to Call Special Meetings........... 53
Authorized Stock.......................................... 54
Restrictions on Ownership and Transfer.................... 54
Dividend Reinvestment Plan................................ 55
Amendment of Articles and Bylaws.......................... 55
COMPARATIVE RIGHTS OF PREFERRED STOCKHOLDERS OF CAPSTONE AND
HEALTHCARE REALTY......................................... 55
Voting Rights............................................. 56
Par Value................................................. 56
Dividend Payment Dates.................................... 56
Restriction on Ownership and Transfer..................... 56
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION............................................... 57
WHERE YOU CAN FIND MORE INFORMATION......................... 64
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
INFORMATION............................................... 66
LEGAL MATTERS............................................... 66
EXPERTS..................................................... 66
Annex A -- Plan and Agreement of Merger..................... A-1
Annex B -- Opinion of Salomon Smith Barney.................. B-1
Annex C -- Opinion of NationsBanc Montgomery Securities
LLC....................................................... C-1
</TABLE>
ii
<PAGE> 8
QUESTIONS AND ANSWERS
ABOUT THE MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?
A: Healthcare Realty and Capstone are proposing to merge because they believe
that by combining they will be able to provide their respective stockholders
with substantial benefits and better serve their clients. The companies also
think that, by combining, they can create a company that is better
positioned to be a strong competitor in the rapidly changing real estate
market and to serve the real estate needs of the healthcare industry.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Capstone common stockholders will receive .8518 shares of Healthcare Realty
common stock in exchange for each share of Capstone common stock owned by
them. Healthcare Realty will not, however, issue any fractional shares of
common stock. Instead, for any fraction of a share of common stock, you will
receive cash equal to the fraction multiplied by $28.5625.
For example, if you own ten shares of Capstone common stock, upon
completion of the merger you'll have the right to receive eight shares of
Healthcare Realty common stock and a check for $14.80 (0.518 of a share of
Healthcare Realty common stock multiplied by $28.5625).
Capstone preferred stockholders will receive one share of Healthcare Realty
voting preferred stock for each share of Capstone preferred stock owned by
them. The Capstone preferred stock is not voting stock except in special
circumstances.
Healthcare Realty common stockholders will continue to own the shares of
Healthcare Realty common stock they now own.
Q: WHAT HAPPENS AS THE MARKET PRICE OF HEALTHCARE REALTY COMMON STOCK
FLUCTUATES?
A: The exchange ratio is fixed at .8518. Because the market value of Healthcare
Realty common stock will fluctuate before and after the completion of the
merger, the value of the Healthcare Realty common stock that holders of
Capstone common stock will receive in the merger will fluctuate as well and
could decrease.
Q: WHAT WILL HAPPEN TO CAPSTONE IN THE MERGER?
A: Capstone will merge with a subsidiary of Healthcare Realty and will survive
but will no longer be an independent company. The businesses and operations
of Healthcare Realty and Capstone will be combined, and Capstone will become
a wholly owned subsidiary of Healthcare Realty. Accordingly, Capstone
stockholders will own a portion of the combined company, which will be
represented by the shares of Healthcare Realty common stock and preferred
stock that they will receive in the merger.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: Healthcare Realty and Capstone hope to complete the merger by mid-October,
1998.
Q: WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO ME?
A: For federal income tax purposes, it is anticipated that your exchange of
shares of Capstone common stock or Capstone preferred stock for shares of
Healthcare Realty common stock or Healthcare Realty preferred stock in the
merger generally will not cause you to recognize any gain or loss. You will,
however, have to recognize gain in connection with any cash received instead
of fractional shares. A more detailed review of certain federal income tax
consequences of the merger is provided at page 35 of this document.
Healthcare Realty stockholders will experience no tax effect.
Q: WHAT ABOUT FUTURE DIVIDENDS?
A: Historically, each of Healthcare Realty and Capstone has paid dividends.
Healthcare Realty expects to pay dividends in the future consistent with
past practice, subject to Healthcare Realty's financial condition and
results of operations.
<PAGE> 9
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on the enclosed proxy card how you want to vote, and sign and
mail the proxy card in the enclosed return envelope as soon as possible so
that your shares may be represented at your special stockholders' meeting.
If you sign and send in your proxy but don't indicate how you want to vote,
your proxy will be counted as a vote in favor of the proposal(s) submitted
at your meeting.
If you are a Capstone stockholder and don't vote on the merger or if you
abstain, the effect will be a vote against the merger unless you vote in
person at the Capstone special meeting.
If you are a Healthcare Realty stockholder and don't vote on the issuance
of additional shares of capital stock or if you abstain, there will be no
effect on the result of the vote unless you vote in person at the
Healthcare Realty special meeting.
You are invited to the applicable special stockholders' meeting to vote
your shares in person, rather than signing and mailing your proxy card. If
you sign your proxy card, you can take back your proxy until the applicable
special stockholders' meeting and either change your vote or attend the
special stockholders' meeting and vote in person. More detailed
instructions about voting are provided beginning on page 11 of this
document.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Only if you provide instructions on how your broker should vote. Your broker
will ask you for instructions. You should instruct your broker how to vote
your shares, following the directions your broker provides. Without
instructions from you, your broker will not vote your shares, and if you are
a Capstone stockholder, this will effectively be a vote against the merger.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. Capstone stockholders should not send in their Capstone stock
certificates now. After the merger is completed, you will be sent written
instructions on how to exchange your Capstone stock for Healthcare Realty
stock.
Healthcare Realty stockholders do not need to send their Healthcare Realty
stock certificates. The merger will have no effect on outstanding
certificates for Healthcare Realty stock.
Q: WHOM DO I CONTACT IF I HAVE QUESTIONS ABOUT THE MERGER?
A: If you are a Capstone stockholder and you have more questions about the
merger, you should contact:
Capstone Capital Corporation
1000 Urban Center Drive, Suite 630
Birmingham, Alabama 35242
Attention: Malcolm E. "Tadd" McVay
Phone Number: (205) 967-2092
If you are a Healthcare Realty stockholder and you have more questions
about the merger, you should contact:
Healthcare Realty Trust Incorporated
3310 West End Avenue, Suite 700
Nashville, Tennessee 37203
Attention: Fredrick M. Langreck
Phone Number: (615) 269-8175
2
<PAGE> 10
SUMMARY
This summary highlights selected information from this document. It does
not contain all of the information that is important to you. You should
carefully read this entire document and the documents to which we have referred
you in order to understand fully the merger and to obtain a more complete
description of the two companies and the legal terms of the merger. See "WHERE
YOU CAN FIND MORE INFORMATION" (page 64). Each item in this summary includes a
page reference that directs you to a more complete description in this document
of the topic discussed.
THE COMPANIES (PAGE 44)
HEALTHCARE REALTY TRUST
INCORPORATED
3310 West End Avenue, Suite 700
Nashville, Tennessee 37203
(615) 269-8175
Healthcare Realty is incorporated in Maryland and is a self-managed and
self-administered real estate investment trust which integrates owning, managing
and developing income-producing real estate properties associated with the
delivery of healthcare services throughout the United States.
CAPSTONE CAPITAL CORPORATION
1000 Urban Center Drive, Suite 630
Birmingham, Alabama 35242
(205) 967-2092
Capstone is incorporated in Maryland and is a self-managed and
self-administered real estate investment trust which owns, leases and invests in
a diversified portfolio of healthcare properties.
SPECIAL STOCKHOLDERS MEETINGS (PAGE 11)
A special meeting of Capstone common stockholders and preferred
stockholders will be held at the Sheraton Perimeter Park South Hotel, The
Ballroom, 8 Perimeter Park Drive, Birmingham, Alabama, at 3:00 p.m. on October
14, 1998. At the special meeting, stockholders of Capstone will be asked to
approve the merger.
A special meeting of Healthcare Realty stockholders will be held at
Healthcare Realty Trust Incorporated, The Board Room, 3310 West End Avenue,
Suite 700, Nashville, Tennessee, at 10:00 a.m. on October 15, 1998. At the
special meeting, stockholders of Healthcare Realty will be asked to approve the
issuance of shares of capital stock in connection with the merger.
RECOMMENDATIONS TO STOCKHOLDERS (PAGES 25 AND 26)
To Capstone Stockholders: The Capstone Board believes that the merger is
fair to you and in the best interests of Capstone, and unanimously recommends
that you vote "FOR" the proposal to approve the merger.
To Healthcare Realty Stockholders: The Healthcare Realty Board believes
that the issuance of shares of Healthcare Realty capital stock in connection
with the merger is fair to you and in your best interests, and unanimously
recommends that you vote "FOR" the proposal to issue such shares in the merger.
RECORD DATES; VOTING POWERS (PAGES 11 AND 12)
The Capstone Board set August 24, 1998 as the record date for determining
the Capstone stockholders who are entitled to vote on the merger. You can vote
at the Capstone special meeting if you owned Capstone common stock or preferred
stock as of the close of business on that date. On that date, shares
of Capstone common stock were outstanding and 3,000,000 shares of Capstone
preferred stock were outstanding and therefore are allowed to vote at the
Capstone special meeting. You will be able to cast one vote for each share of
Capstone stock you owned on August 24, 1998.
The Healthcare Realty Board set August 24, 1998 as the record date for
determining the Healthcare Realty stockholders who are entitled to vote on the
issuance of the shares in the merger. You can vote at the Healthcare Realty
special meeting if you owned Healthcare Realty common stock as of the close of
business on that date. On that date, shares of Healthcare Realty
common stock were outstanding and therefore are allowed to vote at the
Healthcare Realty special meeting. You will be able to cast one vote for each
share of Healthcare Realty stock you owned on August 24, 1998.
3
<PAGE> 11
VOTE REQUIRED (PAGES 11 AND 12)
To Capstone Stockholders: In order for the merger to be approved, the
holders of two-thirds of the outstanding shares of Capstone common stock and
two-thirds of the outstanding shares of Capstone preferred stock on August 24,
1998, voting separately as a class, must vote in favor of the merger. The
directors and officers of Capstone can cast a total of approximately 1.8% of the
votes entitled to be cast at the Capstone special meeting. We expect that they
will vote all of their shares in favor of the merger.
To Healthcare Realty Stockholders: In order to approve the issuance of
shares of Healthcare Realty capital stock in connection with the merger, the
holders of a majority of the votes cast at the Healthcare Realty special meeting
must vote in favor of the issuance, provided that the total vote cast on the
proposal represents over 50% in interest of all securities entitled to vote on
the proposal. The directors and executive officers of Healthcare Realty can cast
a total of approximately 3.0% of the votes entitled to be cast at the Healthcare
Realty special meeting. We expect that they will vote all of their shares in
favor of the issuance of shares of Healthcare Realty stock in the merger.
THE MERGER (PAGE 14)
Healthcare Realty and Capstone have entered into a merger agreement that
governs the merger. The merger agreement is attached to this Joint Proxy
Statement-Prospectus as Annex A, and we encourage you to read it.
BACKGROUND OF THE MERGER (PAGE 16)
The Capstone Board determined to solicit indications of interest for the
purchase of its business. It discussed a transaction with a number of companies,
including Healthcare Realty. After negotiations, the Capstone Board approved the
merger. The exchange ratio of .8518 shares is equivalent to $24.33 per share
based on the closing price of Healthcare Realty common stock on May 13, 1998.
REASONS FOR THE MERGER (PAGES 22 AND 25)
The merger will combine the strengths of Healthcare Realty and Capstone.
The companies expect that the combined company resulting from the merger should
be able to achieve superior financial performance compared to the individual
companies on their own.
OPINIONS OF FINANCIAL ADVISORS (PAGES 26 AND 30)
Smith Barney Inc. and Salomon Brothers Inc (collectively doing business as
Salomon Smith Barney) have acted as financial advisors to Capstone in connection
with the merger and have delivered to the Capstone Board a written opinion dated
June 8, 1998 to the effect that, as of the date of such opinion and based upon
and subject to certain matters stated in such opinion, the exchange ratio was
fair, from a financial point of view, to the holders of Capstone common stock.
We have attached this opinion as Annex B to this document. Capstone stockholders
should read it carefully. THE OPINION OF SALOMON SMITH BARNEY IS DIRECTED TO THE
CAPSTONE BOARD AND RELATES ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO FROM A
FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR
RELATED TRANSACTIONS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER
AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE CAPSTONE SPECIAL MEETING.
In deciding to approve the merger, the Healthcare Realty Board considered
an opinion delivered June 8, 1998 by its financial advisor, NationsBanc
Montgomery Securities LLC, that the merger consideration to be paid by
Healthcare Realty was fair to Healthcare Realty, from a financial point of view
as of that date. We have attached this opinion as Annex C to this document.
Healthcare Realty stockholders should read it carefully. THE OPINION OF
NATIONSBANC MONTGOMERY SECURITIES LLC IS DIRECTED TO THE HEALTHCARE REALTY
BOARD, COVERS ONLY THE FINANCIAL FAIRNESS TO HEALTHCARE REALTY OF THE
CONSIDERATION TO BE PAID BY HEALTHCARE REALTY IN THE MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE AT THE HEALTHCARE REALTY SPECIAL MEETING.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 35)
We have structured the merger with the intent that Capstone, Healthcare
Realty, and their respective stockholders won't recognize any gain or loss for
U.S. federal income tax purposes in the merger, except in connection with cash
received instead of fractional shares by Capstone common stockholders. The
merger is conditioned on receipt of legal opinions that this will be the case,
but these opin-
4
<PAGE> 12
ions won't bind the Internal Revenue Service, which could take a different view.
Determining the actual tax consequences of the merger to you can be complicated.
They will depend on your specific situation and many variables not within our
control. You should consult your own tax advisor for a full understanding of the
merger's tax consequences to you.
ACCOUNTING TREATMENT (PAGE 34)
We expect the merger to be accounted for as a purchase in accordance with
generally accepted accounting principles.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 36)
If you are a Capstone stockholder, in considering the Capstone Board's
recommendation that you vote in favor of the merger, you should be aware that
several of the Capstone directors and officers have agreements that provide them
with interests in the merger that are different from, or in addition to, yours.
They include:
- - Prior to the completion of the merger, the vested and unvested restricted
shares of Capstone common stock held by certain officers and directors of
Capstone will be redeemed for $24.33 per share, to be paid by Capstone from
available cash or borrowings by Capstone repayable from cash flow generated by
Capstone's operations. At the completion of the merger, Healthcare Realty will
buy each outstanding option to purchase Capstone common stock for a purchase
price of $24.33 per share less the stated exercise price of such option.
- - As of August 24, 1998, the directors and executive officers of Capstone
beneficially owned a total of 335,992 shares of Capstone common stock
(excluding the restricted shares and options mentioned above). Based upon the
exchange ratio of .8518, this would result in these individuals receiving an
aggregate of approximately 286,198 shares of Healthcare Realty common stock
upon consummation of the merger.
- - Richard M. Scrushy, the Chairman of Capstone, Michael D. Martin, a director of
Capstone, and John W. McRoberts, the President and Chief Executive Officer of
Capstone, each of whom is a founder of Capstone, will each enter into
consulting and non-competition agreements with Healthcare Realty as a
condition to the completion of the merger.
- - Simultaneously with the completion of the merger, Capstone and certain of its
subsidiaries will sell substantially all of the personal property at
Capstone's headquarters used by Capstone or its subsidiaries to Orthopaedic
Surgeons, Inc., a Delaware corporation the majority of the capital stock of
which is owned by HEALTHSOUTH Corporation and MedPartners, Inc.
CONDITIONS TO COMPLETION OF THE MERGER (PAGE 37)
The completion of the merger depends on a number of conditions being met,
including without limitation the following:
- - Stockholders of Capstone approving the merger;
- - Stockholders of Healthcare Realty approving the issuance of capital stock in
connection with the merger;
- - The New York Stock Exchange having authorized for listing the shares of
Healthcare Realty common stock and preferred stock to be issued to
stockholders of Capstone in the merger;
- - The absence of any court order preventing or materially delaying completion of
the merger, or materially limiting Healthcare Realty's ability to exercise
full rights of ownership of the assets or business of Capstone;
- - Receipt of an opinion of legal counsel to Capstone that the U.S. federal
income tax treatment in the merger will generally be as described to you in
this document;
- - Richard M. Scrushy, Michael D. Martin and John W. McRoberts, the Chairman, a
director, and the President and Chief Executive Officer of Capstone,
respectively, entering into consulting and non-competition agreements with
Healthcare Realty; and
- - Receipt of all consents, orders and approvals legally required for
consummation of the merger.
In cases where the law permits, a party to the merger agreement could elect
to waive a condition that has not been satisfied and complete the merger. We
cannot be certain whether or when any of the conditions we have listed will be
satisfied (or waived, where permissible), or that the merger will be completed.
5
<PAGE> 13
TERMINATION OF THE MERGER AGREEMENT (PAGE 38)
The parties can agree at any time to terminate the merger agreement without
completing the merger, even if the stockholders of Capstone have already voted
to approve it. Also, Healthcare Realty can terminate the merger agreement if the
Capstone Board fails to recommend the merger or withdraws its recommendation
that stockholders of Capstone approve the merger.
Additionally, either company can terminate the merger agreement in the
following circumstances:
- - If the merger is not completed by December 31, 1998;
- - If the other party fails to perform any agreement in any material respect and
fails to cure such failure in all material respects within 15 days after
notice by the terminating party or fails to complete a condition to its
obligations by reason of a breach by that party of its obligations; or
- - If Capstone executes an agreement in connection with a separate acquisition
proposal.
Generally, a party can only terminate the merger agreement in one of the
preceding situations if that party is not in violation of the merger agreement
or if its violations of the merger agreement are not the cause of the event
permitting its termination.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (PAGE 40)
Common Stock. Shares of Healthcare Realty common stock are listed on the
New York Stock Exchange. On June 8, 1998, the day of the public announcement of
the merger, Healthcare Realty's common stock closed at $28.625 per share. On
August 18, 1998, Healthcare Realty's common stock closed at $25.8125 per share.
Shares of Capstone common stock are listed on the New York Stock Exchange.
On June 8, 1998, the day of the public announcement of the merger, Capstone's
common stock closed at $22.8125 per share. On August 18, 1998, Capstone's common
stock closed at $21.0625 per share.
Based on the exchange ratio in the merger of .8518 and the closing price of
Healthcare Realty common stock on August 18, 1998 of $25.8125, the market value
of the consideration that stockholders of Capstone will receive in the merger
for each share of Capstone common stock would be $21.9871. Of course, the market
price of Healthcare Realty common stock will fluctuate prior to and after
completion of the merger, while the exchange ratio is fixed. You should obtain
current stock price quotations for Healthcare Realty common stock.
Preferred Stock. Shares of Healthcare Realty preferred stock have not been
issued but are expected to be listed on the New York Stock Exchange upon
consummation of the merger. Prior to this offering, there has been no market for
Healthcare Realty preferred stock.
Shares of Capstone preferred stock are listed on the New York Stock
Exchange. On June 8, 1998, the day of the public announcement of the merger,
Capstone's preferred stock closed at $24.25 per share. On August 18, 1998,
Capstone's preferred stock closed at $23.9375 per share.
For each issued and outstanding share of Capstone preferred stock, holders
will receive one share of Healthcare Realty preferred stock having substantially
the same rights and preferences as the Capstone preferred stock, except that the
Healthcare Realty preferred stock will have additional voting rights. The market
price of Healthcare Realty preferred stock, once it begins trading after
completion of the merger, may not directly correlate to the market price of
Capstone preferred stock prior to the merger.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 66)
We have made forward-looking statements in this document (and in documents
to which we refer) that are subject to risks and uncertainties. These
forward-looking statements include information about possible or assumed future
results of our operations or the performance of the combined company after the
merger. Also, when we use any of the words "believes," "expects," "anticipates"
or similar expressions, we are making forward-looking statements. Many possible
events or factors could affect the future financial results and performance of
each of the companies and the combined company after the merger and could cause
those results or performance to differ materially from those ex-
6
<PAGE> 14
pressed in our forward-looking statements. These possible events or factors
include the following:
- - We encounter problems or delays in bringing together the two companies, either
before or after the merger is consummated;
- - Legal and regulatory risks and uncertainties;
- - Economic, political and competitive forces affecting the companies'
businesses, markets, constituencies or securities; and
- - The risk that our analyses of these risks and forces could be incorrect, or
that the strategies developed to deal with them may not succeed.
OWNERSHIP OF HEALTHCARE REALTY
FOLLOWING THE MERGER (PAGE 15)
Healthcare Realty will issue approximately 18.9 million shares of
Healthcare Realty common stock and 3.0 million shares of preferred stock to
Capstone stockholders in the merger. Based on those numbers, the shares of
Healthcare Realty common stock issued to Capstone stockholders in the merger
will constitute approximately 48% of the outstanding common stock of Healthcare
Realty after the merger, and the shares of Healthcare Realty preferred stock
issued to Capstone stockholders in the merger will constitute 100% of the
outstanding preferred stock of Healthcare Realty after the merger.
BOARD OF DIRECTORS AND
MANAGEMENT OF HEALTHCARE REALTY
AFTER THE MERGER (PAGE 36)
When the merger is complete, the current executive officers of Healthcare
Realty will continue as executive officers, and the Healthcare Realty Board will
consist of its current eight members. Executive officers and directors of
Healthcare Realty will serve in such capacities with Capstone after the merger.
None of the executive officers or members of the Capstone Board will continue to
serve as such after the merger.
TERMINATION FEE (PAGE 39)
The merger agreement requires Capstone to pay to Healthcare Realty a
termination fee of $20 million if the merger agreement is terminated under
certain circumstances. Under other circumstances, Healthcare Realty or Capstone
must pay the expenses of the other party.
NO APPRAISAL RIGHTS (PAGE 36)
Under Maryland law, Capstone stockholders do not have any right to dissent
from the merger and receive the appraised value of their shares in cash rather
than Healthcare Realty capital stock.
LISTING OF HEALTHCARE REALTY STOCK
(PAGE 40)
The shares of Healthcare Realty common stock and preferred stock issued in
connection with the merger will be listed on the New York Stock Exchange.
DIVIDENDS AFTER THE MERGER
(PAGE 42)
Historically, each of Healthcare Realty and Capstone has paid dividends.
Healthcare Realty expects to pay dividends in the future consistent with past
practice, subject to Healthcare Realty's financial condition and results of
operations.
7
<PAGE> 15
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
We are providing the following summary financial information to aid you in
your analysis of the financial aspects of the merger. This information was
derived from our historical financial statements (and related notes) contained
in the annual reports and other information that we have filed with the
Securities and Exchange Commission and should be read in conjunction with that
information. See "WHERE YOU CAN FIND MORE INFORMATION" on page 64. The
historical financial statements for the full years were audited; those for
interim periods were not audited. The unaudited financial information reflects
all adjustments (consisting only of normal recurring accruals) which we
respectively consider necessary to present fairly the financial information for
such periods. The results of operations for any interim period are not
necessarily indicative of results for a full year, and historical results are
not necessarily indicative of future results.
HEALTHCARE REALTY TRUST INCORPORATED
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31, FROM INCEPTION
------------------- ----------------------------------------- (JUNE 3, 1993) TO
1998 1997 1997 1996 1995 1994 DECEMBER 31, 1993
-------- -------- -------- -------- -------- -------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues...................... $ 35,063 $ 27,106 $ 59,796 $ 38,574 $ 33,361 $ 24,226 $ 7,135
Net income.................... 17,987 14,508 31,212 19,732 18,258 15,716 3,950
Net income per share --
Basic....................... $ 0.91 $ 0.83 $ 1.71 $ 1.52 $ 1.41 $ 1.33 $ 0.64
Net income per share --
Diluted..................... $ 0.89 $ 0.81 $ 1.68 $ 1.49 $ 1.41 $ 1.33 $ 0.63
Balance Sheet Data (at end of
period):
Real estate properties, net... $476,811 $453,325 $470,981 $416,034 $318,480 $280,767 $133,393
Total assets.................. 509,969 493,655 488,514 427,505 336,778 283,190 134,070
Senior notes payable.......... 90,000 90,000 90,000 90,000 -- -- --
Bank credit facility.......... -- 13,000 11,300 71,900 -- 37,300 21,000
Serial and term bonds
payable..................... -- -- -- 6,719 2,970 3,075 --
Total stockholders' equity.... 409,626 378,045 376,472 245,964 234,448 236,340 108,190
</TABLE>
CAPSTONE CAPITAL CORPORATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31, FROM INCEPTION
------------------- ------------------------------ (JUNE 30, 1994) TO
1998 1997 1997 1996 1995 DECEMBER 31, 1994
-------- -------- -------- -------- -------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues............................ $ 43,210 $ 24,255 $ 57,178 $ 35,952 $ 24,707 $ 8,240
Net income.......................... 21,565 12,687 28,881 18,914 9,708 4,763
Net income per share --
Basic............................. $ 0.85 $ 0.86 $ 1.76 $ 1.71 $ 1.55 $ 0.80
Net income per share --
Diluted........................... $ 0.85 $ 0.86 $ 1.75 $ 1.68 $ 1.55 $ 0.80
Balance Sheet Data (at end of period):
Real estate properties, net......... $577,905 $408,534 $526,047 $303,997 $207,257 $151,328
Mortgage notes receivable........... 198,834 88,055 170,066 39,326 24,989 13,224
Total assets........................ 815,081 518,365 723,291 356,695 240,625 166,364
Convertible subordinated
debentures........................ 73,151 75,032 72,684 17,657 43,947 --
Bank credit facility................ 174,600 107,727 172,950 68,500 30,225 67,500
Mortgage notes payable.............. 61,138 40,139 56,944 23,228 -- --
Total stockholders' equity.......... 487,238 280,713 372,233 241,556 163,747 98,389
</TABLE>
8
<PAGE> 16
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
In the table below, we present combined balance sheet information for
Healthcare Realty and Capstone as of June 30, 1998, as if the merger had been
completed on June 30, 1998. We present combined statement of income information
for Healthcare Realty and Capstone for the fiscal year ended December 31, 1997
and the six months ended June 30, 1998, as if the merger had been completed on
January 1, 1997. The merger has been accounted for under the purchase method of
accounting in accordance with Accounting Principles Board Opinion No. 16.
It is important to remember that this information is hypothetical, and does
not necessarily reflect the financial performance that would have actually
resulted if the merger had been completed on those dates. It is also important
to remember that this information does not necessarily reflect future financial
performance if the merger actually occurs.
See "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION"
beginning on page 57 of this Joint Proxy Statement-Prospectus for a more
detailed explanation of this analysis.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
--------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Statement of Income Data:
Revenues.................................................. $ 78,273 $116,974
Net income................................................ 38,335 56,489
Net income per share -- Basic............................. $ 0.92 $ 1.75
Net income per share -- Diluted........................... $ 0.91 $ 1.75
Balance Sheet Data (at end of period):
Real estate properties, net............................... $1,172,794 --
Mortgage notes receivable................................. 206,787 --
Total assets.............................................. 1,436,953 --
Senior notes payable...................................... 90,000 --
Convertible subordinated debentures....................... 78,517 --
Bank credit facility...................................... 210,887 --
Mortgage notes payable.................................... 63,007 --
Total stockholders' equity................................ 965,245 --
</TABLE>
9
<PAGE> 17
COMPARATIVE PER SHARE DATA
The following table sets forth certain book value, net income, dividends
and funds from operations per share data for Healthcare Realty and Capstone on a
historical and pro forma basis. The pro forma earnings per share data are
derived from the Unaudited Pro Forma Condensed Consolidated Financial
Information appearing elsewhere in this Joint Proxy Statement-Prospectus
beginning on page 57, which gives effect to the merger as if the merger had been
consummated at the beginning of the earliest period presented. The information
set forth below should be read in conjunction with the Summary Historical
Consolidated Financial Information of Healthcare Realty and Capstone appearing
on page 8 of this Joint Proxy Statement-Prospectus, the Unaudited Pro Forma
Condensed Consolidated Financial Information, including the notes thereto,
beginning on page 57 of this Joint Proxy Statement-Prospectus and the
consolidated financial statements of Healthcare Realty and Capstone, including
the notes thereto, included in documents incorporated by reference in this Joint
Proxy Statement-Prospectus. See "WHERE YOU CAN FIND MORE INFORMATION" on page
64.
<TABLE>
<CAPTION>
CAPSTONE
HEALTHCARE REALTY -----------------------
---------------------- PRO FORMA
HISTORICAL PRO FORMA HISTORICAL EQUIVALENT
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Book value per common share:
June 30, 1998...................................... $19.76 $20.96 $21.72 $17.85
December 31, 1997.................................. $19.52 $20.31 $21.47 $17.30
Net income per common and common equivalent share:
Six months ended June 30, 1998 --
Basic......................................... $ 0.91 $ 0.92 $ 0.86 $ 0.78
Diluted....................................... $ 0.89 $ 0.91 $ 0.85 $ 0.78
Year ended December 31, 1997 --
Basic......................................... $ 1.71 $ 1.75 $ 1.76 $ 1.49
Diluted....................................... $ 1.68 $ 1.75 $ 1.75 $ 1.49
Dividends declared and paid per share:
Six months ended June 30, 1998.................. $ 1.03 $ 1.03 $ 0.98 $ 0.88
Year ended December 31, 1997.................... $ 1.99 $ 1.99 $ 1.89 $ 1.70
Funds from operations per common and common
equivalent share(1):
Six months ended June 30, 1998 --
Basic......................................... $ 1.21 $ 1.25 $ 1.03 $ 1.06
Diluted....................................... $ 1.18 $ 1.23 $ 1.02 $ 1.05
Year ended December 31, 1997 --
Basic......................................... $ 2.32 $ 2.43 $ 2.08 $ 2.07
Diluted....................................... $ 2.28 $ 2.42 $ 2.06 $ 2.06
</TABLE>
- ---------------
(1) Funds from operations, as defined by the National Association of Real Estate
Investment Trusts, Inc. 1995 White Paper, means net income (computed in
accordance with generally accepted accounting principles), excluding gains
(or losses) from debt restructuring and sales of property, plus depreciation
from real estate assets. Healthcare Realty and Capstone consider funds from
operations to be an informative measure of the performance of an equity real
estate investment trust and consistent with measures used by analysts to
evaluate equity real estate investment trusts. Funds from operations does
not represent cash generated from operating activities in accordance with
generally accepted accounting principles, is not necessarily indicative of
cash available to fund cash needs, and should not be considered as an
alternative to net income as an indicator of operating performance or as an
alternative to cash flow as a measure of liquidity. The calculation of
Capstone's historical funds from operations per share presented above has
been conformed to Healthcare Realty's method of calculation. For additional
information, see the notes to the Unaudited Pro Forma Condensed Consolidated
Financial Information.
10
<PAGE> 18
THE SPECIAL MEETINGS OF STOCKHOLDERS
This Joint Proxy Statement-Prospectus is being furnished on or about August
28, 1998 to the holders (the "Capstone Stockholders") of shares of common stock,
$.001 par value per share ("Capstone Common Stock"), and of shares of 8 7/8%
Series A Cumulative Preferred Stock, $.001 par value per share ("Capstone
Preferred Stock"), of Capstone Capital Corporation, a Maryland corporation
("Capstone"), and to the holders (the "Healthcare Realty Stockholders") of
shares of common stock, $.01 par value per share ("Healthcare Realty Common
Stock"), of Healthcare Realty Trust Incorporated, a Maryland corporation
("Healthcare Realty"), for use at the special meeting of the Capstone
Stockholders to be held on October 14, 1998 and the special meeting of the
Healthcare Realty Stockholders to be held on October 15, 1998 (the "Capstone
Special Meeting" and the "Healthcare Realty Special Meeting," respectively) to
consider and vote upon the merger (the "Merger") of a subsidiary of Healthcare
Realty into Capstone and the related Plan and Agreement of Merger (the "Merger
Agreement").
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
To Capstone Stockholders: The Board of Directors of Capstone (the
"Capstone Board") has fixed August 24, 1998 as the record date (the "Capstone
Record Date") for the determination of the Capstone Stockholders entitled to
receive notice of and to vote at the Capstone Special Meeting. Accordingly, only
Capstone Stockholders of record at the close of business on the Capstone Record
Date will be entitled to notice of and to vote at the Capstone Special Meeting.
The affirmative vote of the holders of at least two-thirds of the outstanding
shares of Capstone Common Stock and of at least two-thirds of the outstanding
shares of Capstone Preferred Stock, each voting separately as a class, is
required to approve the Merger and the Merger Agreement. At the close of
business on the Capstone Record Date, there were shares of
Capstone Common Stock and 3,000,000 shares of Capstone Preferred Stock entitled
to vote at the Capstone Special Meeting, which shares were held by approximately
and holders of record, respectively. Each share of
Capstone Common Stock and each share of Capstone Preferred Stock outstanding on
the Capstone Record Date entitles its holder to one vote as to the approval of
the Merger and the Merger Agreement.
Capstone will count shares of Capstone Common Stock and Capstone Preferred
Stock present in person at the Capstone Special Meeting but not voting, and
shares of Capstone Common Stock and Capstone Preferred Stock for which it has
received proxies but with respect to which holders of such shares have
abstained, as present at the Capstone Special Meeting for purposes of
determining the presence or absence of a quorum for the transaction of business.
In addition, broker non-votes will be counted as present for purposes of
determining whether a quorum exists.
As of the Capstone Record Date, directors and executive officers of
Capstone beneficially owned approximately 402,892 shares of Capstone Common
Stock, or approximately 1.8% of the shares of Capstone Common Stock entitled to
vote at the Capstone Special Meeting. It is currently expected that each such
director and executive officer of Capstone will vote the shares of Capstone
Common Stock beneficially owned by him for approval of the Merger and the Merger
Agreement.
Additional information with respect to beneficial ownership of Capstone
Common Stock by individuals and entities owning more than 5% of such stock and
more detailed information with respect to beneficial ownership of Capstone
Common Stock by directors and executive officers of Capstone are contained in
Capstone's Proxy Statement for its 1998 annual meeting of stockholders, the
relevant portions of which are incorporated by reference into Capstone's Annual
Report on Form 10-K for the year ended December 31, 1997. See "WHERE YOU CAN
FIND MORE INFORMATION."
To Healthcare Realty Stockholders: The Board of Directors of Healthcare
Realty (the "Healthcare Realty Board") has fixed August 24, 1998 as the record
date (the "Healthcare Realty Record Date") for the determination of the
Healthcare Realty Stockholders entitled to receive notice of and to vote at the
Healthcare Realty Special Meeting. Accordingly, only Healthcare Realty
Stockholders of record at the close of business on the Healthcare Realty Record
Date will be entitled to notice of and to vote at the Healthcare Realty Special
Meeting. The affirmative vote of the holders of at least a majority of the votes
cast at the
11
<PAGE> 19
Healthcare Realty Special Meeting must vote in favor of the issuance of
Healthcare Realty capital stock in connection with the Merger; provided,
however, that the total vote cast on the proposal represents over 50% in
interest of all Healthcare Realty Common Stock entitled to vote on the proposal.
At the close of business on the Healthcare Realty Record Date, there were
shares of Healthcare Realty Common Stock entitled to vote at the
Healthcare Realty Special Meeting, which shares were held by approximately
holders of record; no shares of Healthcare Realty Preferred Stock
were outstanding on the Healthcare Realty Record Date. Each share of Healthcare
Realty Common Stock outstanding on the Healthcare Realty Record Date entitles
its holder to one vote as to the approval of the issuance of Healthcare Realty
capital stock in connection with the Merger.
Healthcare Realty will count shares of Healthcare Realty Common Stock
present in person at the Healthcare Realty Special Meeting but not voting, and
shares of Healthcare Realty Common Stock for which it has received proxies but
with respect to which holders of such shares have abstained, as present at the
Healthcare Realty Special Meeting for purposes of determining the presence or
absence of a quorum for the transaction of business. In addition, broker
non-votes will be counted as present for purposes of determining whether a
quorum exists.
As of the Healthcare Realty Record Date, directors and executive officers
of Healthcare Realty beneficially owned approximately 711,150 shares of
Healthcare Realty Common Stock, or approximately 3.0% of the shares entitled to
vote at the Healthcare Realty Special Meeting. It is currently expected that
each such director and executive officer of Healthcare Realty will vote the
shares of Healthcare Realty Common Stock beneficially owned by him or her for
approval of the issuance of Healthcare Realty capital stock in connection with
the Merger.
Additional information with respect to beneficial ownership of Healthcare
Realty Common Stock by individuals and entities owning more than 5% of such
stock and more detailed information with respect to beneficial ownership of
Healthcare Realty Common Stock by directors and executive officers of Healthcare
Realty are contained in Healthcare Realty's Proxy Statement for its 1998 annual
meeting of stockholders, the relevant portions of which are incorporated by
reference into Healthcare Realty's Annual Report on Form 10-K for the year ended
December 31, 1997. See "WHERE YOU CAN FIND MORE INFORMATION."
PROXIES
All shares of capital stock represented at the special meetings by properly
executed proxies will be voted in accordance with the instructions indicated in
such proxies, except to the extent such proxies are revoked in advance of a
vote. IF A CAPSTONE STOCKHOLDER SIGNS AND RETURNS A PROXY WITHOUT VOTING
INSTRUCTIONS, AND THE PROXY IS NOT REVOKED, THE PROXY WILL BE VOTED FOR THE
APPROVAL OF THE MERGER. IF A HEALTHCARE REALTY STOCKHOLDER SIGNS AND RETURNS A
PROXY WITHOUT VOTING INSTRUCTIONS, AND THE PROXY IS NOT REVOKED, THE PROXY WILL
BE VOTED FOR THE APPROVAL OF THE ISSUANCE OF HEALTHCARE REALTY CAPITAL STOCK IN
CONNECTION WITH THE MERGER.
Both Capstone and Healthcare Realty will treat broker non-votes (i.e.,
shares held by brokers or nominees which are represented at a meeting but with
respect to which the broker or nominee is not empowered to vote on a particular
proposal) and abstentions as shares that are present for purposes of determining
the presence of a quorum at each of the special meetings. In the case of
Capstone stockholders, broker non-votes and abstentions will have the effect of
a vote against the proposal to approve the Merger and the Merger Agreement. In
the case of Healthcare Realty stockholders, broker non-votes and abstentions
will have the effect of a vote against the proposal to approve the issuance,
unless holders of more than 50% in interest of all securities entitled to vote
on the proposal cast votes, in which event neither a broker non-vote nor an
abstention will have any effect on the result of the vote.
A stockholder may revoke his or her proxy at any time in advance of a vote
by delivering to the Secretary of Healthcare Realty or Capstone, as the case may
be, a signed notice of revocation or a later-dated signed
12
<PAGE> 20
proxy or by attending the applicable special meeting and voting in person.
Attendance at a special meeting will not, in and of itself, constitute the
revocation of a proxy.
SOLICITATION OF PROXIES
Healthcare Realty and Capstone will share equally the cost of printing and
mailing this Joint Proxy Statement-Prospectus. Each company will bear its own
expenses of soliciting proxies from its stockholders for its respective meeting.
In addition to the solicitation of proxies by mail, Capstone and Healthcare
Realty will request banks, brokers and other record holders to send proxies and
proxy material to the beneficial owners of the stock and secure their voting
instructions, if necessary. Capstone and Healthcare Realty will reimburse such
record holders for their reasonable expenses in so doing. If necessary,
directors, officers and employees of Capstone or Healthcare Realty may solicit
proxies, either personally or by telephone, telegram, facsimile or special
delivery letter. These individuals will not receive any special compensation for
soliciting proxies, but they will be reimbursed for their out-of-pocket
expenses.
Capstone has retained D.F. King & Co., Inc. ("D.F. King") to assist in the
solicitation of proxies by Capstone for a fee of $7,500 plus reasonable
out-of-pocket costs and expenses. Any questions or requests of Capstone
Stockholders regarding proxies or related materials may be directed to D.F. King
at 1-800-829-6554.
Healthcare Realty has retained D.F. King to assist in the solicitation of
proxies by Healthcare Realty for a fee of $5,000 plus reasonable out-of-pocket
costs and expenses. Any questions or requests of Healthcare Realty Stockholders
regarding proxies or related materials may be directed to D.F. King at
1-800-848-3405.
13
<PAGE> 21
THE MERGER
DESCRIPTION OF THE MERGER
At the effective time of the Merger (the "Effective Time"), Capstone will
merge with HR Acquisition I Corporation, a Delaware corporation and a wholly
owned subsidiary of Healthcare Realty, and Capstone will survive as a wholly
owned subsidiary of Healthcare Realty. Subject to the satisfaction or waiver of
certain conditions set forth in the Merger Agreement and described more fully in
"THE MERGER AGREEMENT -- Conditions to the Merger" on page 37, the Merger will
become effective at such time as the articles of merger (the "Articles of
Merger") are accepted for record by the Maryland State Department of Assessments
and Taxation in accordance with the Maryland General Corporation Law ("the
MGCL"), and upon the acceptance for record of a certificate of merger (the
"Certificate of Merger") in the office of the Secretary of State of the State of
Delaware in accordance with the Delaware General Corporation Law (the "DGCL").
The Merger will have the effect set forth in Section 3-114 of the MGCL and
Section 259 of the DGCL, and the surviving entity's amended and restated
certificate of incorporation, bylaws, officers and directors as in effect at the
Effective Time will be those of HR Acquisition I Corporation.
CAPSTONE SECURITIES
Immediately prior to the Effective Time, each of the 517,150 shares of
Capstone restricted common stock ("Capstone Restricted Stock"), all of which are
owned by officers, directors and employees of Capstone, will be redeemed for
$24.33 per share in cash. Such amount is equivalent to the Exchange Ratio
(defined below) multiplied by the closing price of Healthcare Realty Common
Stock on May 13, 1998.
At the Effective Time, automatically by virtue of the Merger and without
any action on the part of any party or Capstone Stockholder, the following
securities of Capstone will be converted as follows:
- Each share of Capstone Common Stock (excluding Capstone Restricted Stock,
or shares held by Capstone or any of its subsidiaries) will be converted
into the fixed amount of .8518 shares (the "Exchange Ratio") of
Healthcare Realty Common Stock.
- Each share of Capstone Preferred Stock will be converted into one share
of Healthcare Realty 8 7/8% Series A Voting Cumulative Preferred Stock,
par value $.01 per share (the "Healthcare Realty Preferred Stock").
- All options to purchase shares of Capstone Common Stock (each, a
"Capstone Stock Option" and, collectively, representing the right to
purchase 973,000 shares) that are then outstanding and unexercised,
whether or not then vested or exercisable, will cease to represent rights
to acquire shares of Capstone Common Stock and will be purchased for cash
in an amount equal to the excess of $24.33 per share over the stated
exercise price of the Capstone Stock Option.
- All shares of Capstone Common Stock held by Capstone, or by any of its
subsidiaries, will be canceled.
- All of Capstone's 10 1/2% Convertible Subordinated Debentures due 2002
(the "10 1/2% Debentures") will remain outstanding in accordance with the
indenture pursuant to which the 10 1/2% Debentures have been issued, and
Healthcare Realty will assume each obligation of Capstone contained in
the indenture. Each 10 1/2% Debenture will be convertible into that
number of shares of Healthcare Realty Common Stock equal to the number of
shares of Capstone Common Stock into which such 10 1/2% Debenture was
convertible immediately prior to the Effective Time, multiplied by the
Exchange Ratio.
- All of Capstone's 6.55% Convertible Subordinated Debentures due 2002 (the
"6.55% Debentures") will remain outstanding in accordance with the
indenture pursuant to which the 6.55% Debentures have been issued, and
Healthcare Realty will assume each obligation of Capstone contained in
the indenture. Each 6.55% Debenture will be convertible into that number
of shares of Healthcare Realty Common Stock equal to the number of shares
of Capstone Common Stock into which such 6.55% Debenture was convertible
immediately prior to the Effective Time, multiplied by the Exchange
Ratio.
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HEALTHCARE REALTY SECURITIES
All shares of Healthcare Realty Common Stock outstanding as of the
Effective Time will remain outstanding. Healthcare Realty will issue
approximately 18.9 million shares of Healthcare Realty Common Stock and 3.0
million shares of Healthcare Realty Preferred Stock to Capstone Stockholders in
the Merger. Based on those numbers, the shares of Healthcare Realty Common Stock
issued to Capstone Stockholders in the Merger will constitute approximately 48%
of the outstanding Common Stock of Healthcare Realty after the Merger, and the
shares of Healthcare Realty Preferred Stock issued to Capstone Stockholders in
the Merger will constitute 100% of the outstanding Preferred Stock of Healthcare
Realty after the Merger.
EXCHANGE OF CERTIFICATES
When the Merger becomes effective, Healthcare Realty will deposit (i) with
BankBoston, N.A. (the "Common Stock Exchange Agent"), certificates representing
the shares of Healthcare Realty Common Stock and cash to be paid in lieu of
fractional shares to which holders of Capstone Common Stock would otherwise be
entitled, and (ii) with The Bank of New York (the "Preferred Stock Exchange
Agent" and, collectively with the Common Stock Exchange Agent, the "Exchange
Agents"), certificates representing the shares of Healthcare Realty Preferred
Stock (the certificates representing the shares of Healthcare Realty Common
Stock and Healthcare Realty Preferred Stock collectively referred to as the
"Healthcare Realty Certificates").
As soon as reasonably practicable after the Merger becomes effective, the
Common Stock Exchange Agent and the Preferred Stock Exchange Agent will mail to
each holder of record of a certificate or certificates which immediately prior
to the Effective Time represented outstanding shares of Capstone Common Stock
and outstanding shares of Capstone Preferred Stock, respectively (each a
"Capstone Certificate"), a letter of transmittal and instructions for use in
exchanging such Capstone Stockholder's Capstone Certificates for Healthcare
Realty Certificates. Upon surrender of a Capstone Certificate to the appropriate
Exchange Agent, together with a duly executed letter of transmittal, such
Exchange Agent will send a certificate representing the number of whole shares
of Healthcare Realty Common Stock or Healthcare Realty Preferred Stock, as the
case may be, to which such holder has become entitled and, in the case of the
Common Stock Exchange Agent, a check in the amount of cash in lieu of fractional
shares, if any, of Healthcare Realty Common Stock to which such holder has
become entitled pursuant to the Merger Agreement. Capstone Certificates so
surrendered will immediately be canceled. No interest will be paid or accrued on
any cash to be paid upon such surrender, whether in lieu of fractional shares of
Healthcare Realty Common Stock or with respect to unpaid dividends or
distributions thereon.
CAPSTONE STOCKHOLDERS SHOULD NOT SEND IN THEIR CAPSTONE CERTIFICATES UNTIL
THEY RECEIVE THE TRANSMITTAL MATERIALS FROM THE EXCHANGE AGENT.
No fractional shares of Healthcare Realty Common Stock will be issued in
the Merger, nor will any dividend or distribution be payable on or with respect
thereto, nor will any such fractional share entitle the holder thereof to vote
or to any other rights of a Healthcare Realty Stockholder. Instead, Healthcare
Realty will pay to each Capstone Stockholder who would otherwise be entitled to
a fractional share of Healthcare Realty Common Stock (after taking into account
all Capstone Certificates delivered by such Capstone Stockholder) an amount in
cash (without interest) determined by multiplying such fraction by $28.5625.
Until exchanged, each Capstone Certificate shall be deemed to represent the
number of whole shares of Healthcare Realty Common Stock or Healthcare Realty
Preferred Stock into which the Capstone Certificate has been converted plus the
right to receive cash in lieu of fractional shares, if any.
After the Effective Time, former Capstone Stockholders may vote their
Healthcare Realty shares whether or not they have exchanged Capstone
Certificates for Healthcare Realty Certificates. However, the holder of any
unsurrendered Capstone Certificate will not receive any dividends or other
distributions with respect to Healthcare Realty Common Stock or Healthcare
Realty Preferred Stock declared after the Effective Time and payable to
Healthcare Realty Stockholders of record until the holder thereof surrenders
such Capstone Certificate in accordance with the Merger Agreement. After the
proper surrender of a
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Capstone Certificate, the record holder thereof will be entitled to receive any
such dividends or other distributions, without any interest thereon, which
theretofore had become payable with respect to shares of Healthcare Realty
Common Stock or Healthcare Realty Preferred Stock represented by such Capstone
Certificate.
Any part of the consideration to be paid in the Merger that remains
unclaimed by Capstone Stockholders for six months after the Effective Time will
be paid to Healthcare Realty, and after such time Capstone Stockholders may look
only to Healthcare Realty for payment of the Merger consideration and unpaid
dividends and distributions, if any, on Healthcare Realty Common Stock or
Healthcare Realty Preferred Stock deliverable in respect of each share of
Capstone Common Stock or Capstone Preferred Stock held by such holder, in each
case, without interest thereon. None of Capstone, Healthcare Realty or the
Exchange Agents, or any other person, will be liable to any former Capstone
Stockholder for any amounts properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
In the event that any Capstone Certificate is lost, stolen or destroyed,
the appropriate Exchange Agent will issue in exchange for such Capstone
Certificate the shares of Healthcare Realty Common Stock or Healthcare Realty
Preferred Stock and cash in lieu of fractional shares deliverable in respect of
Healthcare Realty Common Stock, upon the making of an affidavit of that fact by
the person claiming the same, and if required by Healthcare Realty or the
Exchange Agent, the posting of a bond by such person in an amount determined by
Healthcare Realty as indemnity against any claim that may be made against it
with respect to such Capstone Certificate.
BACKGROUND OF THE MERGER
The decision by the Capstone Board to enter into the Merger Agreement
reflected its desire to maximize stockholder value in a changing REIT industry
environment. The decision process involved, in part, an assessment of the
potential risks and benefits of a strategic merger with Healthcare Realty
compared to the potential risks and benefits of other strategic alternatives
available to Capstone. A significant factor considered by the Capstone Board was
its perception of certain risks attendant upon Capstone's continuing to operate
as a stand-alone entity and its perception that the merger consideration and
other terms offered by Healthcare Realty, as well as the strategic advantages
offered by a combination with Healthcare Realty, represented a transaction
potentially more attractive to Capstone and its stockholders than other
potential alternatives.
The Capstone Board considered, among other things (and without assigning
relative weights):
- The improved access to capital and lowered cost of capital potentially
created by a strategic affiliation with another REIT;
- The increasing consolidation of operating companies in the healthcare
industry and its effect on the demand for REIT financing in the industry;
- The market position and prospects for growth of Healthcare Realty,
Capstone and other healthcare REITs;
- The changing focus of Capstone away from traditional sale-leaseback
transactions and toward construction and development loans as a result of
increased competition; and
- The increasing credit quality of healthcare borrowers and their resulting
enhanced access to non-REIT capital.
During the summer and fall of 1997, Michael D. Martin, in his capacity as
Chief Financial Officer of HEALTHSOUTH Corporation ("HEALTHSOUTH"), had several
telephone conversations with the chief executive officer of a publicly held REIT
("Company A") concerning matters relating to HEALTHSOUTH's acquisition of
another corporation which held a number of properties pursuant to leases or
mortgages with Company A. During those conversations, the chief executive
officer of Company A suggested the possibility of a strategic business
combination with Capstone. No substantive discussions occurred at that time.
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In early March 1998, the chief executive officer of Company A telephoned
Mr. Martin and suggested that Company A was interested in making a definitive
proposal for a strategic merger with Capstone. Shortly thereafter, he telephoned
Richard M. Scrushy, Chairman of the Board of Capstone, and reiterated Company
A's interest in exploring a transaction. As a result of these contacts,
Capstone's management began preliminary consideration of the potential risks and
benefits associated with pursuing a strategic business combination with another
healthcare REIT versus continuing to pursue its existing business plan. On March
23, 1998, Capstone engaged Salomon Smith Barney to act as Capstone's financial
advisor should Capstone decide to explore a potential business combination with
Company A or other healthcare REITs.
On March 26, 1998, Capstone and Company A executed a confidentiality
agreement and exchanged certain business and financial information relating to
each company.
Informal discussions continued among management of Capstone,
representatives of Company A and their respective advisors in late March and
early April 1998, as Capstone continued to evaluate strategic alternatives and
explore the specific terms of a proposed transaction. On April 9, 1998, Capstone
received a written term sheet from Company A, proposing to acquire all of the
outstanding shares of Capstone Common Stock in exchange for a fixed number of
shares of Company A common stock, for an indicated premium of 7.8% over the
market price of the Capstone Common Stock on that date ($24.125). All of the
shares of Capstone Restricted Stock would be acquired in exchange for either
Company A common stock on the same basis as the outstanding Capstone Common
Stock or cash in an amount equal to 95% of the value per share of the Company A
common stock. The proposal also required certain members of the Capstone Board
and management to enter into noncompetition agreements and consulting
agreements.
On April 14, 1998, the Capstone Board met by telephone to consider the
potential options available to Capstone, including continuing to execute its
existing strategic plan as a stand-alone entity, entering into a business
combination with Company A, or exploring potential business combinations with
other healthcare REITs. In evaluating the strategic alternative of remaining
independent and executing its growth strategy, the Capstone Board considered
changes in the healthcare industry, in general, and the healthcare REIT
industry, in particular, that were perceived to have a potentially adverse
impact on Capstone and its stockholders. These changes included, among other
things, those factors listed above.
In addition, the Capstone Board considered the potential competitive
advantages that could be achieved through a strategic affiliation with another
healthcare REIT, such as an enhanced competitive position among healthcare REITs
resulting from increased size. After thoroughly analyzing its strategic
alternatives, the Capstone Board concluded that a merger with another healthcare
REIT was the alternative most likely to maximize stockholder value. The Capstone
Board and its financial advisors had extensive discussions concerning these
matters, including consideration of the market position and prospects for growth
of Company A, Capstone and other healthcare REITs. While the Capstone Board did
not make a decision to enter into a transaction at this meeting, it did
authorize Capstone's management, with the advice and assistance of its legal and
financial advisors, to proceed with due diligence activities and detailed
negotiations concerning a potential business combination with Company A.
On April 15 and 16, 1998, representatives of Company A conducted certain
due diligence reviews on Capstone in Birmingham, Alabama. On April 17, 1998,
representatives of Capstone conducted certain due diligence reviews on Company A
at its headquarters, and counsel for the parties commenced negotiation of the
terms of a definitive plan and agreement of merger.
On April 20, 1998, Company A notified Salomon Smith Barney that Capstone's
investments that were not structured as sale-leaseback transactions were not
compatible with Company A's portfolio of properties and, therefore, Company A
would need to conduct additional due diligence reviews of these investments to
determine what it would cost Company A to restructure or terminate these
investments. While expressing its interest in continuing discussions, Company A
stated that it was not prepared to make a formal offer at that time, and any
offer it might make would likely be at a lower exchange ratio for Capstone
Common Stock. After evaluating the current stated position of Company A,
Capstone determined that continued discussions with Company A would not lead to
an offer that would be in Capstone's best interest. Accordingly, Capstone
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authorized Salomon Smith Barney to contact other healthcare REITs to determine
whether any of them had any interest in developing an acquisition proposal for
Capstone.
On April 20 and 21, 1998, seven healthcare REITs, including Healthcare
Realty, were contacted to determine whether they had any interest in developing
an acquisition proposal for Capstone. Each of such parties was advised that it
would be required to execute a confidentiality agreement in order to receive
nonpublic information about Capstone, and that Capstone would only consider
written expressions of interest.
Beginning on April 22, 1998, Capstone entered into confidentiality
agreements with seven healthcare REITs, including Healthcare Realty, which had
expressed an interest in exploring an acquisition proposal for Capstone.
Pursuant to these confidentiality agreements, Capstone and its advisors provided
certain confidential legal and financial information to each such interested
party. Each of the interested parties, including Healthcare Realty, were
requested to deliver a preliminary expression of interest no later than the
close of business on April 27, 1998 and were informed that after all preliminary
expressions of interest were reviewed, a limited number of interested parties
would be invited to proceed with the next level of due diligence.
On April 23, 1998, Healthcare Realty and its counsel met with
representatives of NationsBank, N.A. ("NationsBank") to discuss the potential
acquisition of Capstone on an all cash basis. Shortly after that meeting,
Healthcare Realty retained NationsBanc Montgomery Securities LLC ("NationsBanc
Montgomery") to act as its financial advisor.
On April 27, 1998, Capstone received written preliminary, non-binding
expressions of interest from four interested parties, including Healthcare
Realty.
On April 28, 1998, Healthcare Realty held its regularly scheduled quarterly
board meeting. The directors discussed the possible acquisition of Capstone. In
determining whether Healthcare Realty should pursue the possible acquisition of
Capstone, the directors considered, among other things, that:
- The acquisition of Capstone would provide Healthcare Realty with access
to clients of Capstone, which should result in increased opportunity for
capital investment and the marketing of Healthcare Realty's real estate
administration, management and development services to those clients;
- The majority of investments made by Capstone were compatible with those
of Healthcare Realty, with the remainder being of a quality that should
be accretive to Healthcare Realty. Further, Capstone's compatible
investments would provide geographical and sponsor diversification to
Healthcare Realty's present portfolio of investments;
- Capstone did not have a real estate services organization; therefore,
there should be significant opportunity to maximize the value of
Capstone's portfolio of real estate assets through enhanced
administration and property management of those assets by Healthcare
Realty's real estate services organization;
- The acquisition of Capstone by Healthcare Realty should result in a
significant reduction in general, administrative and overhead
expenditures with respect to Capstone's investment portfolio;
- Consolidation within the REIT industry had begun and Healthcare Realty
anticipated that growth resulting from the proposed acquisition of
Capstone would benefit its comparable market position within the REIT
industry; and
- The acquisition of Capstone would immediately increase the equity base of
Healthcare Realty, which should result in improved access to debt and
equity capital at lower cost to Healthcare Realty.
The Healthcare Realty Board did not make a decision to enter into a
transaction to acquire Capstone at this meeting. The directors did, however,
authorize Healthcare Realty's management to further investigate a potential
acquisition of Capstone with the advice and assistance of Healthcare Realty's
legal and financial advisors.
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Beginning on April 28, 1998, and continuing through May 7, 1998, the four
interested REITs, including Healthcare Realty, were provided additional
information about Capstone, including the opportunity to perform on-site due
diligence investigations in Birmingham, Alabama, thorough data room visits and
access to Capstone management.
On April 30 and May 1, 1998, Healthcare Realty met with its legal and
financial advisors to discuss due diligence issues, potential combination
structures, financing alternatives and the timing of a possible combination.
On May 1, 1998, Capstone delivered a form of plan and agreement of merger
and ancillary agreements to each of such interested parties and certain of their
legal and financial advisors.
On May 5 and 6, 1998, executives of Healthcare Realty and its legal,
financial and accounting advisors visited the corporate offices of Capstone and
the offices of its legal advisors in Birmingham, Alabama, for an initial
corporate and property due diligence. Abstracts of all of Capstone's real estate
leases and mortgage assets were prepared, together with preliminary review of
corporate legal documents. Capstone made certain of its executive officers and
legal advisors available to answer questions.
On May 5, 1998, each of the interested parties, including Healthcare
Realty, was requested to submit a firm offer for 100% of the capital stock of
Capstone no later than the close of business on Monday, May 11, 1998, together
with a mark-up of the plan and agreement of merger.
At the regularly scheduled meeting of the Capstone Board on May 7, 1998,
the Capstone Board discussed the status of the due diligence meetings and
discussions with the interested parties. At this meeting, the Capstone Board
received presentations from Capstone's management and legal and financial
advisors. At such meeting, Salomon Smith Barney reviewed with the Capstone Board
the financial terms of the non-binding expressions of interest that had been
received from each of the interested parties. The Capstone Board had extensive
discussions concerning such expressions of interest and the strategic
alternatives available to Capstone and was given the opportunity to ask
questions of Capstone's management and legal and financial advisors. After
consideration of these matters, including the factors discussed at the April 14
meeting, the Capstone Board concluded that a merger with another healthcare REIT
was the alternative most likely to maximize stockholder value. The Capstone
Board authorized Capstone's management and legal and financial advisors to
continue negotiations with each of the interested parties with the goal of
achieving the highest and best value for Capstone's stockholders. The Capstone
Board expressed its opinion that it would not be interested in any proposal that
was subject to a financing contingency. Because the Capstone Board anticipated
that any offer would likely include a requirement that Mr. Scrushy, Mr. Martin
and Mr. McRoberts execute noncompetition agreements and consulting agreements in
exchange for separate consideration, the Capstone Board appointed a committee of
independent directors (the "Independent Committee"), comprised of Larry D.
Striplin, Jr., Eric R. Hanson, George E. Bogle and Barry Morton, to review the
terms of any offer received by Capstone. The Independent Committee was given the
authority to meet separately, to consult with Salomon Smith Barney and to seek
advice from Capstone's legal counsel or others.
From May 5 to May 11, 1998, representatives of Healthcare Realty and
Capstone discussed various alternative acquisition proposals on a daily basis.
On May 11, 1998, Healthcare Realty sent a letter to Capstone's financial
advisors indicating that Healthcare Realty had elected not to make an all cash
offer to acquire Capstone; instead, Healthcare Realty expressed its interest in
a transaction which involved Healthcare Realty making an equity investment in
Capstone, assuming management of Capstone, and managing Capstone's properties.
As part of the proposal, Healthcare Realty would purchase the Capstone
Restricted Stock and Capstone Stock Options, and Capstone's senior management
and directors would enter into non-competition agreements for certain
non-compete payments. Capstone rejected Healthcare Realty's alternative proposal
because it was not responsive to Capstone's request that any proposal provide
value to Capstone Stockholders through the acquisition of all of Capstone's
capital stock.
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From May 7, 1998 and continuing through June 5, 1998, Healthcare Realty and
its legal and financial advisors undertook additional due diligence review of
Capstone, including, among other items, interviews with Capstone's officers and
directors, additional real estate review and document abstracting, secured debt
review, preparation of schedules, litigation review, financial modeling, review
of corporate equity and debt instruments and discussions and visits with major
clients of Capstone.
On May 12, 1998, Capstone received a letter from one interested party
("Company B") reconfirming its interest in developing an acquisition proposal,
but the letter did not contain specific terms, included a financing contingency
and conditioned further discussions on Capstone's agreement to deal exclusively
with Company B. Because this letter was unresponsive to Capstone's request and
required exclusivity, Capstone did not pursue this proposal.
Following Capstone's rejection of Healthcare Realty's alternative proposal,
from May 14 through May 28, 1998, Healthcare Realty and Capstone continued to
exchange information and structural proposals. Through written expressions of
interest and on-going discussions, Healthcare Realty proposed several
alternative acquisition structures having a per share price ranging from
$24.5625 to $24.8125 and premiums over the then current market price of Capstone
Common Stock of 2.1% to 6.2%, subject to certain conditions, which included
among other items, that:
- There would be cash and stock components to the purchase price;
- There would be a financing contingency for the cash portion of the
purchase price;
- The transaction would be taxable to the Capstone stockholders, to permit
an increase in tax basis of Capstone's assets;
- Healthcare Realty would employ the use of a special purpose entity, not
consolidated with Healthcare Realty, to make the acquisition;
- There would be firm written confirmations of future investment and
service opportunities from clients of Capstone; and
- There would be six-year consulting and noncompete agreements from certain
key officers and directors of Capstone which would provide for separate
cash consideration ranging from $17,000,000 to $19,000,000 in the
aggregate.
During the course of these discussions, Capstone maintained its preference
for a tax-free transaction and its rejection of the use of a non-consolidated
special purpose acquisition entity and the financing contingency. Additionally,
Capstone was unable to provide Healthcare Realty with firm written commitments
for future business opportunities.
On May 28, 1998, Capstone received a proposal from another interested party
("Company C") providing for the acquisition of all of the shares of Capstone
Common Stock, including the Capstone Restricted Stock, for $23.80 in Company C
common stock, indicating a premium of 1.8% over the then current market price
for Capstone Common Stock. This proposal also contemplated that the transaction
would be accounted for under the "pooling of interests" accounting method.
Because of the lower price and the "pooling" requirement, Capstone did not
believe that there was a realistic possibility of reaching an agreement with
Company C and did not pursue additional discussions with Company C.
On June 1, 1998, following substantial discussions between Healthcare
Realty and Capstone, the parties determined to begin negotiating a definitive
agreement based upon the following terms. Healthcare Realty agreed that the
transaction would be an all stock tax-free merger and that a non-consolidated
special purpose entity, the financing contingency, and written confirmations of
future business opportunities would not be required. Capstone and Healthcare
Realty agreed upon the fixed Exchange Ratio and a per share purchase price for
the Capstone Restricted Stock and Capstone Stock Options of $24.33 and that the
consideration to be paid in accordance with the noncompetition and consulting
agreements would be part cash and part stock, with the stock portion to be
delivered in four successive annual installments beginning in October 1999.
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On June 2, 1998, Capstone signed and delivered to Healthcare Realty a
confidentiality agreement designed to protect the confidentiality of Healthcare
Realty material received by Capstone. Healthcare Realty continued to be bound by
its previously delivered confidentiality agreement.
On June 3, 1998, Capstone performed a due diligence investigation of
Healthcare Realty in Nashville, Tennessee. On June 4 and 5, 1998,
representatives of Healthcare Realty and its counsel visited the offices of
Capstone and its counsel to conduct further due diligence on specific matters
and to finalize the remaining issues in the Merger Agreement. In addition,
counsel to Capstone provided additional information with respect to certain
matters in the disclosure schedule draft and indicated measures Capstone was
going to undertake to resolve remaining issues presented in the disclosure
schedule.
During the period from June 3 through June 7, representatives of Capstone
and Healthcare Realty exchanged drafts of the definitive Merger Agreement and
continued to have numerous telephone conversations among themselves and their
financial and legal advisors and accountants to refine certain issues, including
the indemnification by Healthcare Realty of Capstone's officers and directors, a
break-up fee provision and the ability of the officers of Capstone who were
starting a new business in Birmingham, Alabama to acquire the executive offices
of Capstone, including the office furniture and equipment in the executive
offices.
On the evening of June 4, 1998, the Independent Committee met with
Capstone's legal and financial advisors to discuss Healthcare Realty's proposal
and the status of negotiations with Healthcare Realty, including the revised
offer for a tax-free, stock-for-stock exchange and the requirement that Mr.
Scrushy, Mr. Martin and Mr. McRoberts each enter into six-year noncompetition
and consulting agreements. The Independent Committee recommended that management
continue negotiations with representatives of Healthcare Realty.
On June 5, 1998, the Capstone Board met to consider the Healthcare Realty
proposal. A copy of the draft Merger Agreement had been delivered to the
Capstone Board, including the Independent Committee, prior to the meeting. At
such meeting, representatives of Salomon Smith Barney outlined for the Capstone
Board the financial aspects of Healthcare Realty's proposal, which were
consistent with the terms described under "-- Capstone Securities."
Counsel to Capstone reviewed the terms of the definitive Merger Agreement,
noting for the Capstone Board that the proposed Merger Agreement contained
conditions customary for transactions of this type, including approval of the
stockholders of Capstone, the continuing accuracy of Healthcare Realty's and
Capstone's respective representations and warranties, and the absence of any
litigation seeking to prohibit the consummation of the Merger. Counsel informed
the Capstone Board that the Merger Agreement had been fully negotiated, but for
two substantive issues relating to post-closing indemnification of Capstone's
officers and directors by Healthcare Realty and the purchase price to be paid at
closing for the furniture, fixtures and equipment at Capstone's headquarters by
Orthopaedic Surgeons, Inc., a Delaware corporation the majority of the stock of
which is owned by HEALTHSOUTH and MedPartners, Inc. ("MedPartners"). The
Capstone Board was also advised by Capstone's counsel that under Maryland law
the Merger would require the affirmative vote of 66 2/3% of the outstanding
Capstone Common Stock and 66 2/3% of the outstanding Capstone Preferred Stock,
voting separately as a class, and that a special meeting of Capstone's
stockholders would be needed to obtain the requisite approval.
Salomon Smith Barney also reviewed the financial analyses performed by
Salomon Smith Barney in connection with its evaluation of the Exchange Ratio and
rendered to the Capstone Board its oral opinion (which opinion was subsequently
confirmed by delivery of a written opinion dated June 8, 1998, the date of
execution of the Merger Agreement) to the effect that, as of such date and based
upon and subject to certain matters, the Exchange Ratio was fair to the holders
of Capstone Common Stock from a financial point of view. See "-- Opinion of
Capstone's Financial Advisor." After discussion and evaluation, the Independent
Committee approved the terms of Healthcare Realty's proposal, including the
terms of the ancillary agreements, and the Capstone Board, subject to
satisfactory resolution of the remaining issues, unanimously approved Healthcare
Realty's proposal, the Merger and the Merger Agreement, and authorized
management to execute and deliver the Merger Agreement as presented at the
meeting. The remaining issues in the Merger
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Agreement, none of which related to the Exchange Ratio, were resolved over the
weekend of June 6 and 7, 1998.
On June 5, 1998, the Healthcare Realty Board held a telephonic meeting to
discuss the proposed transaction. Prior to the meeting, NationsBanc Montgomery
circulated preliminary financial information to the directors. At the meeting,
David R. Emery, President of Healthcare Realty, summarized the discussions to
date and representatives of NationsBanc Montgomery reviewed its financial
analysis of the Merger. In addition, Healthcare Realty's legal counsel described
the primary legal and tax considerations associated with the proposed
transaction. Action to be taken on the transaction was deferred in order to
provide each director the opportunity to review material regarding the
transaction and to resolve all remaining issues. NationsBanc Montgomery sent
additional material overnight to each director for delivery on June 6, 1998, and
Healthcare Realty called another meeting of the Healthcare Realty Board for
Monday morning, June 8, 1998.
On June 8, 1998, the Healthcare Realty Board held a telephonic meeting to
discuss the substantially final Merger Agreement. At the meeting, (i) the
Healthcare Realty Board reviewed with Healthcare Realty's management and legal
and financial advisors the proposed terms of the Merger and the probable effects
of the Merger on Healthcare Realty and the combined company and (ii) NationsBanc
Montgomery rendered its oral opinion (which opinion was subsequently confirmed
by delivery of a written opinion dated June 8, 1998, the date of execution of
the Merger Agreement) that, as of such date and based upon and subject to
certain matters, the consideration proposed to be paid by Healthcare Realty in
the Merger was fair to Healthcare Realty from a financial point of view, as of
such date. See "-- Opinion of Healthcare Realty's Financial Advisor." After the
discussion, the Healthcare Realty Board unanimously approved the Merger
Agreement and related transactions and resolved to recommend that the
stockholders of Healthcare Realty vote in favor of the issuance of the
securities to be issued in the Merger.
On June 8, 1998, the definitive Merger Agreement was finalized and during
the afternoon, the chief executive officers of both Healthcare Realty and
Capstone executed the agreement. The execution was publicly announced by joint
press release later that day.
CAPSTONE'S REASONS FOR THE MERGER; RECOMMENDATION OF THE CAPSTONE BOARD
In reaching its determination to approve and adopt the Merger Agreement,
the Capstone Board consulted with Capstone's management and its financial and
legal advisors, and considered a number of factors. The following is a
discussion of the information and factors considered by the Capstone Board in
reaching this determination. This discussion is not intended to be exhaustive
but includes all of the material factors considered by the Capstone Board. In
the course of its deliberations with respect to the Merger, the Capstone Board
discussed the anticipated impact of the Merger on Capstone, Capstone
Stockholders and Capstone's various other constituencies, and no material
disadvantages expected to result from the Merger were identified during these
discussions. In reaching its determination to approve and recommend the Merger,
the Capstone Board did not assign any relative or specific weights to the
factors considered in reaching such determination, and individual directors may
have given differing weights to different factors.
At a meeting of the Capstone Board held on June 5, 1998, after careful
consideration, the Capstone Board, subject to reaching agreement with Healthcare
Realty on remaining open contractual matters, which were resolved over the
weekend of June 6 and 7, 1998, (a) determined that the Merger is fair to, and in
the best interests of, the Capstone Stockholders, (b) approved the Merger, the
Merger Agreement and the transactions contemplated thereby, and (c) resolved to
recommend that the stockholders of Capstone vote in favor of the approval of the
Merger and adoption of the Merger Agreement. The following briefly describes
certain of the reasons, factors and information taken into account by the
Capstone Board in reaching its conclusion.
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INFORMATION AND FACTORS CONSIDERED BY THE CAPSTONE BOARD
In reaching its determination, the Capstone Board consulted with Capstone's
management and legal and financial advisors, and carefully considered a number
of factors without assigning relative weights thereto, including among others
the following material factors:
- The Capstone Board's familiarity with and review of the business,
operations, financial condition and earnings of Capstone on an historical
and a prospective basis;
- The Capstone Board's review of the business, operations, financial
condition and earnings of Healthcare Realty on an historical and a
prospective basis and of the combined company on a pro forma basis, the
historical stock price performance of the Healthcare Realty Common Stock,
the resulting relative interests of Capstone Stockholders and Healthcare
Realty Stockholders in the common equity of the combined company, and the
potential for increased earnings and dividends of the combined company
for the holders of Capstone Common Stock;
- The process conducted on behalf of Capstone in exploring and determining
the potential value which could be realized by Capstone Stockholders in a
business combination transaction, including the solicitation of
indications of interest from certain healthcare-related REITs determined
to be the most likely companies to be both interested in and financially
and otherwise capable of engaging in a business combination transaction
with Capstone, the fact that each of such selected REITs which expressed
interest in a business combination transaction with Capstone was afforded
an opportunity to submit proposals for such a transaction to Capstone,
the terms of the proposals received by Capstone from such REITs and the
fact that the indicated premium of the Exchange Ratio in the Healthcare
Realty proposal over the current market price for Capstone Common Stock
was higher as of June 4, 1998 (the last trading day prior to approval by
the Capstone Board of the Merger) than the indicated premiums over the
current market price for Capstone Common Stock offered in the other
proposals submitted to Capstone (see "-- Background of the Merger");
- The current and prospective economic and competitive environment facing
the REIT industry generally, and Capstone in particular, including:
- The improved access to capital and lowered cost of capital
potentially created by a strategic affiliation with another REIT;
- The increasing consolidation of operating companies in the
healthcare industry and its effect on the demand for REIT financing
in the industry;
- The market position and prospects for growth of Healthcare Realty,
Capstone and other healthcare-specific REITs;
- The changing focus of Capstone away from traditional sale-leaseback
transactions and toward construction and development loans as a
result of increased competition; and
- The increasing credit quality of healthcare borrowers and their
resulting enhanced access to non-REIT capital.
- The Capstone Board's belief, after considering alternatives to the Merger
for enhancing stockholder value, that such alternatives were not likely
to result in greater value for Capstone Stockholders than the value to be
realized in the Merger. In this regard, the Capstone Board considered,
among other things, variables relating to Capstone's ability to continue
to make investments in healthcare facilities and to generate revenue
growth, improved profitability and superior stockholder returns on a
stand-alone basis, and the availability of attractive acquisition
opportunities for Capstone;
- The potential benefits of the combination of the two companies. The
management of Capstone discussed with the Capstone Board the current
operations of Healthcare Realty and the opportunities that would be
created for the benefit of Capstone Stockholders from the combination of
the two companies, including the potential competitive advantages that
could be achieved through a strategic affiliation. The Capstone Board
discussed with Capstone management how the assets of Healthcare Realty
would complement Capstone's existing assets and provide opportunities for
revenue enhancements, operating efficiencies and cost savings;
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- The receipt of equity securities of Healthcare Realty by the holders of
Capstone Common Stock and Capstone Preferred Stock, which will enable
Capstone Stockholders to participate in the value that may be generated
through the combination of the two companies through their combined
equity participation as stockholders of Healthcare Realty;
- The current and historical market prices and trading volumes of the
Capstone Common Stock, Capstone Preferred Stock and the Healthcare Realty
Common Stock and the current and historical trading multiples of other
comparable companies;
- The terms of the Merger Agreement and the Merger, including the Exchange
Ratio, noting that the Exchange Ratio reflected a 5.7% premium for the
holders of Capstone Common Stock based on the closing prices of
Healthcare Realty Common Stock and Capstone Common Stock on June 4, 1998,
the last trading day prior to approval by the Capstone Board of the
Merger;
- The financial presentations of Salomon Smith Barney to the Capstone
Board, and the oral opinion of Salomon Smith Barney rendered to the
Capstone Board on June 5, 1998 (which opinion was subsequently confirmed
by delivery of a written opinion dated June 8, 1998, the date of
execution of the Merger Agreement) to the effect that, as of such date
and based upon and subject to certain matters stated in such opinion, the
Exchange Ratio was fair from a financial point of view to holders of
Capstone Common Stock (see "-- Opinion of Capstone's Financial Advisor");
- The expectation that the Merger will be treated as a tax-free
reorganization for federal income tax purposes (see "-- Certain Federal
Income Tax Consequences");
- The provisions of the Merger Agreement that permit Capstone, under
certain circumstances, to furnish information to and participate in
substantive negotiations and discussions with third parties and to
terminate the Merger Agreement upon execution of a definitive agreement
in connection with an Acquisition Proposal (as defined herein under "THE
MERGER AGREEMENT -- Termination Fee; Expenses") upon the payment of a $20
million termination fee and reimbursement of all reasonable out-of-pocket
expenses and fees (see "THE MERGER AGREEMENT -- Termination of the Merger
Agreement");
- The other provisions of the Merger Agreement, including the fact that the
Capstone Stockholders will vote on the transaction;
- The absence of any provisions in the Merger Agreement that either limit
the effect of changes in the price of Healthcare Realty Common Stock
prior to the consummation of the Merger on the value of the consideration
to be received by the holders of Capstone Common Stock in the Merger or
permit Capstone to terminate the Merger Agreement based upon such changes
and that, accordingly, the value of such consideration could change
depending upon the performance of Healthcare Realty Common Stock between
the execution of the Merger Agreement and the consummation of the Merger.
While recognizing that the absence of such provisions exposed the
Capstone Stockholders to some risk, the Capstone Board considered this
risk to be mitigated by (a) a review of the historical trading prices of
both the Healthcare Realty Common Stock and the Capstone Common Stock and
the fact that, generally, industry changes affecting Healthcare Realty
Common Stock should similarly affect Capstone Common Stock and (b) the
fact that Capstone Stockholders would be able to participate in any
appreciation in the value of Healthcare Realty Common Stock between the
announcement of the transaction and the consummation of the Merger. The
Capstone Board recognized that, while such provisions might provide
limited protection against declines in the share price of the Healthcare
Realty Common Stock to be received, they also generally would limit the
benefits from any appreciation in that price. The Capstone Board also was
advised that Healthcare Realty had stated that it would not consider a
transaction involving anything other than a fixed exchange ratio;
- The interests of the officers and directors of Capstone in the Merger,
including the matters disclosed under "CERTAIN TRANSACTIONS";
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- The challenges of combining the businesses of two major corporations of
this size and the attendant risk of not achieving the expected synergies
or improved earnings (as discussed under "CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION") and of diverting management focus and
resources from other strategic opportunities and from operational matters
for an extended period of time.
In view of the wide variety of factors considered by the Capstone Board in
connection with its evaluation of the Merger and the complexity of such matters,
the Capstone Board did not consider it practicable to, nor did it attempt to,
quantify, rank or otherwise assign relative weights to the specific factors it
considered in reaching its decision. In considering the factors described above,
individual members of the Capstone Board may have given different weight to
different factors.
For information concerning certain interests of members of the Capstone
Board, see "CERTAIN TRANSACTIONS."
THE CAPSTONE BOARD BELIEVES THE MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, CAPSTONE AND THE CAPSTONE STOCKHOLDERS. THE CAPSTONE BOARD
UNANIMOUSLY RECOMMENDS THAT CAPSTONE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE
MERGER AND THE MERGER AGREEMENT.
HEALTHCARE REALTY'S REASONS FOR THE MERGER; RECOMMENDATION OF THE HEALTHCARE
REALTY BOARD
Following the review of the materials and discussions provided to the
Healthcare Realty Board at the June 5, 1998 and June 8, 1998 meetings, the
directors concluded that the terms of the Merger were fair to, and in the best
interests of, Healthcare Realty and its stockholders. Accordingly, the directors
voted unanimously to approve the Merger, the terms of the Merger Agreement and
the transactions contemplated thereby; and the Healthcare Realty Board resolved
to recommend that the stockholders of Healthcare Realty vote in favor of the
issuance of shares of Healthcare Realty Common Stock and Healthcare Realty
Preferred Stock. In reaching its decision, the Healthcare Realty Board
considered several factors, consulted with Healthcare Realty management, legal
counsel and accountants and were advised by NationsBanc Montgomery, its
financial advisors in this transaction. In reaching its determination to approve
and recommend the Merger, the Healthcare Realty Board did not assign any
relative or specific weights to the factors considered in reaching such
determination, and individual directors may have given differing weights to
different factors. The principal reasons for the Healthcare Realty Board's
approval of the Merger and its recommendation to the stockholders of Healthcare
Realty are as follows:
- Expansion of Healthcare Realty's Client Base. The existing client base
of Capstone will permit Healthcare Realty access to clients not presently
associated with Healthcare Realty, thus offering new opportunities for
capital investment and the provision of real estate administration,
management and development services. Further, because Capstone did not
have a real estate services organization, significant opportunity exists
to provide services to the Capstone portfolio of real estate assets as
well.
- Diversification of Real Estate and Sponsorships. The majority of
Capstone's real estate assets are compatible with the investment criteria
of Healthcare Realty and will provide greater geographical and
sponsorship diversification to the portfolio of Healthcare Realty,
resulting in a reduced risk profile for the combined portfolio.
- Cost Savings and Operating Efficiencies. None of the employees and
officers of Capstone will become employees of Healthcare Realty.
Consequently, there should be considerable opportunity to benefit from
cost savings due to reduction in the general, administrative and overhead
expenditures that will be eliminated upon the Merger. Healthcare Realty
presently has sufficient capacity to transition the portfolio without
significant additional cost.
- Growth in Relative Size and Equity Base. The REIT industry has
experienced explosive growth. As a consequence of the Merger, the
directors concluded that Healthcare Realty could enlarge its asset
portfolio by 159 real estate properties and its market capitalization to
approximately $5.5 million. The growth should result in a more
competitive position for Healthcare Realty, as compared to other
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REITs, and greater access to public capital markets. Following the
Merger, Healthcare Realty should be the leading provider of investment
capital and real estate services to the outpatient sector of the
healthcare industry.
- Accretive Effect to Healthcare Realty. The Merger should result in
potential accretion in funds from operations of Healthcare Realty in the
fourth quarter of 1998 and for fiscal year 1999.
- Fairness Opinion of NationsBanc Montgomery. Healthcare Realty's
financial advisor delivered an oral opinion on June 8, 1998, subsequently
confirmed in writing as of the same date, that the consideration to be
paid by Healthcare Realty pursuant to the Merger Agreement was fair to
Healthcare Realty from a financial point of view, as of such date.
The Healthcare Realty Board and management also discussed certain potential
negative facts and risks that could arise or would arise from the Merger. These
included, among others:
- Increased Debt. The fact that upon completion of the Merger, it was
estimated that Healthcare Realty's debt-to-book-capital ratio will rise
to approximately 27%; and in the event of full funding of current capital
investment commitments, the ratio will rise to approximately 37%, absent
the receipt of additional equity investment in Healthcare Realty.
- Certain Non-Core Strategy Assets. The fact that, while the majority of
the assets of Capstone are compatible with Healthcare Realty,
approximately $248 million of senior housing and assisted living assets
and $167 million of real estate mortgages do not fall within Healthcare
Realty's core operating strategy. While such assets are accretive,
Healthcare Realty may undertake to dispose of those assets following the
Merger.
- Credit Risks. The risks attendant to certain healthcare industry
sponsors providing credit support to Capstone's real estate investments
which have had disappointing earnings or changes in management that have
lead to some concerns regarding the credit attaching to the assets.
- Failure to Achieve Merger Benefits. The risk that the anticipated
benefits of the Merger may not be realized as a result of possible
changes in the real estate market in general, the inability to market
investment capital and real estate services to the existing client base
of Capstone, and the inability to achieve the anticipated reductions in
expense or other potential difficulties in integrating the two companies
and their respective operations.
The Healthcare Realty Board did not believe that the foregoing negative
factors were sufficient, either individually or collectively, to outweigh the
advantages of the Merger.
THE HEALTHCARE REALTY BOARD BELIEVES THE MERGER CONSIDERATION IS FAIR TO,
AND IN THE BEST INTEREST OF, HEALTHCARE REALTY AND THE HEALTHCARE REALTY
STOCKHOLDERS. THE HEALTHCARE REALTY BOARD UNANIMOUSLY RECOMMENDS THAT HEALTHCARE
REALTY STOCKHOLDERS VOTE FOR THE ISSUANCE OF HEALTHCARE REALTY CAPITAL STOCK IN
CONNECTION WITH THE MERGER.
OPINION OF CAPSTONE'S FINANCIAL ADVISOR
Salomon Smith Barney was retained by Capstone to act as its financial
advisor in connection with the proposed Merger. In connection with such
engagement, Capstone requested that Salomon Smith Barney evaluate the fairness,
from a financial point of view, to the holders of Capstone Common Stock of the
consideration to be received by such holders in the Merger. On June 5, 1998, at
a meeting of the Capstone Board held to evaluate the proposed Merger, Salomon
Smith Barney delivered an oral opinion (which opinion was subsequently confirmed
by delivery of a written opinion, dated June 8, 1998, the date of execution of
the Merger Agreement) to the Capstone Board to the effect that, as of the date
of such opinion and based upon and subject to certain matters stated therein,
the Exchange Ratio was fair, from a financial point of view, to the holders of
Capstone Common Stock.
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In arriving at its opinion, Salomon Smith Barney reviewed the Merger
Agreement and held discussions with certain senior officers, directors and other
representatives and advisors of Capstone and certain senior officers and other
representatives and advisors of Healthcare Realty concerning the businesses,
operations and prospects of Capstone and Healthcare Realty. Salomon Smith Barney
examined certain publicly available business and financial information relating
to Capstone and Healthcare Realty as well as certain financial forecasts and
other information and data for Capstone and Healthcare Realty which were
provided to or otherwise discussed with Salomon Smith Barney by the respective
managements of Capstone and Healthcare Realty, including information relating to
certain strategic implications and operational benefits anticipated to result
from the Merger. Salomon Smith Barney reviewed the financial terms of the Merger
as set forth in the Merger Agreement in relation to, among other things: current
and historical market prices and trading volumes of the Capstone Common Stock
and Healthcare Realty Common Stock; the historical and projected earnings and
other operating data of Capstone and Healthcare Realty; and the capitalization
and financial condition of Capstone and Healthcare Realty. Salomon Smith Barney
considered, to the extent publicly available, the financial terms of other
transactions recently effected which Salomon Smith Barney considered relevant in
evaluating the Merger and analyzed certain financial, stock market and other
publicly available information relating to the businesses of other companies
whose operations Salomon Smith Barney considered relevant in evaluating those of
Capstone and Healthcare Realty. Salomon Smith Barney also evaluated the
potential pro forma financial impact of the Merger on Healthcare Realty. In
connection with its engagement, Salomon Smith Barney was requested to approach
on a selected basis, and Salomon Smith Barney held discussions with, certain
third parties to solicit indications of interest in the possible acquisition of
Capstone. In addition to the foregoing, Salomon Smith Barney conducted such
other analyses and examinations and considered such other financial, economic
and market criteria as it deemed appropriate in arriving at its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Salomon Smith Barney. With respect to financial
forecasts and other information and data provided to or otherwise reviewed by or
discussed with Salomon Smith Barney, the managements of Capstone and Healthcare
Realty advised Salomon Smith Barney that such forecasts and other information
and data were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of Capstone and Healthcare
Realty as to the future financial performance of Capstone and Healthcare Realty
and the strategic implications and operational benefits anticipated to result
from the Merger. Salomon Smith Barney assumed, with the consent of the Capstone
Board, that the Merger will be treated as a tax-free reorganization for federal
income tax purposes and that the Merger and the transactions contemplated
thereby will not adversely affect the real estate investment trust status of the
combined entity resulting from the Merger. Salomon Smith Barney did not express
any opinion as to what the value of the Healthcare Realty Common Stock actually
will be when issued to Capstone stockholders pursuant to the Merger or the price
at which the Healthcare Realty Common Stock will trade subsequent to the Merger.
Salomon Smith Barney did not make and was not provided with an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of Capstone or Healthcare Realty nor did Salomon Smith Barney make any physical
inspection of the properties or assets of Capstone or Healthcare Realty. Salomon
Smith Barney expressed no view as to, and its opinion does not address, the
relative merits of the Merger as compared to any alternative business strategies
that might exist for Capstone or the effect of any other transaction in which
Capstone might engage. Salomon Smith Barney's opinion is necessarily based upon
information available, and financial, stock market and other conditions and
circumstances existing and disclosed, to Salomon Smith Barney as of the date of
its opinion. Although Salomon Smith Barney evaluated the Exchange Ratio from a
financial point of view, Salomon Smith Barney was not asked to and did not
recommend the specific consideration payable in the Merger, which was determined
through negotiation between Capstone and Healthcare Realty. No other limitations
were imposed by Capstone on Salomon Smith Barney with respect to the
investigations made or procedures followed by Salomon Smith Barney in rendering
its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SALOMON SMITH BARNEY, DATED JUNE 8,
1998, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS
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ANNEX B AND SHOULD BE READ CAREFULLY IN ITS ENTIRETY. THE OPINION OF SALOMON
SMITH BARNEY IS DIRECTED TO THE CAPSTONE BOARD AND RELATES ONLY TO THE FAIRNESS
OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER
ASPECT OF THE MERGER OR RELATED TRANSACTIONS AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE
CAPSTONE SPECIAL MEETING. THE SUMMARY OF THE OPINION OF SALOMON SMITH BARNEY SET
FORTH IN THIS JOINT PROXY STATEMENT-PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below. The summary
of such analyses does not purport to be a complete description of the analyses
underlying Salomon Smith Barney's opinion. The preparation of a fairness opinion
is a complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Accordingly, Salomon Smith
Barney believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors, without considering all analyses
and factors, could create a misleading or incomplete view of the processes
underlying such analyses and opinion. In its analyses, Salomon Smith Barney made
numerous assumptions with respect to Capstone, Healthcare Realty, industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Capstone and Healthcare
Realty. The estimates contained in such analyses and the valuation ranges
resulting from any particular analysis are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than those suggested by such analyses. In addition,
analyses relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty. Salomon Smith Barney's opinion and analyses were only
one of many factors considered by the Capstone Board in its evaluation of the
Merger and should not be viewed as determinative of the views of the Capstone
Board or management of Capstone with respect to the Exchange Ratio or the
proposed Merger.
Selected Company Analysis. Using publicly available information, Salomon
Smith Barney analyzed, among other things, the market values and trading
multiples of Capstone and the following 11 selected publicly traded companies in
the health care REIT industry: Healthcare Realty, American Health Properties,
Inc., Health Care Property Investors, Inc., Health Care REIT, Inc., Health &
Retirement Properties Trust, LTC Properties Inc., Meditrust Corporation,
National Health Investors, Inc., Nationwide Health Properties, Inc., Omega
Healthcare Investors, Inc., and Universal Health Realty Income Trust
(collectively, the "Selected Companies"). Salomon Smith Barney compared, among
other things, market values as multiples of estimated calendar 1998 and 1999
funds from operations ("FFO"). FFO projections for the Selected Companies were
based on estimates of selected investment banking firms and FFO projections for
Capstone and Healthcare Realty were based on internal estimates of the
managements of Capstone and Healthcare Realty. All multiples were based on
closing stock prices as of June 4, 1998. Applying a range of multiples for the
Selected Companies of estimated calendar 1998 and 1999 FFO per share of 9.2x to
11.9x and 9.0x to 11.1x, respectively, to corresponding financial data for
Capstone resulted in an equity reference range for Capstone of approximately
$20.37 to $25.72 per share.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, Salomon Smith Barney reviewed the purchase prices and
implied transaction multiples paid or proposed to be paid in the following 26
selected transactions in the REIT industry (acquiror/target): Excel Realty
Trust/New Plan Realty Trust; Equity Inns, Inc./RFS Hotel Investors, Inc.;
Security Capital Pacific Trust/Security Capital Atlantic Incorporated; FelCor
Suite Hotels, Inc./Bristol Hotel Company; CapStar Hotel Company/American General
Hospitality Corporation; Kimco Realty Corporation/The Price REIT, Inc.;
Apartment Investment and Management Company/Ambassador Apartments, Inc.; Camden
Property Trust/Oasis Residential, Inc.; Prime Retail, Inc./Horizon Group, Inc.;
BRE Properties, Inc./Trammel Crow Company; Simon DeBartolo Group, Inc./Retail
Property Trust; Cali Realty Corp./Mack Company; Meditrust Corporation/Santa
Anita Operating Company; Cornerstone Properties Inc./Dutch Institutional Holding
Company, Inc.; Post Properties, Inc./Columbus Realty Trust; Pennsylvania Real
Estate Investment Trust/Rubin Organization Inc.; Walden Residential Properties,
Inc./Drever Partners Inc.; Vornado Realty Trust/The Mendik Company, Inc.;
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Camden Property Trust/Paragon Group, Inc.; United Dominion Realty Trust/South
West Property Trust Inc.; Chateau Properties, Inc./ROC Communities, Inc.;
EastGroup Properties, Inc./Copley Properties, Inc.; Whitehall Real Estate
Limited Partnership/Rockefeller Center Properties, Inc.; BRE Properties,
Inc./Real Estate Investment Trust of California; EastGroup Properties, Inc./LNH
REIT, Inc.; and Omega Healthcare Investors, Inc./Health Equity Properties
Incorporated (collectively, the "Selected Transactions"). All multiples were
based on information available at the time of such transaction. Salomon Smith
Barney compared, among other things, purchase prices in the Selected
Transactions as a multiple of estimated 1998 FFO. Applying a range of multiples
for the Selected Transactions of estimated 1998 FFO per share of 7.8x to 12.0x
to corresponding financial data for Capstone resulted in an equity reference
range for Capstone of approximately $16.93 to $26.04 per share.
No company, transaction or business used in the "Selected Company Analysis"
or "Selected Merger and Acquisition Transactions Analysis" as a comparison is
identical to Capstone, Healthcare Realty or the Merger. Accordingly, an analysis
of the results of the foregoing is not entirely mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the Selected Companies, the
Selected Transactions or the business segment, company or transaction to which
they are being compared.
Premium Analysis. Salomon Smith Barney compared the implied premium
payable in the Merger with the premiums paid in the Selected Transactions based
on the closing price of the common stock of the target companies one month prior
to public announcement of such Selected Transactions. Applying a range of
premiums for the Selected Transactions of approximately 1.2% to 25.5% to the
closing price of Capstone Common Stock one month prior to public announcement of
the Merger resulted in an equity reference range for Capstone of approximately
$23.15 to $28.71 per share. The trading range of Capstone Common Stock over the
52-week period prior to public announcement of the Merger was between $22.13 to
$26.00 per share.
Contribution Analysis. Salomon Smith Barney analyzed the respective
contributions of Capstone and Healthcare Realty to the estimated revenues,
earnings before interest, taxes, depreciation, and amortization ("EBITDA") and
FFO of the combined company for fiscal years 1997 through 1999, based on
internal estimates of the managements of Capstone and Healthcare Realty. This
analysis indicated that (i) in fiscal year 1997, Capstone would have contributed
approximately 47.3% of revenues, 49.8% of EBITDA and 44.1% of the FFO of the
combined company; (ii) in fiscal year 1998, Capstone would contribute
approximately 54.3% of revenues, 58.0% of EBITDA and 50.0% of the FFO of the
combined company; and (iii) in fiscal year 1999, Capstone would contribute
approximately 54.3% of revenues, 58.5% of EBITDA and 50.3% of the FFO of the
combined company. Based on the Exchange Ratio, current stockholders of Capstone
and Healthcare Realty would own approximately 47.9% and 52.1%, respectively, of
the equity value of the combined company and Capstone and Healthcare Realty
would constitute approximately 56.8% and 43.2%, respectively, of the enterprise
value of the combined company upon consummation of the Merger.
Pro Forma Merger Analysis. Salomon Smith Barney analyzed certain pro forma
effects resulting from the Merger, including, among other things, the impact of
the Merger on Healthcare Realty's projected FFO for fiscal years 1998 and 1999,
based on internal estimates of the management of Healthcare Realty. The results
of the pro forma merger analysis suggested that the Merger could be accretive to
Healthcare Realty's FFO in fiscal years 1998 and 1999 after giving effect to
certain potential synergies anticipated by the management of Healthcare Realty
to result from the Merger. The actual results achieved by the Surviving
Corporation may vary from projected results and the variations may be material.
Exchange Ratio Analysis. Salomon Smith Barney compared the Exchange Ratio
with the historical ratio of the daily closing prices of Capstone Common Stock
to Healthcare Realty Common Stock over the 12-month period ending June 4, 1998.
The range of exchange ratios during such 12-month period was 0.792 to 0.901
(with a mean of 0.847), as compared to the Exchange Ratio of 0.8518.
Net Asset Valuation Analysis. Salomon Smith Barney performed a net asset
valuation analysis of Capstone's operating assets, based on internal estimates
of the management of Capstone. For purposes of such analysis, Salomon Smith
Barney applied capitalization rates, ranging from an average of 10.2% to 11.3%
(with a mean of 10.8%) depending on asset classification type, to Capstone's
annualized 1998 net operating income.
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The results were then adjusted for outstanding net debt, construction in
progress and other miscellaneous items. This analysis indicated an implied
equity reference range for Capstone of approximately $16.47 to $19.56 per share.
Other Factors and Comparative Analyses. In rendering its opinion, Salomon
Smith Barney considered certain other factors and conducted certain other
comparative analyses, including, among other things, a review of (i) indications
of interest received from, and discussions with, third parties other than
Healthcare Realty; (ii) historical and projected financial results of Capstone
and Healthcare Realty; (iii) the history of trading prices and volume for
Capstone Common Stock and Healthcare Realty Common Stock, and a comparison of
such common stock to a 30-year U.S. Treasury yield; (iv) selected published
analysts' reports on Capstone and Healthcare Realty, including analysts'
earnings estimates with respect to Capstone and Healthcare Realty; and (v) the
pro forma ownership of the combined company.
Pursuant to the terms of Salomon Smith Barney's engagement, Capstone has
agreed to pay Salomon Smith Barney an aggregate fee of $4.5 million for its
services in connection with the Merger. Capstone has also agreed to reimburse
Salomon Smith Barney for travel and other out-of-pocket expenses incurred by
Salomon Smith Barney in performing its services, including the fees and expenses
of its legal counsel, and to indemnify Salomon Smith Barney and related persons
against certain liabilities, including liabilities under the federal securities
laws, arising out of Salomon Smith Barney's engagement.
Salomon Smith Barney has advised Capstone that, in the ordinary course of
business, Salomon Smith Barney and its affiliates may actively trade or hold the
securities of Capstone and Healthcare Realty for their own account or for the
account of customers and, accordingly, may at any time hold a long or short
position in such securities. Salomon Smith Barney has in the past provided
investment banking and financial advisory services to Capstone and Healthcare
Realty unrelated to the proposed Merger, for which services Salomon Smith Barney
has received compensation. In addition, Salomon Smith Barney and its affiliates
(including Travelers Group Inc. and its affiliates) may maintain relationships
with Capstone, Healthcare Realty and their respective affiliates.
Salomon Smith Barney is an internationally recognized investment banking
firm and was selected by Capstone based on its experience, expertise and
familiarity with Capstone and its business. Salomon Smith Barney regularly
engages in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
OPINION OF HEALTHCARE REALTY'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated June 4, 1998, as amended (the
"Engagement Letter"), Healthcare Realty retained NationsBanc Montgomery to act
as its exclusive representative and financial advisor in connection with the
Merger. NationsBanc Montgomery is a nationally recognized investment banking
firm and, as part of its activities, is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
Healthcare Realty selected NationsBanc Montgomery as its financial advisor on
the basis of NationsBanc Montgomery's experience and expertise in transactions
similar to the Merger and its reputation in the healthcare and REIT industries
and investment community.
On June 8, 1998, NationsBanc Montgomery delivered to the Healthcare Realty
Board its oral opinion, subsequently confirmed in writing as of the same date,
that the consideration to be paid by Healthcare Realty pursuant to the Merger
Agreement was fair to Healthcare Realty from a financial point of view, as of
such date. NationsBanc Montgomery did not determine the form or amount of
consideration to be offered to Capstone Stockholders in the Merger. No
limitations were imposed by the Healthcare Realty Board on NationsBanc
Montgomery with respect to the investigations made or procedures followed in
rendering its opinion.
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THE FULL TEXT OF NATIONSBANC MONTGOMERY'S WRITTEN OPINION TO THE HEALTHCARE
REALTY BOARD IS ATTACHED HERETO AS ANNEX C AND IS INCORPORATED HEREIN BY
REFERENCE. THE FOLLOWING SUMMARY OF NATIONSBANC MONTGOMERY'S OPINION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION, WHICH
SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH THIS JOINT PROXY
STATEMENT-PROSPECTUS. NATIONSBANC MONTGOMERY'S OPINION IS DIRECTED TO THE
HEALTHCARE REALTY BOARD, COVERS ONLY THE FINANCIAL FAIRNESS TO HEALTHCARE REALTY
OF THE CONSIDERATION TO BE PAID BY HEALTHCARE REALTY IN THE MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE AT THE HEALTHCARE REALTY SPECIAL MEETING. NATIONSBANC MONTGOMERY'S OPINION
ADDRESSES ONLY THE FINANCIAL FAIRNESS OF THE CONSIDERATION TO BE PAID BY
HEALTHCARE REALTY PURSUANT TO THE MERGER AND DOES NOT ADDRESS THE RELATIVE
MERITS OF THE MERGER OR ANY ALTERNATIVES TO THE MERGER, THE UNDERLYING DECISION
OF THE HEALTHCARE REALTY BOARD TO PROCEED WITH OR EFFECT THE MERGER OR ANY OTHER
ASPECT OF THE MERGER. IN FURNISHING ITS OPINION, NATIONSBANC MONTGOMERY DID NOT
ADMIT THAT IT IS AN EXPERT WITHIN THE MEANING OF THE TERM "EXPERT" AS USED IN
THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), NOR DID IT ADMIT THAT ITS
OPINION CONSTITUTES A REPORT OR VALUATION WITHIN THE MEANING OF THE SECURITIES
ACT, AND STATEMENTS TO SUCH EFFECT ARE INCLUDED IN THE NATIONSBANC MONTGOMERY
OPINION.
In connection with its opinion, NationsBanc Montgomery, among other things:
(i) reviewed certain publicly available financial and other data with respect to
Capstone and Healthcare Realty, including their respective consolidated
financial statements for recent years and interim periods to March 31, 1998 and
certain other relevant financial and operating data relating to Capstone and
Healthcare Realty made available to NationsBanc Montgomery from published
sources and from the internal records of Capstone and Healthcare Realty; (ii)
reviewed the Merger Agreement; (iii) reviewed certain publicly available
information concerning the trading of, and the trading market for, Capstone
Common Stock and Healthcare Realty Common Stock; (iv) compared Capstone from a
financial point of view with certain other publicly traded companies in the
healthcare REIT industry which NationsBanc Montgomery deemed to be relevant; (v)
considered the financial terms, to the extent publicly available, of selected
recent business combinations of companies in the REIT industry which NationsBanc
Montgomery deemed to be comparable, in whole or in part, to the Merger; (vi)
reviewed and discussed with representatives of the management of Capstone and
Healthcare Realty certain information of a business and financial nature
regarding Capstone and Healthcare Realty, furnished to NationsBanc Montgomery by
Capstone and Healthcare Realty, including financial forecasts and related
assumptions of Capstone and Healthcare Realty; (vii) made inquiries regarding
and discussed the Merger and the Merger Agreement and other matters related
thereto with Healthcare Realty's counsel; and (viii) performed such other
analyses and examinations as NationsBanc Montgomery deemed appropriate.
In connection with its review, NationsBanc Montgomery did not assume any
obligation independently to verify the foregoing information and relied on its
being accurate and complete in all material respects. With respect to the
financial forecasts for Capstone and Healthcare Realty provided to NationsBanc
Montgomery by their respective management, upon their advice and with Healthcare
Realty's consent, NationsBanc Montgomery assumed for purposes of its opinion
that the forecasts were reasonably prepared on bases reflecting the best
available estimates and judgments of their respective management at the time of
preparation as to the future financial performance of Capstone and Healthcare
Realty and that they provided a reasonable basis upon which NationsBanc
Montgomery could form its opinion. NationsBanc Montgomery also assumed that
there were no material changes in Capstone's or Healthcare Realty's assets,
financial condition, results of operations, business or prospects since the
respective dates of their last financial statements made available to
NationsBanc Montgomery. NationsBanc Montgomery relied on advice of counsel and
independent accountants to Healthcare Realty as to all legal and financial
reporting matters with respect to Capstone, the Merger and the Merger Agreement.
NationsBanc Montgomery assumed that the Merger would be consummated in a manner
that complies in all respects with the applicable provisions of the Securities
Act, the Exchange Act and all other applicable federal and state statutes, rules
and regulations. In addition, NationsBanc Montgomery did not assume
responsibility for reviewing any individual credit, loan or real estate files,
or making an independent evaluation, appraisal or physical inspection of any of
the assets or liabilities (contingent or otherwise) of Capstone, nor was
NationsBanc Montgomery furnished with any such appraisals. Healthcare Realty
informed NationsBanc Montgomery, and NationsBanc Montgomery assumed,
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that the Merger will be recorded as a purchase under generally accepted
accounting principles. Finally, NationsBanc Montgomery's opinion was based on
economic, monetary and market and other conditions as in effect on, and the
information made available to NationsBanc Montgomery as of, the date of its
opinion. Accordingly, although subsequent developments may affect its opinion,
NationsBanc Montgomery has not assumed any obligation to update, revise or
reaffirm such opinion.
The following is a summary of the report presented by NationsBanc
Montgomery to the Healthcare Realty Board at its June 8, 1998 meeting in
connection with its opinion.
Comparable Company Analysis. Using publicly available information and
estimates of future financial results published by First Call, NationsBanc
Montgomery compared certain financial and operating information for Capstone
with the corresponding financial and operating information for a group of nine
publicly traded healthcare REITs which it deemed comparable to Capstone. For the
purpose of its analysis, the following companies were used as comparable
companies to Capstone: American Health Properties, Inc., Health & Retirement
Properties Trust, Health Care Property Investors, Inc., Health Care REIT, Inc.,
Healthcare Realty, LTC Properties Inc., National Health Investors, Inc.,
Nationwide Health Properties, Inc. and Omega Healthcare Investors, Inc.
(collectively, the "Comparable Companies").
NationsBanc Montgomery's calculations resulted in the following ranges for
the Comparable Companies as of June 5, 1998: a range of market value as a
multiple of projected 1998 FFO of 10.4x to 11.9x, with a mean of 11.0x and a
range of market value as a multiple of projected 1999 FFO of 9.6x to 11.1x, with
a mean of 10.4x. Application of these multiples to Capstone's estimated 1998 and
1999 FFO, resulted in an implied per share valuation of the Capstone Common
Stock that ranged from $21.18 to $26.23.
Comparable Transactions Analysis. NationsBanc Montgomery also reviewed the
financial terms, to the extent publicly available, of 14 pending or completed
mergers between publicly traded REITs which it considered relevant (the
"Comparable Transactions"). The Comparable Transactions included, (listed below
by target/acquiror): New Plan Realty Trust/Excel Realty Trust, ASR Investments
Corp./United Dominion Realty Trust, Oasis Residential, Inc./Camden Property
Trust, Ambassador Apartments, Inc./Apartment Investment Management and Trust,
Beacon Properties Corp./Equity Office Properties Trust, Value Property
Trust/Wellsford Real Properties, Evans Withycombe Residential, Inc./Equity
Residential Properties Trust, Columbus Realty Trust/Post Properties, Wellsford
Residential Property Trust/Equity Residential Properties Trust, Paragon Group,
Inc./Camden Property Trust, South West Property Trust/United Dominion Realty
Trust, ROC Communities, Inc./Chateau Properties, Crocker Realty Trust/Highwoods
Properties and DeBartolo Realty Corp./Simon Property Group.
For purposes of comparison, NationsBanc Montgomery utilized the target's
estimated FFO per share for the current calendar year if the transaction was
announced in the first half of the year or the next calendar year if the
transaction was announced in the second half of the year, based on First Call
and third-party analyst estimates available prior to the date the transaction
was announced. NationsBanc Montgomery noted the multiple of equity purchase
price to estimated forward year FFO for the Comparable Transactions ranged from
9.3x to 15.0x (with a mean of 11.4x). Application of these multiples to
Capstone's estimated 1998 FFO resulted in an implied per share valuation of the
Capstone Common Stock that ranged from $20.47 to $32.94.
No company or transaction used in the Comparable Companies or Comparable
Transactions analysis as a comparison is identical to Capstone or the Merger.
Accordingly, an analysis of the results of the foregoing is not mathematical;
rather, it involves complex considerations and judgments concerning differences
in financial and operating characteristics of the companies and other factors
that could affect the public trading, acquisition or other value of the
Comparable Companies or Comparable Transactions to which Capstone and the Merger
are being compared.
Net Asset Value Analysis. NationsBanc Montgomery performed a net asset
value analysis of Capstone's operating healthcare properties by subtracting
outstanding debt from the gross estimated value of the properties. The gross
estimated value for Capstone's operating assets was estimated by capitalizing
the projected annualized 1998 fourth quarter net operating income (gross rental
income less associated management expenses) as projected by Capstone management.
NationsBanc Montgomery included in fourth quarter
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annualized net operating income all income associated with
construction-in-progress due to be completed during 1998. Capitalization rates
from 8.5% to 10.0% were used, with a particular emphasis on 9.0% to 9.5%. The
net asset value analysis was further adjusted for land held in development,
healthcare properties held in development and gross investment in mortgage
notes. This analysis indicated an implied per share valuation of the Capstone
Common Stock that ranged from $21.78 to $27.02 ($23.34 to $25.08 for the
emphasized range).
Discounted Cash Flow Analysis. NationsBanc Montgomery applied a discounted
cash flow analysis to the cash flow forecasts for Capstone for calendar years
1998 through 2002, provided by the management of Capstone and adjusted by
NationsBanc Montgomery. In conducting this analysis, NationsBanc Montgomery
first calculated the present values of Capstone's forecasted cash flows and then
calculated the present value of the aggregate terminal value of Capstone at the
end of 2002 by applying multiples to Capstone's estimated FFO, which ranged from
10.0x to 12.0x. Such cash flows and aggregate terminal values were discounted to
present values using discount rates ranging from 8.5% to 9.5%, chosen to reflect
the weighted average cost of capital for the healthcare REIT industry. This
analysis indicated an implied per share valuation of the Capstone Common Stock
that ranged from $19.25 to $26.75.
Premiums Paid Analysis. NationsBanc Montgomery reviewed the consideration
paid in the Comparable Transactions. NationsBanc Montgomery calculated the
premiums paid or offered in the Comparable Transactions over the stock price of
the target company one day, one week and four weeks prior to the announcement of
the acquisition offer. Such analysis indicated median premiums, respectively, of
9.4%, 10.0% and 11.4%, respectively. Application of these premiums to the
respective Capstone Common Stock prices one day, one week and four weeks prior
to the announcement of the Merger, resulted in an implied per share valuation of
the Capstone Common Stock that ranged from $25.03 to $26.67. NationsBanc
Montgomery noted that the premiums implied by the Merger were 6.4%, 4.4% and
1.6%, respectively, for the period one day, one week and four weeks prior to the
announcement of the Merger.
Contribution Analysis. Using estimates and forecasts prepared by
Healthcare Realty management and by Capstone management and as adjusted by
NationsBanc Montgomery with respect to Capstone, NationsBanc Montgomery reviewed
the estimated contribution of each of Healthcare Realty and Capstone to
estimated calendar 1999 revenue and FFO for the combined company. NationsBanc
Montgomery then compared such contributions to the pro forma share ownership of
the combined company to be owned by each of Healthcare Realty's and Capstone's
Stockholders, assuming consummation of the Merger as described in the Merger
Agreement. Such analysis indicated that the Healthcare Realty Stockholders would
own approximately 51.4% of the pro forma combined company. Such analysis also
indicated that, based on such estimates, Healthcare Realty would contribute
approximately 43.7% and 49.4% of the combined company's pro forma estimated 1999
revenue and FFO, respectively.
Pro Forma Merger Analysis. NationsBanc Montgomery also analyzed the pro
forma effects resulting from the Merger, including the potential impact on
Healthcare Realty's projected stand alone FFO per share and the potential
accretion to Healthcare Realty's FFO per share resulting from the Merger.
NationsBanc Montgomery used management estimates for calendar year 1998 and 1999
for Healthcare Realty and Capstone. NationsBanc Montgomery performed the
analysis giving effect to the synergies anticipated by the management of
Healthcare Realty to result from the Merger (excluding non-recurring costs
resulting from the Merger) in each year. NationsBanc Montgomery observed that
the analysis showed the Merger to be accretive on a pro forma basis to
Healthcare Realty's estimated FFO per share in the fourth quarter of 1998 and
for fiscal year 1999. The actual results achieved from the Merger may vary from
the pro forma merger analysis and the variations may be substantial.
While the foregoing summary describes all analyses and examinations that
NationsBanc Montgomery deemed material to its opinion, it is not a comprehensive
description of the presentation by NationsBanc Montgomery to the Healthcare
Realty Board or of all analyses and examinations actually conducted by
NationsBanc Montgomery. The preparation of a fairness opinion necessarily is not
susceptible to partial analysis or summary description. NationsBanc Montgomery
believes that its analyses and the summary set forth above must be considered as
a whole and that selecting portions of its analyses and of the factors
considered, without considering all analyses and factors, would create an
incomplete view of the process
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underlying the analyses set forth in its presentation to the Healthcare Realty
Board. In addition, NationsBanc Montgomery may have given various analyses more
or less weight than other analyses, and may have deemed various assumptions more
or less probable than other assumptions. The fact that any specific analysis has
been referred to in the summary above is not meant to indicate that such
analysis was given greater weight than any other analysis. In arriving at its
opinion, NationsBanc Montgomery did not ascribe a specific range of values to
Capstone, but rather made its determination as to the fairness from a financial
point of view of the consideration to be paid by Healthcare Realty on the basis
of the financial and comparative analyses described above. Accordingly, the
ranges of valuations resulting from any particular analysis described above
should not be taken to be NationsBanc Montgomery's view of the actual value of
Capstone.
In performing its analyses, NationsBanc Montgomery made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of Healthcare
Realty and Capstone. The analyses performed by NationsBanc Montgomery are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than those suggested by such analyses. Such
analyses were prepared solely as part of NationsBanc Montgomery's analysis of
the financial fairness of the consideration to be paid by Healthcare Realty
pursuant to the Merger and were provided to the Healthcare Realty Board in
connection with the delivery of NationsBanc Montgomery's opinion. The analyses
do not purport to be appraisals or to reflect the prices at which a company
might actually be sold or the prices at which any securities may trade at any
time in the future. NationsBanc Montgomery used in its analyses various
projections of future performance prepared by the management of Capstone and
adjusted by NationsBanc Montgomery, Heathcare Realty and various third-party
analysts. These projections are based on numerous variables and assumptions,
which are inherently unpredictable and must be considered not certain of
occurrence as projected. Accordingly, actual results could vary significantly
from the projections used in connection with NationsBanc Montgomery's opinion.
As described above, NationsBanc Montgomery's opinion and presentation to
the Healthcare Realty Board were among the many factors taken into consideration
by the Healthcare Realty Board in making its determination to approve, and to
recommend that the Healthcare Realty Stockholders approve, the Merger.
Pursuant to the Engagement Letter, Healthcare Realty has agreed to pay
NationsBanc Montgomery a fee of $3.5 million in connection with the Merger,
$375,000 of which was paid upon execution of the Merger Agreement, $375,000 of
which will be payable upon mailing of this Joint Proxy Statement-Prospectus and
the remaining $2.75 million of which will be payable upon consummation of the
Merger. Accordingly, a significant portion of NationsBanc Montgomery's fee is
contingent upon closing of the Merger. Healthcare Realty has also agreed to
reimburse NationsBanc Montgomery for its reasonable out-of-pocket expenses,
including counsel fees. Pursuant to a separate letter agreement, Healthcare
Realty has agreed to indemnify NationsBanc Montgomery, its affiliates, and their
respective partners, directors, officers, agents, consultants, employees and
controlling persons against certain liabilities, including liabilities under
federal securities laws.
In the ordinary course of its business, NationsBanc Montgomery may actively
trade the equity securities of Capstone and Healthcare Realty for its own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities. NationsBank, the parent company of
NationsBanc Montgomery, and its affiliates maintain active banking and other
business relationships with Capstone and Healthcare Realty and serve as the lead
lending agent for both Capstone and Healthcare Realty. In addition, NationsBank
and its affiliates maintain active banking, investment banking and other
business relationships with HEALTHSOUTH and MedPartners and serve as the lead
lending agent for both HEALTHSOUTH and MedPartners. Richard M. Scrushy, Chairman
of Capstone, also serves as Chairman and Chief Executive Officer of HEALTHSOUTH
and Chairman of MedPartners.
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a purchase under
generally accepted accounting principles. The unaudited pro forma financial
information included in this Joint Proxy Statement-Prospectus reflects the
Merger using the purchase method of accounting. See "SUMMARY -- Comparative Per
Share Data" and "SUMMARY -- Summary Historical Consolidated Financial
Information."
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated U.S. federal income
tax consequences of the Merger to Capstone Stockholders who hold Capstone Common
Stock or Capstone Preferred Stock as a capital asset. The summary is based on
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations
thereunder, and administrative rulings and court decisions in effect as of the
date hereof, all of which are subject to change at any time, possibly with
retroactive effect. This summary is not a complete description of all of the
consequences of the Merger and, in particular, may not address U.S. federal
income tax considerations applicable to stockholders subject to special
treatment under U.S. federal income tax law (including, for example, non-U.S.
persons, financial institutions, dealers in securities, insurance companies,
tax-exempt entities, holders who acquired Capstone Common Stock pursuant to the
exercise of an employee stock option or right or otherwise as compensation, and
holders who hold Capstone Common Stock as part of a hedge, straddle or
conversion transaction). In addition, no information is provided herein with
respect to the tax consequences of the Merger under applicable foreign, state or
local laws. CAPSTONE STOCKHOLDERS ARE URGED TO CONSULT WITH THEIR TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE EFFECTS OF
U.S. FEDERAL, STATE AND LOCAL, FOREIGN, AND OTHER TAX LAWS.
In connection with the filing of the Registration Statement, Healthcare
Realty has received an opinion of Farris, Warfield & Kanaday PLC, special tax
counsel to Healthcare Realty, dated the date hereof, addressing and confirming
the status of Healthcare Realty as a REIT under the Code and the U.S. federal
income tax consequences of the Merger described below. Such opinion has been
rendered on the basis of facts, representations and assumptions set forth or
referred to in such opinion which are consistent with the state of facts
existing on the date of the opinion. In rendering this opinion, such counsel has
required and relied upon representations and covenants, including those
contained in certificates of officers of Capstone and Healthcare Realty.
Capstone's obligation to consummate the Merger is conditioned upon the
receipt of an opinion of Sirote & Permutt, P.C., and Healthcare Realty's
obligation to consummate the Merger is conditioned upon the receipt of an
opinion of Farris, Warfield & Kanaday PLC, in each case dated as of the
Effective Time, opining as to the same U.S. federal income tax consequences
discussed immediately below. Neither of the tax opinions to be delivered to the
parties in connection with the Merger as described herein are binding on the
Internal Revenue Service (the "IRS") or the courts, and the parties do not
intend to request a ruling from the IRS with respect to the Merger. Accordingly,
there can be no assurance that the IRS will not challenge the conclusions
reflected in such opinions or that a court will not sustain such challenge. Such
opinions will be to the effect that, for U.S. federal income tax purposes:
- The Merger will be treated as a reorganization within the meaning of
Section 368(a) of the Code;
- No gain or loss will be recognized by Healthcare Realty or Capstone as a
result of the Merger;
- No gain or loss will be recognized by the Capstone Stockholders who
exchange all of their Capstone Common Stock or Capstone Preferred Stock
solely for Healthcare Realty Common Stock or Healthcare Realty Preferred
Stock pursuant to the Merger (except with respect to cash received in
lieu of a fractional share interest in Healthcare Realty Common Stock);
and
- The aggregate tax basis of the Healthcare Realty Common Stock or
Healthcare Realty Preferred Stock received by Capstone Stockholders who
exchange all of their Capstone Common Stock or Capstone Preferred Stock
solely for Healthcare Realty Common Stock or Healthcare Realty Preferred
Stock pursuant to the Merger will be the same as the aggregate tax basis
of the Capstone Common Stock or Capstone Preferred Stock surrendered in
exchange therefor (reduced by any amount allocable to a fractional share
interest for which cash is received).
Based upon the current ruling position of the IRS, cash received by a
Capstone Stockholder in lieu of a fractional share interest in Healthcare Realty
Common Stock will be treated as received in redemption of such fractional share
interest, and a Capstone Stockholder should generally recognize capital gain or
loss for federal income tax purposes measured by the difference between the
amount of cash received and the portion of the
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tax basis of the share of Capstone Common Stock allocable to such fractional
share interest. Such gain or loss should be a long-term capital gain or loss if
the holding period for such share of Capstone Common Stock is greater than one
year at the Effective Time. In the case of individual Capstone Stockholders,
such capital gain will be taxed at a maximum rate of 20% if such Capstone
Stockholder's holding period is more than 12 months. The holding period of a
share of Healthcare Realty Common Stock received in the Merger (including a
fractional share interest deemed received and redeemed as described above) will
include the holder's holding period in the Capstone Common Stock surrendered in
exchange therefor.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Capstone's management and the Capstone Board may be
deemed to have certain interests in the Merger that are in addition to their
interests as Capstone Stockholders generally. The Capstone Board was aware of
these interests and considered them, among other matters, in approving the
Merger Agreement and the transactions contemplated thereby. See "CERTAIN
TRANSACTIONS."
COMPARISON OF RIGHTS OF STOCKHOLDERS
At the Effective Time, Capstone Stockholders will automatically become
Healthcare Realty Stockholders (except for Capstone Stockholders who hold only
Capstone Restricted Stock). Healthcare Realty is a Maryland corporation governed
by provisions of the MGCL, the Healthcare Realty Articles of Incorporation, as
amended (the "Healthcare Realty Articles"), and the Healthcare Realty Bylaws.
Capstone is a Maryland corporation governed by provisions of the MGCL, the
Capstone Articles of Incorporation (the "Capstone Articles") and the Capstone
Bylaws. See "COMPARATIVE RIGHTS OF COMMON STOCKHOLDERS OF CAPSTONE AND
HEALTHCARE REALTY" and "COMPARATIVE RIGHTS OF PREFERRED STOCKHOLDERS OF CAPSTONE
AND HEALTHCARE REALTY."
NO APPRAISAL RIGHTS
Under Maryland law, Capstone Stockholders do not have any right to dissent
from the Merger and receive the appraised value of their shares in cash rather
than Healthcare Realty capital stock.
BOARD OF DIRECTORS AND MANAGEMENT OF HEALTHCARE REALTY AFTER THE MERGER
When the Merger is complete, Capstone will be a wholly owned subsidiary of
Healthcare Realty. The current executive officers of Healthcare Realty will
continue as executive officers, and the Healthcare Realty Board will consist of
its current eight members. The executive officers and directors of Healthcare
Realty will serve in such capacities with Capstone after the merger. None of the
executive officers or members of the Capstone Board will continue to serve as
such after the Merger.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of Healthcare Realty Common Stock and Healthcare Realty
Preferred Stock issuable to Capstone Stockholders upon consummation of the
Merger have been registered under the Securities Act. Such securities may be
traded freely without restriction by those stockholders who are not deemed to be
"affiliates" of Capstone or Healthcare Realty, as that term is defined in the
rules promulgated under the Securities Act. Shares of Healthcare Realty Common
Stock received by those Capstone Stockholders who are deemed to be affiliates of
Capstone at the time of the Capstone Special Meeting may be resold without
registration under the Securities Act only as permitted by Rule 145 under the
Securities Act or as otherwise permitted thereunder.
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THE MERGER AGREEMENT
The Merger Agreement contains various representations and warranties by
Healthcare Realty and Capstone, and the obligations of Healthcare Realty and
Capstone under the Merger Agreement are subject to various conditions. The
following summary of certain terms and provisions of the Merger Agreement does
not purport to be complete and is qualified in its entirety by reference to the
Merger Agreement, which is incorporated herein by reference and, with the
exception of certain exhibits and schedules thereto, is attached as Annex A to
this Joint Proxy Statement-Prospectus.
CONDITIONS TO THE MERGER
The obligations of Capstone and Healthcare Realty to consummate the Merger
are subject to the satisfaction (or waiver, where legally allowed), at or prior
to the Effective Time, of a number of conditions set forth in the Merger
Agreement.
The obligations of both Capstone and Healthcare Realty are subject to
certain conditions, including:
- Approval of the Merger by the Capstone Stockholders;
- Approval of the issuance of the Merger Consideration (defined in the
Merger Agreement) by the Healthcare Realty Stockholders;
- The receipt of the Required Statutory Approvals (defined in the Merger
Agreement), with such Required Statutory Approvals remaining in full
force as of the Effective Time;
- The effectiveness of the Registration Statement pertaining to the
issuance of the Healthcare Realty Common Stock and Healthcare Realty
Preferred Stock under the Securities Act and the absence of any stop
order suspending such effectiveness and of any pending or threatened
proceedings for such purpose by the Securities and Exchange Commission;
- The absence of any order, decree or injunction issued by any court of
competent jurisdiction which would prevent or materially delay the
consummation of the Merger, or would impose any material limitation on
Healthcare Realty's ability to exercise effectively full rights of
ownership of Capstone's assets or business;
- The fairness opinions not having been withdrawn, revoked or modified in
any material respect; and
- The consulting and non-competition agreements having been entered into.
In addition, each party's obligations under the Merger Agreement are
subject to certain conditions, including:
- The accuracy of the representations of the other party to the Merger
Agreement as of the Closing Date (defined in the Merger Agreement) as
though made as of the Closing Date, subject to the materiality standards
set forth in the Merger Agreement, and the receipt of a certificate to
the foregoing effect signed on behalf of such other party by an officer
thereof;
- The performance by the other party to the Merger Agreement in all
material respects of all of the obligations required to be performed by
it under the Merger Agreement at or prior to the Closing Date, and the
receipt of a certificate to the foregoing effect signed on behalf of such
other party by an officer thereof;
- The receipt of legal and tax opinions from legal counsel to Capstone and
the receipt of legal and tax opinions from legal counsel to Healthcare
Realty;
- With respect to Capstone's obligations, the authorization for listing on
the New York Stock Exchange of the shares of Healthcare Realty Common
Stock and Healthcare Realty Preferred Stock to be issued in the Merger,
subject to official notice of issuance; and
- With respect to Healthcare Realty's obligations, the cancellation of the
current employment agreement of John W. McRoberts.
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<PAGE> 45
CONDUCT OF BUSINESS PRIOR TO THE MERGER AND OTHER COVENANTS
In the Merger Agreement, Capstone has agreed that, prior to the Effective
Time and except as expressly contemplated or permitted by the Merger Agreement
or with the prior written consent of Healthcare Realty, Capstone and its
subsidiaries will carry on their businesses in the ordinary course consistent
with past practice and will not take certain extraordinary actions. Those
actions are set forth in Sections 5.1 and 5.2 of the Merger Agreement.
In the Merger Agreement, Healthcare Realty has agreed that, prior to the
Effective Time and except as expressly contemplated or permitted by the Merger
Agreement or with the prior written consent of Capstone, Healthcare Realty and
its subsidiaries will carry on their businesses in the ordinary course
consistent with past practice.
The Merger Agreement also contains certain other agreements relating to the
conduct of the parties prior to the Effective Time, including, among other
things, those requiring:
- Capstone to maintain its status as a REIT;
- Each party, subject to certain limitations regarding privileged or
confidential information, to afford to the officers, employees,
accountants, counsel and other representatives of the other party to the
Merger Agreement access during normal business hours to all of such
party's properties, books, contracts, commitments, records, officers,
employees, accountants, counsel and make available all information
concerning its business, properties and personnel as such other party may
reasonably request;
- Each party to use reasonable best efforts to obtain all permits,
consents, approvals and authorizations of all third parties and
governmental entities necessary or advisable to consummate the
transactions contemplated by the Merger Agreement;
- Capstone to hold the Capstone Special Meeting and to recommend to
Capstone Stockholders approval of the Merger Agreement and the
transactions contemplated thereby and related matters;
- Healthcare Realty to use its best efforts to register the sale of the
shares of Healthcare Realty Common Stock and Healthcare Realty Preferred
Stock to be issued in the Merger;
- Capstone to use its best efforts to cause each director, executive
officer and other person who is an "affiliate" of Capstone for purposes
of Rule 145 under the Securities Act to deliver to Healthcare Realty as
soon as practicable a written agreement intended to ensure compliance
with the Securities Act; and
- Healthcare Realty to use its best efforts to cause the shares of
Healthcare Realty Common Stock and Healthcare Realty Preferred Stock to
be issued in the Merger to be approved for listing on the New York Stock
Exchange, subject to official notice of issuance, as of the Effective
Time.
In addition, Healthcare Realty agreed to provide indemnification to the
officers and directors of Capstone from acts or omissions occurring prior to the
Closing Date to the same extent as Healthcare Realty indemnifies its own
officers and directors and to maintain in effect the directors' and officers'
liability insurance currently maintained by Capstone.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the Capstone Stockholders or the
Healthcare Realty Stockholders:
- By mutual consent of the respective Boards of Directors of Healthcare
Realty and Capstone;
- By either Healthcare Realty or Capstone if the Merger is not consummated
on or before December 31, 1998, unless the party seeking to terminate the
Merger Agreement has breached its obligations set forth therein;
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<PAGE> 46
- By either Healthcare Realty or Capstone (provided that the terminating
party is not then in material breach of any representation, warranty,
covenant or other agreement contained in the Merger Agreement) if there
is a material breach of any of the representations or warranties set
forth in the Merger Agreement on the part of the other party and that
breach (a) is not cured within 15 business days following written notice
to the party committing the breach, or (b) by its nature, cannot be cured
prior to the Closing Date;
- By Healthcare Realty if the Capstone Board either fails to recommend the
approval of the Merger Agreement or has withdrawn its recommendation to
the Capstone Stockholders; or
- By Healthcare Realty if Capstone enters into a definitive agreement with
another bidder with respect to a merger, sale of assets, or other
business combination.
In the event of termination of the Merger Agreement pursuant to its terms,
the Merger Agreement will become void and have no effect, except with respect to
the parties' obligations with respect to confidential information, expenses or
the break-up fee described below and except that termination will not relieve or
release a breaching party from liability or damages for its willful breach of
the Merger Agreement.
NON-SOLICITATION
Capstone has agreed that neither Capstone nor its subsidiaries will,
directly or indirectly, through any officer, director, agent or otherwise, (i)
solicit, initiate or encourage submission of proposals or offers from any person
relating to any acquisition or purchase of all or (other than in the ordinary
course of business) a material amount of the assets of, or any equity interest
in, Capstone or any merger, consolidation, or business combination with
Capstone, or (ii) subject to the obligations of Capstone's directors and
officers under applicable law as advised by counsel, participate in any
discussions or negotiations regarding, or furnish to any other person any
information with respect to, any of the foregoing, or (iii) otherwise cooperate
in any way with, or assist or participate in, facilitate or encourage, any
effort or attempt by any other person to do or seek any of the foregoing.
Capstone has agreed that it shall promptly notify Healthcare Realty if any such
proposal or offer, or any inquiry or contact with any person with respect
thereto, is made. The provisions of the Merger Agreement do not prohibit
Capstone or the Capstone Board from taking any particular position with respect
to any such offer or proposal or from otherwise withdrawing, modifying or
amending its recommendation with respect to the Merger, in each case to the
extent required by the obligations of Capstone's directors and officers under
applicable law as advised by counsel, or from disclosing to its stockholders a
position as contemplated by Rule 14e-2 promulgated under the Securities Exchange
Act of 1934 or from making such other disclosure to stockholders which, in the
judgment of the Capstone Board on advice of counsel, may be required by law in
connection with any such proposal or offer.
TERMINATION FEE; EXPENSES
Except as described in the following paragraphs, each party to the Merger
Agreement will bear all expenses incurred by it in connection with the Merger
Agreement and the transactions contemplated thereby, except that Capstone and
Healthcare Realty will share equally the expenses of printing and distributing
this Joint Proxy Statement-Prospectus. Capstone's expenses for legal and
accounting fees and expenses will not exceed $1.1 million.
The Merger Agreement contains provisions designed to protect the investment
of time and money made by Healthcare Realty in negotiating and attempting to
complete the Merger. If the Merger is terminated because of certain events, or
because certain events occur within six months after termination, involving a
competing offer from another bidder, including:
- A tender or exchange offer in circumstances where the Capstone Board does
not recommend rejection of the third party tender or exchange offer;
- Receipt of a proposal for a merger, consolidation, sale of a material
amount of assets or other business combination from another bidder, or a
transaction whereby 25% of the voting power of Capstone is
39
<PAGE> 47
transferred to another party and either the Capstone Board accepts the
proposal or does not reject the proposal within a reasonable time;
- The withdrawal, modification or amendment of the Capstone Board's
favorable recommendation of the Merger; or
- The occurrence of such an event within six months after the Merger is
terminated,
then Capstone will pay to Healthcare Realty the sum of $20 million plus
Healthcare Realty's expenses.
If the Merger is terminated because one party has breached any obligation,
covenant, agreement, or representation, then the breaching party shall pay the
expenses of the non-breaching party.
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
MARKET PRICES
HEALTHCARE REALTY COMMON STOCK
Healthcare Realty Common Stock is listed on the New York Stock Exchange
under the symbol "HR." As of August 18, 1998, Healthcare Realty Common Stock was
held of record by approximately 1,200 persons. The following table sets forth
the high and low closing sale prices for Healthcare Realty Common Stock as
reported by the New York Stock Exchange for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1996
First Quarter........................................ $23.1250 $20.8750
Second Quarter....................................... 23.7500 21.5000
Third Quarter........................................ 24.1250 21.5000
Fourth Quarter....................................... 26.8750 23.0000
1997
First Quarter........................................ 29.1250 26.0000
Second Quarter....................................... 27.8750 25.5000
Third Quarter........................................ 29.0000 27.3750
Fourth Quarter....................................... 29.8750 27.8130
1998
First Quarter........................................ 29.9375 27.3750
Second Quarter....................................... 28.6250 26.9375
Third Quarter (through August 18, 1998).............. 28.5625 25.3125
</TABLE>
HEALTHCARE REALTY PREFERRED STOCK
None of the Healthcare Realty Preferred Stock will be issued or outstanding
prior to consummation of the Merger. Therefore, there is no market for the
shares.
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<PAGE> 48
CAPSTONE COMMON STOCK
Capstone Common Stock is listed on the New York Stock Exchange under the
symbol "CCT." As of August 18, 1998, Capstone Common Stock was held of record by
approximately 583 persons. The following table sets forth the high and low
closing sale prices for Capstone Common Stock as reported by the New York Stock
Exchange for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1996
First Quarter............................................. $21.5000 $18.8750
Second Quarter............................................ 21.5000 19.5000
Third Quarter............................................. 21.2500 19.7500
Fourth Quarter............................................ 21.8750 20.7500
1997
First Quarter............................................. 24.1250 22.3750
Second Quarter............................................ 24.3750 21.3750
Third Quarter............................................. 24.5000 22.8750
Fourth Quarter............................................ 25.5625 23.3750
1998
First Quarter............................................. 25.9375 23.7500
Second Quarter............................................ 24.3750 22.0625
Third Quarter (through August 18, 1998)................... 23.7500 20.6250
</TABLE>
CAPSTONE PREFERRED STOCK
Capstone Preferred Stock is listed on the New York Stock Exchange under the
symbol "CCT PrA." As of August 18, 1998, Capstone Preferred Stock was held of
record by approximately 61 persons. The following table sets forth the high and
low closing sale prices for Capstone Preferred Stock as reported by the New York
Stock Exchange for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1997
Fourth Quarter............................................ $25.5625 $24.4375
1998
First Quarter............................................. 25.7500 24.8125
Second Quarter............................................ 25.1875 24.0000
Third Quarter (through August 18, 1998)................... 24.9375 23.9375
</TABLE>
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<PAGE> 49
DIVIDENDS
The following table sets forth dividends declared per share of Healthcare
Realty Common Stock, Capstone Common Stock and Capstone Preferred Stock,
respectively, for the periods indicated. The ability of either Healthcare Realty
or Capstone to pay dividends to its respective stockholders is subject to
certain restrictions.
HEALTHCARE REALTY COMMON STOCK
<TABLE>
<CAPTION>
DISTRIBUTION
PER SHARE
------------
<S> <C>
1996:
First Quarter............................................. $ .475
Second Quarter............................................ .480
Third Quarter............................................. .485
Fourth Quarter............................................ .490
-------
Total............................................. $ 1.930
1997:
First Quarter............................................. $ .495
Second Quarter............................................ .500
Third Quarter............................................. .505
Fourth Quarter............................................ .510
-------
Total............................................. $ 2.010
1998:
First Quarter............................................. $ .515
Second Quarter............................................ .520
</TABLE>
CAPSTONE COMMON STOCK
<TABLE>
<CAPTION>
DISTRIBUTION
PER SHARE
------------
<S> <C>
1996:
First Quarter............................................. $ .445
Second Quarter............................................ .455
Third Quarter............................................. .460
Fourth Quarter............................................ .465
-------
Total............................................. $ 1.825
1997:
First Quarter............................................. $ .470
Second Quarter............................................ .475
Third Quarter............................................. .480
Fourth Quarter............................................ .485
-------
Total............................................. $ 1.910
1998:
First Quarter............................................. $ .490
Second Quarter............................................ .495
</TABLE>
CAPSTONE PREFERRED STOCK
<TABLE>
<CAPTION>
DISTRIBUTION
PER SHARE
------------
<S> <C>
1997:
Fourth Quarter............................................ $.36979
1998:
First Quarter............................................. $.55469
Second Quarter............................................ .55469
</TABLE>
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<PAGE> 50
CERTAIN TRANSACTIONS
If you are a Capstone Stockholder, in considering the Capstone Board's
recommendation that you vote in favor of the Merger, you should be aware that
several of Capstone's directors and officers have agreements that provide them
with interests in the Merger that are different from, or in addition to, yours.
Such interests include:
RESTRICTED STOCK AND STOCK OPTIONS
Immediately prior to the Effective Time, Capstone will redeem each
outstanding share of Capstone Restricted Stock (whether vested or unvested) for
cash in an amount of $24.33 per restricted share. Capstone will provide such
cash from available cash resources or borrowings. Such amount is equivalent to
the Exchange Ratio multiplied by the closing price of Healthcare Realty Common
Stock on May 13, 1998.
At the Effective Time, Healthcare Realty will purchase all rights with
respect to each option to purchase Capstone Common Stock outstanding at the
Effective Time (whether or not vested or exercisable) for cash in an amount per
share equal to the excess of (i) $24.33 over (ii) the stated exercise price per
share of such option.
The following table sets forth the number of restricted shares and stock
options owned by the executive officers and directors of Capstone and the amount
of cash each such person will receive:
<TABLE>
<CAPTION>
NUMBER OF
RESTRICTED CASH NUMBER OF CASH
NAME SHARES PAYMENT OPTIONS PAYMENT
- ---- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Richard M. Scrushy.......... 107,300 $ 2,610,609 158,000 $1,099,015
John W. McRoberts........... 186,000 4,525,380 250,000 1,754,375
Malcolm E. McVay............ 35,800 871,014 50,000 85,250
Andrew L. Kizer............. 23,700 576,621 105,000 732,775
Michael D. Martin........... 51,500 1,252,995 110,000 771,925
Robert N. Elkins............ 16,450 400,229 50,000 318,375
Eric R. Hanson.............. 16,450 400,229 50,000 318,375
Larry R. House.............. 16,450 400,229 50,000 309,000
Larry D. Striplin, Jr....... 16,450 400,229 50,000 318,375
Barry Morton................ 16,450 400,229 50,000 318,375
George E. Bogle............. 16,450 400,229 50,000 318,375
------- ----------- ------- ----------
Total 503,000 $12,237,993 973,000 $6,344,215
</TABLE>
CONSULTING AND NON-COMPETITION AGREEMENTS
Each of Richard M. Scrushy, Michael D. Martin and John W. McRoberts will
enter into a consulting and non-competition agreement with Healthcare Realty,
pursuant to which they will perform consulting and advisory services with
respect to the combined entity for a period of six years. Such persons will
assist Healthcare Realty in the transition of Capstone's assets and activities
to Healthcare Realty and the integration of those assets and activities with the
assets and activities of Healthcare Realty. Moreover, such persons will provide
assistance, advice and counsel to Healthcare Realty in the promotion and
enhancement of Healthcare Realty's business.
For such services, each such person will receive a cash payment at the
closing as shown on the following table. In addition, each person will receive
the number of shares of Healthcare Realty Common Stock shown on the following
table, payable in four equal annual installments beginning in October 1999:
<TABLE>
<CAPTION>
CASH
NAME PAYMENT SHARES
- ---- ---------- ----------
<S> <C> <C>
Richard M. Scrushy.................................. $2,040,000 360,000
Michael D. Martin................................... $1,020,000 180,000
John W. McRoberts................................... $ 340,000 60,000
</TABLE>
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<PAGE> 51
OFFICE FURNITURE, FIXTURES AND EQUIPMENT
Simultaneously with the closing of the Merger, Capstone and certain of its
subsidiaries will sell substantially all of the personal property at Capstone's
headquarters used by Capstone or its subsidiaries to Orthopaedic Surgeons, Inc.,
a Delaware corporation the majority of the capital stock of which is owned by
HEALTHSOUTH and MedPartners. In consideration for these assets, Orthopaedic
Surgeons, Inc. will (i) assume Capstone's obligations under the lease of its
headquarters, (ii) assume Capstone's obligations under certain office equipment
leases, (iii) for non-leased assets, pay Capstone $350,000 and (iv) obtain the
release of Capstone of its obligations under any of its leases.
INFORMATION ABOUT HEALTHCARE REALTY
Healthcare Realty is incorporated in Maryland and is a self-managed and
self-administered real estate investment trust that integrates owning, managing
and developing income-producing real estate properties associated with the
delivery of healthcare services throughout the United States. As of June 30,
1998, Healthcare Realty's portfolio was comprised of seven facility types,
located in 44 markets nationwide, and operated pursuant to contractual
arrangements with 19 healthcare providers. From the commencement of operations
in June 1993 to June 30, 1998, Healthcare Realty invested or committed to invest
over $530 million in 91 income-producing real estate properties totaling over
4.4 million square feet. At June 30, 1998, Healthcare Realty provided property
management services for 148 properties, totaling over 4.0 million square feet,
and third-party asset management services for 294 properties, totaling over 1.2
million square feet.
Healthcare Realty's executive offices are located at 3310 West End Avenue,
Suite 700, Nashville, Tennessee 37203, and its telephone number is (615)
269-8175.
For more information regarding Healthcare Realty, see "WHERE YOU CAN FIND
MORE INFORMATION" on page 64.
RECENT DEVELOPMENTS
Both Healthcare Realty and Capstone have outstanding credit facilities from
commercial banks led by NationsBank. Healthcare Realty anticipates combining
both credit facilities into one new credit facility. NationsBank has indicated
an interest in discussing the transaction, and Healthcare Realty has supplied
NationsBank with certain requested information. No terms have been agreed to.
However, while Healthcare Realty can give no assurances, it believes that it
will obtain a combined credit facility on economically reasonable terms.
During April and May 1998, Healthcare Realty participated in two private
offerings and sold an aggregate of 49,953 shares of common stock for aggregate
proceeds of $1.4 million.
On July 1, 1998, warrants for 128,149 shares of common stock were
exercised. Healthcare Realty received $2.4 million in proceeds from the
exercise. Healthcare Realty has no other warrants outstanding.
On July 28, 1998, Healthcare Realty declared a dividend of $0.520 per share
to the holders of its common stock as of the close of business on August 6,
1998. This dividend related to the period from March 31, 1998 through June 30,
1998.
INFORMATION ABOUT CAPSTONE
Capstone is incorporated in Maryland and is a self-managed and
self-administered real estate investment trust which owns, leases and invests in
a diversified portfolio of healthcare properties. As of June 30, 1998,
Capstone's investments consisted of (i) 95 healthcare properties, excluding
construction in progress, leased to 18 healthcare operators, and (ii) 74
mortgage loans on healthcare properties, including loans related to construction
in progress, made to 36 healthcare operators. For the quarter ended June 30,
1998, Capstone realized approximately $32.5 million of rental income from its
leased properties and approximately $5.2 million of interest income from its
mortgage loans. Capstone's investments are located in 30 states, primarily
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<PAGE> 52
in the southeastern and western regions of the United States, and represent a
variety of facility types in diverse healthcare industry segments. Capstone's
aggregate investments and commitments to invest not yet funded have grown from
approximately $115 million in investments at inception on June 30, 1994 to
approximately $764.5 million in investments, excluding approximately $38.2
million in construction in progress, and approximately $91.0 million in
commitments to invest not yet funded on June 30, 1998.
Capstone's executive offices are located at 1000 Urban Center Drive, Suite
630, Birmingham, Alabama 35242, and its telephone number is (205) 967-2092.
For more information regarding Capstone, see "WHERE YOU CAN FIND MORE
INFORMATION" on page 64.
DESCRIPTION OF HEALTHCARE REALTY COMMON STOCK
Healthcare Realty is authorized to issue 150,000,000 shares of Common
Stock. The following description of the Healthcare Realty Common Stock sets
forth certain general terms and provisions of the Healthcare Realty Common
Stock. The statements below describing the Healthcare Realty Common Stock are in
all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Healthcare Realty Articles and the Healthcare
Realty Bylaws.
Holders of shares of Healthcare Realty Common Stock are entitled to receive
such dividends as the Healthcare Realty Board may declare out of funds legally
available for the payment of dividends. Upon issuance, the shares of Healthcare
Realty Common Stock will be fully paid and nonassessable and have no preferences
or conversion, exchange or preemptive rights. In the event of any liquidation,
dissolution or winding-up of Healthcare Realty, the holders of shares of
Healthcare Realty Common Stock are entitled to share ratably in any of
Healthcare Realty's assets remaining after the satisfaction of all obligations
and liabilities of Healthcare Realty and after required distributions to holders
of Healthcare Realty preferred stock, if any. The Healthcare Realty Common Stock
is subject to restrictions on transfer under certain circumstances described
under "Restrictions on Transfer" below. Each share is entitled to one vote on
all matters voted upon by the holders of Healthcare Realty Common Stock. Holders
of shares of Healthcare Realty Common Stock have no cumulative voting rights.
RESTRICTIONS ON TRANSFER
For Healthcare Realty to qualify as a REIT under the Code in any taxable
year after the first year of its election to be treated as a REIT, (i) not more
than 50% in value of its outstanding Stock (as defined below) may be owned,
directly or indirectly (after application of certain attribution rules), by five
or fewer individuals at any time during the last half of its taxable year, and
(ii) its Stock must be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a proportionate part of a
shorter taxable year. In order to ensure that requirement (i) above is
satisfied, the Healthcare Realty Board has the power to refuse to transfer
shares of Healthcare Realty Common Stock and/or Healthcare Realty Preferred
Stock (collectively, the "Stock"), to any person whose acquisition of such
shares would result in the direct or indirect ownership of more than 9.9% in
value of the outstanding Stock (the "Share Limit"). All such shares in excess of
the Share Limit are referred to as "Excess Shares."
In connection with the foregoing, if the Healthcare Realty Board at any
time and in good faith, believes that direct or indirect ownership (as
determined under applicable federal tax attribution rules) in excess of the
Share Limit has or may become concentrated in the hands of one beneficial owner,
the Healthcare Realty Board has the power to refuse to transfer or issue Stock
to a person whose acquisition of such Stock would cause a beneficial holder to
hold in excess of the Share Limit. Further, any transfer of Stock that would
cause a beneficial owner to hold shares of Stock in excess of the Share Limit
shall be deemed void, and the intended transferee shall be deemed never to have
had an interest therein.
If at any time there is a transfer in violation of such restrictions, the
Excess Shares shall be deemed to have been transferred to Healthcare Realty, as
trustee for the benefit of such persons to whom the Excess
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<PAGE> 53
Shares are later transferred. Subject to Healthcare Realty's right to purchase
the Excess Shares, the interest in the trust representing the Excess Shares
shall be freely transferable by the intended transferee at a price that does not
exceed the price paid by the intended transferee of the Excess Shares. Excess
Shares will have no voting rights, and shall not be considered for the purpose
of any stockholder vote or determining a quorum, but will continue to be
reflected as issued and outstanding stock. No dividends shall be paid with
respect to Excess Shares. Healthcare Realty shall have the right to purchase
Excess Shares for the lesser of the amount paid for the Excess Shares by the
intended transferee or the market price. The market price for any Stock so
purchased shall be equal to the fair market value of such shares reflected in
(i) the closing sales price for the Stock, if then listed on a national
securities exchange, (ii) the average closing sales price of such Stock, if then
listed on more than a national securities exchange, or (iii) if the Stock is not
then listed on a national securities exchange, the latest bid quotation for the
Stock if then traded over-the-counter, as of the day immediately preceding the
date on which notices of such purchase are sent by Healthcare Realty. If no such
closing sales prices or quotations are available, the purchase price will equal
the net asset value of such Stock as determined by the Healthcare Realty Board
in good faith.
All certificates representing shares of Healthcare Realty Common Stock or
Healthcare Realty Preferred Stock will bear a legend referring to the
restrictions described above.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance of equity securities) between a Maryland corporation and any person
who beneficially owns 10% of more of the voting power of the corporation's
outstanding voting stock (an "Interested Stockholder") or an affiliate of such
person are prohibited for five years after the most recent date on which the
Interested Stockholder becomes an Interested Stockholder. Thereafter, any such
business combination must be: (a) recommended by the corporation's board of
directors; and (b) approved by the affirmative vote of at least (i) 80% of the
corporation's outstanding shares entitled to vote and (ii) two-thirds of the
outstanding shares entitled to vote which are not held by the Interested
Stockholder with whom (or with whose affiliate) the business combination is to
be effected, unless, among other things, the corporation's common stockholders
receive a minimum price (as defined in the statute) for their shares and the
consideration is received in cash or in the same form as previously paid by the
Interested Stockholder for his or her shares. These provisions of Maryland law
do not apply, however, to business combinations that are approved by the board
of directors of a Maryland corporation prior to such person becoming an
Interested Stockholder.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" may not be voted except to the extent approved
by a vote of two-thirds of all the votes entitled to be cast on the matter by
stockholders, excluding voting shares owned by the acquirer and officers and
directors who are also employees of the corporation. "Control shares" are voting
shares of stock which, if aggregated with all other shares of stock owned by a
person or in respect of which that person is entitled to exercise or direct the
exercise of voting power (except solely by virtue of a revocable proxy), would
entitle the acquirer to exercise voting power in electing directors within one
of the following ranges of voting power: (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, or (iii) a majority
or more of all shares having voting power. Control shares do not include shares
the acquiring person is entitled to vote because stockholder approval has
previously been obtained. A "control share acquisition" means the acquisition of
control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition and
who has obtained a definitive financing agreement with a responsible financial
institution providing for any amount of financing not to be provided by the
acquiring person may compel the corporation's board of directors to call a
special meeting of stockholders to be held within 50 days of demand to consider
the voting rights of the shares. If no request for a meeting is made, the
corporation may itself present the question at any stockholders' meeting.
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<PAGE> 54
Subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares, except those for which voting rights have
previously been approved, for fair value determined, without regard to voting
rights, as of the date of the last control share acquisition or as of the date
of any meeting of stockholders at which the voting rights of such shares are
considered and not approved. If voting rights for control shares are approved at
a stockholders' meeting and the acquirer is entitled to vote a majority of the
shares entitled to vote, all other stockholders may exercise appraisal rights.
The fair value of the shares as determined for purposes of such appraisal rights
may not be less than the highest price per share in the control share
acquisition, and certain limitations and restrictions otherwise applicable to
the exercise of dissenters' rights do not apply in the context of a control
share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to the acquisitions approved or exempted by the articles of
incorporation or bylaws of the corporation prior to a control share acquisition.
The limitation on ownership of Healthcare Realty Common Stock set forth in
the Healthcare Realty Articles, as well as the provisions of Maryland law
described above, could have the effect of discouraging offers to acquire
Healthcare Realty or delaying, deferring or preventing a transaction or a change
in control of Healthcare Realty that might result in a premium price to or
otherwise be in the best interest of Healthcare Realty Stockholders.
DIVIDEND REINVESTMENT PLAN AND EMPLOYEE STOCK PURCHASE PLAN
Healthcare Realty has adopted and implemented a Dividend Reinvestment Plan
to provide registered owners of Healthcare Realty Common Stock with a method of
investing dividends and other distributions paid in cash in additional shares of
Healthcare Realty Common Stock. Healthcare Realty has also adopted an Employee
Stock Purchase Plan to allow employees of Healthcare Realty to purchase shares
of Healthcare Realty Common Stock on terms and conditions set forth in such
plans. Since such additional shares of Healthcare Realty Common Stock will be
purchased from Healthcare Realty, Healthcare Realty will receive additional
funds which will be used for its general corporate purposes.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Healthcare Realty Common Stock is
presently BankBoston, N.A.
DESCRIPTION OF HEALTHCARE REALTY PREFERRED STOCK
Healthcare Realty is authorized to issue 50,000,000 shares of preferred
stock consisting of 3,000,000 shares of 8 7/8% Series A Voting Cumulative
Preferred Stock, par value $.01 per share, and 47,000,000 shares of undesignated
preferred stock. The following description of the Healthcare Realty Preferred
Stock sets forth certain general terms and provisions of the Healthcare Realty
Preferred Stock. The statements below describing the Healthcare Realty Preferred
Stock are in all respects subject to and qualified in their entirety by
reference to the applicable provisions of the Healthcare Realty Articles
(including the Articles Supplementary describing the designations, rights, and
preferences of the Healthcare Realty Preferred Stock) and the Healthcare Realty
Bylaws.
The Healthcare Realty Articles authorize the Healthcare Realty Board to
issue preferred stock from time to time in one or more series and designate the
number of shares constituting each series of preferred stock and the
designations and powers, preferences and relative, participating, optional or
other special rights and qualifications, limitations or restrictions thereof,
including such provisions as may be desired concerning voting, redemption,
dividends, dissolution or the distribution of assets, conversion or exchange,
and such other subjects or matters as may be fixed by resolution of the
Healthcare Realty Board. The Healthcare Realty Board has classified 3,000,000 of
its shares of preferred stock as shares of 8 7/8% Series A Voting Cumulative
Preferred Stock, par value $.01 per share, to be issued in connection with the
Merger. The Healthcare Realty Preferred Stock will, when issued, be fully paid
and nonassessable and will have no preemptive rights.
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RANK
The Healthcare Realty Preferred Stock will, with respect to dividend rights
and rights upon liquidation, dissolution or winding up of Healthcare Realty,
rank (i) senior to all classes or series of Healthcare Realty Common Stock, and
to all equity securities ranking junior to such Healthcare Realty Preferred
Stock, (ii) on a parity with all equity securities issued by Healthcare Realty
the terms of which specifically provide that such equity securities rank on a
parity with the Healthcare Realty Preferred Stock, and (iii) junior to all
equity securities issued by Healthcare Realty the terms of which specifically
provide that such equity securities rank senior to the Healthcare Realty
Preferred Stock.
DIVIDENDS
Holders of shares of the Healthcare Realty Preferred Stock shall be
entitled to receive, when, as and if declared by the Healthcare Realty Board,
out of assets of Healthcare Realty legally available for payment, cumulative
preferential cash dividends at the rate of 8 7/8% per annum of the liquidation
preference ($25 per share), payable quarterly in arrears on or before the last
business day in February, May, August and November of each year. Each such
dividend shall be payable to holders of record as they appear on the stock
transfer books of Healthcare Realty on such record dates as shall be fixed by
the Healthcare Realty Board.
Dividends on the Healthcare Realty Preferred Stock will be cumulative from
and after the Effective Time of the Merger.
If any shares of the Healthcare Realty Preferred Stock of any series are
outstanding, no dividends shall be declared or paid or set apart for payment on
the preferred stock of Healthcare Realty of any other series ranking, as to
dividends, on a parity with or junior to the Healthcare Realty Preferred Stock
for any period unless full dividends have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
such payment on the Healthcare Realty Preferred Stock.
When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon the shares of Healthcare Realty Preferred
Stock and the shares of any other series of preferred stock ranking on a parity
as to dividends with the Healthcare Realty Preferred Stock, all dividends
declared upon shares of Healthcare Realty Preferred Stock and any other series
of Healthcare Realty Preferred Stock ranking on a parity as to dividends with
such Healthcare Realty Preferred Stock shall be declared pro rata among the
holders of such series. No interest, or sum of money in lieu of interest, shall
be payable in respect of any dividend payment or payments on Healthcare Realty
Preferred Stock of such series which may be in arrears.
Until required dividends are paid, no dividends (other than in Healthcare
Realty Common Stock or other capital stock ranking junior to the Healthcare
Realty Preferred Stock as to dividends and upon liquidation) shall be declared
or paid or set aside for payment or other distribution shall be declared or made
upon the Healthcare Realty Common Stock or any other capital stock of Healthcare
Realty ranking junior to or on a parity with the Healthcare Realty Preferred
Stock of such series as to dividends or upon liquidation, nor shall any
Healthcare Realty Common Stock or any other capital stock of Healthcare Realty
ranking junior to or on a parity with the Healthcare Realty Preferred Stock of
such series as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any shares of any such stock)
by Healthcare Realty (except by conversion into or exchange for other capital
stock of Healthcare Realty ranking junior to the Healthcare Realty Preferred
Stock of such series as to dividends and upon liquidation).
Any dividend payment made on shares of Healthcare Realty Preferred Stock
shall first be credited against the earliest accrued but unpaid dividend due
with respect to shares of Healthcare Realty Preferred Stock of such series which
remains payable.
REDEMPTION
The Healthcare Realty Preferred Stock is not redeemable prior to September
30, 2002. On and after September 30, 2002, Healthcare Realty, at its option upon
not less than 30 nor more than 60 days' written notice, may redeem shares of the
Healthcare Realty Preferred Stock, in whole or in part, at any time or from
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time to time, for cash at the Redemption Price (as defined below), without
interest. No Healthcare Realty Preferred Stock may be redeemed except with funds
legally available for the payment of the Redemption Price. If less than all is
to be redeemed, the Healthcare Realty Preferred Stock to be redeemed will be
selected pro rata (as nearly as practicable without creating fractional shares)
or by any other equitable method determined by Healthcare Realty.
The Redemption Price of the Healthcare Realty Preferred Stock may be paid
solely from the proceeds of the sale of capital stock of Healthcare Realty and
not from any other source. For purposes of the preceding sentence, "capital
stock" means any equity securities (including Healthcare Realty Common Stock and
preferred stock) shares, interests, participation or other ownership interests
(however designated) and any rights (other than debt securities convertible into
or exchangeable for equity securities) or options to purchase any of the
foregoing. Unless full cumulative dividends on all shares of Healthcare Realty
Preferred Stock have been or contemporaneously are authorized and paid or
authorized and a sum sufficient for the payment thereof set apart for payment
for all past Dividend Periods (as defined below) and the then current Dividend
Period, no shares of Healthcare Realty Preferred Stock will be redeemed unless
all outstanding shares of Healthcare Realty Preferred Stock are simultaneously
redeemed, and Healthcare Realty will not purchase or otherwise acquire directly
or indirectly any shares of Healthcare Realty Preferred Stock (except by
exchange for capital stock of Healthcare Realty ranking junior to the Healthcare
Realty Preferred Stock as to dividends and upon liquidation); provided, however,
that the foregoing will not prevent the purchase or acquisition of shares of
Healthcare Realty Preferred Stock pursuant to a purchase or exchange offer made
on the same terms to holders of all outstanding shares of Healthcare Realty
Preferred Stock.
Immediately prior to any redemption, Healthcare Realty will pay, in cash,
any accumulated and unpaid dividends through the Redemption Date (as defined
below), unless a Redemption Date falls after a Dividend Record Date (as defined
below) and prior to the corresponding Dividend Payment Date, in which case each
holder of Healthcare Realty Preferred Stock at the close of business on such
Dividend Record Date shall be entitled to the dividend payable on such shares on
the corresponding Dividend Payment Date notwithstanding the redemption of such
shares before such Dividend Payment Date. Except as described herein, Healthcare
Realty will make no payment or allowance for unpaid dividends, whether or not in
arrears, on Healthcare Realty Preferred Stock which is redeemed. The procedure
for redemption of the Healthcare Realty Preferred Stock will be as described in
the Healthcare Realty Articles. If notice of redemption has been given and if
the funds necessary for such redemption have been set aside, then from and after
the Redemption Date dividends will cease to accrue, the Healthcare Realty
Preferred Stock called for redemption will no longer be deemed outstanding and
all rights of the holders of such shares will terminate except the right to
receive the Redemption Price.
Any shares of Healthcare Realty Preferred Stock that at any time have been
redeemed will, after such redemption, have the status of authorized but unissued
preferred stock, without designation as to series until such shares are once
more designated as part of a particular series by the Healthcare Realty Board.
As used above, (i) "Redemption Price" means a price per share equal to
$25.00 together with accrued and unpaid dividends, if any, to the Redemption
Date, (ii) "Dividend Period" means the period from and including the Initial
Issue Date (as defined below) to, but not including, the first Dividend Payment
Date and, thereafter, each quarterly period from and including the Dividend
Payment Date to, but not including, the next Dividend Payment Date, (iii)
"Dividend Record Date" means the first day of the calendar month in which the
applicable Dividend Payment Date falls or on such other date as designated by
the Healthcare Realty Board for the payment of the dividends that is not more
than 30 nor less than ten days prior to the applicable Dividend Payment Date,
(iv) "Dividend Payment Date" means a date selected by the Healthcare Realty
Board which date shall be on or before the last business day in February, May,
August and November of each year, commencing November 1998; (v) "Initial Issue
Date" means the Effective Time of the Merger; and (vi) "Redemption Date" means
the date specified in the notice of redemption.
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LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of Healthcare Realty, then, before any distribution or payment shall
be made to the holders of Healthcare Realty Common Stock, or any other class or
series of capital stock of Healthcare Realty ranking junior to the Healthcare
Realty Preferred Stock in the distribution of assets upon any liquidation,
dissolution or winding up of Healthcare Realty, the holders of Healthcare Realty
Preferred Stock shall be entitled to receive out of assets of Healthcare Realty
legally available for distribution to stockholders liquidating distributions in
the amount of the liquidation preference per share of $25.00, plus an amount
equal to all dividends accrued and unpaid thereon. After payment of the full
amount of the liquidating distributions to which they are entitled, the holders
of shares of Healthcare Realty Preferred Stock will have no right or claim to
any of the remaining assets of Healthcare Realty. In the event that, upon any
such voluntary or involuntary liquidation, dissolution or winding up, the
legally available assets of Healthcare Realty are insufficient to pay the amount
of the liquidating distributions on all outstanding shares of Healthcare Realty
Preferred Stock and the corresponding amounts payable on all shares of other
classes or series of capital stock of Healthcare Realty ranking on a parity with
the Healthcare Realty Preferred Stock in the distribution of assets upon
liquidation, dissolution or winding up, then the holders of the Healthcare
Realty Preferred Stock and all other such classes or series of capital stock
shall share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
shares of Healthcare Realty Preferred Stock, the remaining assets of Healthcare
Realty shall be distributed among the holders of any other classes or series of
capital stock ranking junior to the Healthcare Realty Preferred Stock upon
liquidation, dissolution or winding up, according to their respective rights and
preferences and in each case according to their respective number of shares.
VOTING RIGHTS
The holders of each share of Healthcare Realty Preferred Stock will have
one vote, voting together with the Healthcare Realty Common Stock, on all
matters on which the Healthcare Realty Stockholders may vote. In the event that
dividends on shares of Healthcare Realty Preferred Stock are in arrears for six
or more quarters, holders of Healthcare Realty Preferred Stock (voting
separately as a class but including any preferred stock which is on parity with
the Healthcare Realty Preferred Stock) will have the right to elect two
additional directors until all accrued dividends are paid in full. In addition,
the holders of Healthcare Realty Preferred Stock shall vote separately as a
class on certain matters specified in the Healthcare Realty Articles including
generally any amendment to the Healthcare Realty Articles or Articles
Supplementary, whether by merger, consolidation or otherwise, which materially
affects the rights of the Healthcare Realty Preferred Stock. Such matters will
require the approval of two-thirds of the outstanding shares of Healthcare
Realty Preferred Stock.
RESTRICTIONS ON TRANSFER
As discussed above under "DESCRIPTION OF HEALTHCARE REALTY COMMON STOCK --
Restrictions on Transfer," for Healthcare Realty to qualify as a REIT under the
Code, not more than 50% in value of its outstanding Stock may be owned, directly
or indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year, and the Stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months or during a proportionate part of a shorter taxable year.
Therefore, ownership and transfer of the Healthcare Realty Preferred Stock will
be restricted in the same manner as the Healthcare Realty Common Stock.
All certificates representing shares of Healthcare Realty Preferred Stock
will bear a legend referring to the restrictions described above.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Healthcare Realty Preferred Stock
will be The Bank of New York.
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COMPARATIVE RIGHTS OF COMMON STOCKHOLDERS OF
CAPSTONE AND HEALTHCARE REALTY
At the Effective Date, Capstone Common Stockholders whose rights are
governed by the Capstone Articles, Capstone Bylaws and the MGCL, will
automatically become Healthcare Realty Common Stockholders upon consummation of
the Merger. As such, the rights of the former Capstone Common Stockholders will
be governed by the Healthcare Realty Articles, the Healthcare Realty Bylaws and
the MGCL.
The statements below set forth the material differences between the rights
of Capstone Common Stockholders under the Capstone Articles, the Capstone Bylaws
and the MGCL and the rights of Healthcare Realty Common Stockholders under the
Healthcare Realty Articles, Healthcare Realty Bylaws and the MGCL. The
statements below do not purport to be complete and are qualified in their
entirety by reference to the applicable provisions of the MGCL and to the
Capstone Articles, Capstone Bylaws, Healthcare Realty Articles and Healthcare
Realty Bylaws. See "WHERE YOU CAN FIND MORE INFORMATION" on page 64.
VOTING RIGHTS
Capstone. The Capstone Bylaws provide that a plurality of all the votes
cast at a meeting of stockholders duly called and at which a quorum is present
shall be sufficient to elect a director. A majority of votes cast at a meeting
of stockholders duly called and at which a quorum is present is sufficient to
approve any other matter which may properly come before the meeting, unless the
statute or the Capstone Articles require more than a majority of votes cast to
approve the matter. Unless otherwise provided in the Capstone Articles, each
share of outstanding stock, regardless of class, entitles the holder to one vote
on each matter submitted to a vote at a meeting of stockholders. The Capstone
Articles and Bylaws do not provide for cumulative voting by stockholders.
Healthcare Realty. The Healthcare Realty Bylaws provide that each share of
issued and outstanding Healthcare Realty Common Stock entitles the holder to one
vote on each matter with respect to which stockholders are entitled to vote. The
Healthcare Realty Articles and Bylaws do not provide for cumulative voting by
stockholders.
CHANGE OF CONTROL
Capstone. The Capstone Articles provide that no person shall at any time
directly or indirectly acquire or hold beneficial ownership in the aggregate of
more than 9.8% (the "Ownership Limit") of the outstanding shares of common stock
and preferred stock of Capstone. Shares of Capstone Common Stock held by a
stockholder over the Ownership Limit are referred to as "Excess Common Shares."
Any shares of Capstone Preferred Stock held by a stockholder over the Ownership
Limit are referred to as "Excess Preferred Shares." The Excess Common Shares and
the Excess Preferred Shares are referred to as the "Capstone Excess Shares." A
person shall be deemed to be the beneficial owner of the stock that such person
(i) actually owns, (ii) constructively owns after applying the rules of Section
544 of the Code as modified in the case of a REIT by Sections 857(a)(6) and
856(b) of the Code, or (iii) has the right to acquire upon exercise of
outstanding rights, options and warrants, or upon conversion of any securities
convertible into stock, if any, if such inclusion will cause such person to own
more than the Ownership Limit. If, in the opinion of the Capstone Board, any
proposed transfer or issuance would jeopardize the status of Capstone as a real
estate investment trust under the REIT provisions of the Code, the Capstone
Board shall have the right, but not the duty, to refuse to permit such transfer
or issuance or refuse to give effect to such transfer or issuance and to take
any action to void any such issuance or cause any such transfer not to occur. No
stockholder may vote any Capstone Excess Shares held by such stockholder, and
Capstone Excess Shares shall not be considered outstanding for the purpose of
determining a quorum at any meeting of the Capstone Stockholders. Capstone, upon
authorization by the Capstone Board, by notice to the holder thereof, may redeem
any or all shares that are Capstone Excess Shares. See also "-- Restrictions on
Transfer."
Healthcare Realty. The Healthcare Realty Articles and Bylaws contain
several provisions which make a change of control of Healthcare Realty more
difficult to accomplish without the approval of the Healthcare
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Realty Board. The Healthcare Realty Board is divided into three classes so that
only one-third of the directors will be subject to reelection at each annual
meeting of the stockholders of Healthcare Realty. The Healthcare Realty Articles
also contain a 9.9% "Excess Shares" clause, similar to the one contained in the
Capstone Articles.
Certain Maryland statutes provide additional restrictions on changes in
control of Maryland corporations. Since both Capstone and Healthcare Realty are
Maryland corporations, these provisions of the MGCL are applicable to both. Such
provisions are described above in "DESCRIPTION OF HEALTHCARE REALTY COMMON
STOCK -- Business Combinations" and "-- Control Share Acquisitions."
BOARD OF DIRECTORS
Capstone. The Capstone Articles provide for a Board of Directors
consisting of eight directors, which may be increased or decreased from time to
time in accordance with Capstone's Bylaws, but shall not be less than the number
required under the MGCL. The Capstone Bylaws provide that, at any regular or
special meeting called for that purpose, a majority of the entire Capstone Board
may establish, increase or decrease the number of directors, provided that the
number thereof shall never be less than three nor more than 15, and further
provided that the tenure of office of a director shall not be affected by any
decrease in the number of directors.
Healthcare Realty. The Healthcare Realty Bylaws provide that the number of
Healthcare Realty directors shall be no fewer than three and no more than nine.
The number of directors is currently set at eight. The Healthcare Realty Board
is classified into three classes, equal or approximately equal in number. Each
class of directors shall be elected for successive terms ending at the annual
meeting of stockholders the third year after election. Directors may be removed
from office for cause by: (1) the vote of holders of 80% of the outstanding
shares of Healthcare Realty or (2) the unanimous vote of all other members of
the Healthcare Realty Board.
REMOVAL OF DIRECTORS
Capstone. The Capstone Articles provide that a director may be removed
from office with or without cause only at a meeting of the stockholders of
Capstone called for that purpose by the affirmative vote of the holders of not
less than two-thirds of the shares then outstanding and entitled to vote in the
election of directors. This provision may preclude stockholders from removing
incumbent directors except upon substantial affirmative vote and filling the
vacancies created by such removal with their own nominees.
Healthcare Realty. The Healthcare Realty Articles provide that a director
of Healthcare Realty may be removed for cause by the affirmative vote of 80% of
the outstanding shares of Healthcare Realty or the unanimous vote of all other
members of the Board of Directors. This provision may preclude stockholders from
removing incumbent directors except upon substantial affirmative vote and
filling the vacancies created by such removal with their own nominees.
LIMITATION ON PERSONAL LIABILITY OF DIRECTORS AND OFFICERS; INDEMNIFICATION
Capstone. The Capstone Articles provide that, to the maximum extent that
the Maryland law in effect from time to time permits limitation of liability of
directors and officers, no director or officer of Capstone shall be liable to
Capstone or its stockholders for money damages. The Capstone Bylaws provide
that, to the maximum extent permitted by Maryland law in effect from time to
time, Capstone, without requiring a preliminary determination of the ultimate
entitlement to indemnification, shall indemnify and shall pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (i) any
individual who is a present or former director or officer of Capstone and who is
made a party to the proceeding by reason of his service in that capacity or (ii)
any individual who, while a director of Capstone and at the request of Capstone,
serves or has served another corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise and who is made a party to the proceeding by reason of
his service in that capacity. The Capstone Bylaws also provide that Capstone
may, with the approval of the Capstone Board,
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provide such indemnification and advancement of expenses to a person who served
as a predecessor of Capstone in any of the capacities described in (i) or (ii)
above and to any employee or agent of Capstone or a predecessor of Capstone.
Capstone also provides a directors and officers liability insurance policy
for its directors and officers.
Healthcare Realty. The Healthcare Realty Articles provide that directors
or officers shall not be personally liable to Healthcare Realty or its
stockholders for money damages unless (i) it is proved that the person actually
received an improper benefit or profit in money, property, or services, for the
amount of the benefit or profit in money, property, or services actually
received or (ii) a judgment or other final adjudication adverse to the person is
entered in a proceeding, based on a finding in the proceeding that the person's
action, or failure to act, was the result of active and deliberate dishonesty
and was material to the cause of action adjudicated in the proceeding.
The Healthcare Realty Articles provide that if the law of the State of
Maryland is amended to authorize corporate action further limiting or
eliminating the personal liability of directors or officers or expanding such
liability, then the liability of directors or officers to Healthcare Realty or
its shareholders shall be limited or eliminated to the fullest extent permitted
by Maryland law as so amended from time to time. Any repeal or modification of
this provision by the stockholders of Healthcare Realty shall be prospective
only, and shall not adversely affect any limitation on the personal liability of
a director or the corporation existing at the time of such repeal or
modification.
The Healthcare Realty Articles further provide that Healthcare Realty shall
indemnify directors, officers, employees and agents to the fullest extent
permitted by the law of the State of Maryland. Healthcare Realty may purchase
and maintain liability insurance, or make other arrangements for such
obligations or otherwise, to the extent permitted by the law of the State of
Maryland, whether or not Healthcare Realty would have the power to indemnify
against liability under the provisions of such law.
The MGCL requires a corporation (unless its charter provides otherwise) to
indemnify a director or officer who has been successful, on the merits or
otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity. The MGCL permits a corporation to
indemnify its present and former directors and officers, among others, against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made a
party by reason of their service in those or other capacities unless it is
established that (a) the act or omission of the director or officer was material
to the matter giving rise to the proceeding and (i) was committed in bad faith
or (ii) was the result of active and deliberate dishonesty, (b) the director or
officer actually received an improper personal benefit in money, property or
services or (c) in the case of any criminal proceeding, the director or officer
had reasonable cause to believe that the act or omission was unlawful. However,
a Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis that
personal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In addition, the MGCL permits a
corporation to advance reasonable expenses to a director or officer upon the
corporation's receipt of (a) a written affirmation by the director or officer of
his good faith belief that he has met the standard of conduct necessary for
indemnification by such corporation and (b) a written undertaking by him or on
his behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
RIGHTS OF STOCKHOLDERS TO CALL SPECIAL MEETINGS
Capstone. The Capstone Bylaws provide that the President, the Chief
Executive Officer or a majority of the Board of Directors may call special
meetings of the stockholders. A special meeting may also be called by the
Secretary upon the written request of stockholders entitled to cast at least 25%
of all the votes entitled to be cast at the meeting. The request must state the
purpose of the meeting and the matters proposed to be acted on at such meeting.
The stockholders shall pay costs of preparing and mailing notices of meeting.
Unless requested by stockholders entitled to cast a majority of all the votes
entitled to be cast at such meeting, a
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special meeting need not be called to consider any matter which is substantially
the same as a matter voted on at any meeting of the stockholders held during the
preceding 12 months.
Healthcare Realty. The Healthcare Realty Bylaws provide that a special
meeting of the stockholders of Healthcare Realty may be called upon the written
request of stockholders entitled to cast at least 25% of all of the votes
entitled to be cast at the meeting.
AUTHORIZED STOCK
Capstone. Capstone is authorized to issue 50,000,000 shares of Common
Stock and 10,000,000 shares of Preferred Stock. As of the Capstone Record Date,
Capstone had shares of Capstone Common Stock and 3,000,000 shares of
Capstone Preferred Stock issued and outstanding.
Healthcare Realty. Healthcare Realty is authorized to issue 150,000,000
shares of Common Stock and 50,000,000 shares of preferred stock, consisting of
47,000,000 shares of undesignated preferred stock and 3,000,000 shares of
Healthcare Realty Preferred Stock. As of the Healthcare Realty Record Date,
Healthcare Realty had shares of Healthcare Realty Common Stock and no
shares of Healthcare Realty Preferred Stock issued and outstanding. The
Healthcare Realty Board may, at any time, issue Healthcare Realty preferred
stock for such consideration and with such voting power, dividends, dividend
preferences, liquidation preferences, conversion preferences and other
preferences, privileges and right which the Healthcare Realty Board deems
advisable.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
Capstone. Capstone has elected to be taxed as a REIT. In order to satisfy
certain tax provisions relating to REIT status, the Capstone Articles limit
beneficial ownership of Capstone capital stock by any one person to 9.8% of the
number or value of the then outstanding shares of Capstone capital stock (the
"Capstone Ownership Limit"), with certain limited exceptions described in the
Capstone Articles. Any shares of Capstone Common Stock or Capstone Preferred
Stock held by a stockholder in excess of the Capstone Ownership Limit (the
"Capstone Excess Shares") are deemed automatically to have been converted into a
class separate and distinct from the class or series from which converted and
from any other class of Capstone Excess Shares, and will not be entitled to
vote, will not be considered outstanding for purposes of determining a quorum,
and will not be entitled to distributions or dividends except to the extent the
Capstone Board chooses, in its sole discretion, to accumulate such distributions
or dividends and pay them to the holders of the Capstone Excess Shares at such
time as they cease to be Capstone Excess Shares. Capstone may redeem any or all
Capstone Excess Shares and, from and after the date of notice of redemption,
such shares will cease to be outstanding and the holder will cease to be
entitled to dividends, voting rights and other benefits with respect to such
shares (except payment of the redemption price). If within 30 days after the
redemption date the person from whom the Capstone Excess Shares have been
redeemed sells a number of remaining shares of the same class as the Capstone
Excess Shares at least equal to the number of such Excess Shares, Capstone must
rescind the redemption if following such rescission such person would not be the
holder of Capstone Excess Shares. Notwithstanding any other provision of the
Capstone Articles, any purported acquisition or continued ownership of stock of
Capstone that would: (i) create an owner of Capstone Excess Shares; (ii) result
in the shares of Capstone being owned by fewer than 100 persons; (iii) result in
Capstone being "closely held" with the meaning of Section 856(h) of the Code; or
(iv) result in the disqualification of Capstone as a REIT, shall be void ab
initio.
Healthcare Realty. Healthcare Realty has elected to be taxed as a REIT. In
order to satisfy certain tax provisions relating to REIT status, the Healthcare
Realty Articles limit beneficial ownership of Healthcare Realty capital stock by
any one person to 9.9% in value of the outstanding shares of Healthcare Realty
(the "Healthcare Realty Ownership Limit"). If the Board determines that
ownership of any one owner has exceeded the Healthcare Realty Ownership Limit,
the Board may refuse to transfer or issue shares of Healthcare Realty stock to
such person and any transfer that would create an individual direct or indirect
owner of in excess of the Healthcare Realty Ownership Limit will be deemed void.
If there is a transfer in violation of the Healthcare Realty Ownership Limit,
those shares in excess of the Healthcare Realty
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Ownership Limit will be "Excess Shares" (the "Healthcare Realty Excess Shares"),
and will be deemed to have been transferred to Healthcare Realty as trustee of a
trust for the benefit of such persons to whom the Healthcare Realty Excess
Shares are subsequently transferred. Healthcare Realty Excess Shares will have
no voting rights, and will not be considered for purposes of shareholder votes
or determining a quorum, but will be reflected as issued and outstanding stock
of Healthcare Realty. No dividends or other distributions will be paid with
respect to Healthcare Realty Excess Shares.
DIVIDEND REINVESTMENT PLAN
Capstone. Capstone has adopted a Dividend Reinvestment Plan to provide
registered owners of Capstone Common Stock a method of investing dividends and
other distributions paid in cash ("dividends") in additional shares of Capstone
Common Stock at a 2% discount from current market value and without payment of
any brokerage commission or service charge.
Participating stockholders may have cash dividends on all or a portion of
their shares of Capstone Common Stock automatically reinvested in additional
shares of Capstone Common Stock ("Plan Shares"). Participants' funds will be
fully invested because the Dividend Reinvestment Plan permits fractions of
shares to be credited to a participant's account. Dividends on such fractions,
as well as on whole shares, will be reinvested in additional shares, and such
shares will be credited to a participant's account. Participants may also make
optional investments of up to $5,000 per quarter.
Healthcare Realty. Stockholders of Healthcare Realty Common Stock are
eligible to participate in the company's Dividend Reinvestment Plan, which is
substantially similar to that of Capstone, including the right to reinvest
dividends at a 5% discount and the right to make optional investments of up to
$5,000 per quarter.
AMENDMENT OF ARTICLES AND BYLAWS
Capstone. The Capstone Articles provide that the affirmative vote of the
holders of at least 90% of the "voting stock" of Capstone, voting together as a
single class, is required to repeal or amend any provision inconsistent with the
provisions of the Capstone Articles governing the removal of directors,
restrictions on ownership and transfer of shares of stock, amendments to the
Capstone Articles or limitations on personal liability and indemnification of
directors and officers. The Capstone Articles provide that the Capstone Board
shall have the exclusive power to alter, amend or repeal any provision of the
Capstone Bylaws and to make new Capstone Bylaws.
Healthcare Realty. The provisions of the Healthcare Realty Articles
relating to (i) the number of directors, (ii) share transfer and ownership
limitations, (iii) indemnification of officers and directors and (iv) amendments
may be repealed or amended upon the affirmative vote of the holders of at least
90% of the voting stock of Healthcare Realty, voting together as a single class.
All other provisions of the Healthcare Realty Articles may be amended by the
affirmative vote of the holders of two-thirds of the voting stock of Healthcare
Realty. The Healthcare Realty Bylaws may be amended or repealed by the
affirmative vote of the holders of at least 90% of the voting stock of
Healthcare Realty, voting together as a single class.
COMPARATIVE RIGHTS OF PREFERRED STOCKHOLDERS OF CAPSTONE
AND HEALTHCARE REALTY
Capstone Preferred Stockholders, whose rights are governed by the Capstone
Articles, Capstone Bylaws and the MGCL, will become Healthcare Realty Preferred
Stockholders upon consummation of the Merger. As a result, the rights of the
former Capstone Preferred Stockholders will be governed by the Healthcare Realty
Articles, the Healthcare Realty Bylaws and the MGCL.
The newly created Healthcare Realty Preferred Stock will have substantially
identical terms, rights and preferences as the Capstone Preferred Stock. Set
forth below are the material differences between the rights of Capstone
Preferred Stockholders under the Capstone Articles, the Capstone Bylaws and the
MGCL, and the rights of Healthcare Realty Preferred Stockholders under the
Healthcare Realty Articles, the Healthcare Realty Bylaws and the MGCL. The
statements below do not purport to be complete and are qualified in their
55
<PAGE> 63
entirety by reference to the applicable provisions of the MGCL and to the
Capstone Articles, Capstone Bylaws, Healthcare Realty Articles and Healthcare
Realty Bylaws. See "WHERE YOU CAN FIND MORE INFORMATION" on page 64.
VOTING RIGHTS
Capstone. The holders of Capstone Preferred Stock have no voting rights
except in special circumstances as provided in the Capstone Articles and under
Maryland law.
Healthcare Realty. The holders of each share of Healthcare Realty
Preferred Stock will have one vote, voting together with the Healthcare Realty
Common Stock, on all matters on which the Healthcare Realty Stockholders may
vote. Holders of Healthcare Realty Preferred Stock will also have the same
voting rights as holders of Capstone Preferred Stock currently have, including
the right that, in the event that dividends on shares of Healthcare Realty
Preferred Stock are in arrears for six or more quarters, holders of Healthcare
Realty Preferred Stock (voting separately as a class but including any preferred
stock which is on parity with the Healthcare Realty Preferred Stock) can elect
two additional directors until all accrued dividends are paid in full. In
addition, the holders of Healthcare Realty Preferred Stock will vote separately
as a class on certain matters specified in the Healthcare Realty Articles or if
required by law, including generally any amendment to the Healthcare Realty
Articles or Articles Supplementary, whether by merger, consolidation or
otherwise, which materially affects the rights of the Healthcare Realty
Preferred Stock. Such matters will require the approval of holders of two-thirds
of the outstanding shares of Healthcare Realty Preferred Stock.
PAR VALUE
Capstone. The Capstone Preferred Stock has a $.001 per share par value.
Healthcare Realty. The Healthcare Realty Preferred Stock will have a $.01
per share par value.
DIVIDEND PAYMENT DATES
Capstone. Dividends on shares of Capstone Preferred Stock are payable
quarterly in arrears on or before March 15, June 15, September 15 and December
15 of each year or, if not a Business Day (as defined in the Capstone Articles),
the next succeeding Business Day.
Healthcare Realty. Dividends on shares of Healthcare Preferred Stock are
payable quarterly in arrears on or before the last business day in February,
May, August and November of each year.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
For a comparison of the rights of Capstone Preferred Stockholders and the
Healthcare Realty Preferred Stockholders relative to restrictions on ownership
and transfer, see "COMPARATIVE RIGHTS OF COMMON STOCKHOLDERS OF CAPSTONE AND
HEALTHCARE REALTY -- Restrictions on Ownership and Transfer."
56
<PAGE> 64
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements give
effect to the Merger using the purchase method of accounting, after giving
effect to the pro forma adjustments described in the accompanying notes. The
unaudited pro forma balance sheet gives effect to the Merger as if it had
occurred on June 30, 1998. The remaining information gives effect to the Merger
as if it had occurred on January 1, 1997. We prepared this information by adding
or combining the historical amounts of each company. This information is
presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have occurred had the
Merger been consummated at the dates indicated, nor is it necessarily indicative
of the future operating results or financial position of the merged companies.
This information is only a summary and you should read it in conjunction
with the historical financial statements (and related notes) contained in the
annual reports and other information that Healthcare Realty and Capstone have
filed with the Commission. See "WHERE YOU CAN FIND MORE INFORMATION."
57
<PAGE> 65
HEALTHCARE REALTY TRUST INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------
HEALTHCARE CAPSTONE PRO FORMA
REALTY CAPITAL ADJUSTMENTS PRO FORMA
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Real estate properties:
Land............................................... $ 62,046 $ 49,118 $ 7,857(1) $ 119,021
Buildings and improvements......................... 441,109 515,332 82,432(1) 1,038,873
Personal property.................................. 4,335 1,264 (1,264)(1) 4,335
Construction in progress........................... 9,877 38,189 3,055(1) 51,121
--------- -------- -------- ----------
517,367 603,903 92,080 1,213,350
Less accumulated depreciation........................ (40,556) (25,998) 25,998(1) (40,556)
--------- -------- -------- ----------
Real estate properties, net................. 476,811 577,905 118,078 1,172,794
Mortgage notes receivable............................ -- 198,834 7,953(1) 206,787
Cash and cash equivalents............................ 1,150 3,676 4,826
Accrued rental income................................ -- 10,352 (10,352)(1) --
Other assets, net.................................... 32,008 24,314 (3,776)(1) 52,546
--------- -------- -------- ----------
Total assets................................ $ 509,969 $815,081 $111,903 $1,436,953
========= ======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Senior notes payable............................... $ 90,000 $ -- $ 90,000
Convertible subordinated debentures................ -- 73,151 5,366(1) 78,517
Bank credit facility............................... -- 174,600 36,287(2) 210,887
Mortgage notes payable............................. -- 61,138 1,869(1) 63,007
Accrued expenses and other liabilities............. 10,343 18,954 29,297
--------- -------- -------- ----------
Total liabilities........................... 100,343 327,843 43,522 471,708
--------- -------- -------- ----------
Stockholders' equity:
Preferred stock, $.01 par value.................... -- 3 27(1) 30
Common stock, $.01 par value....................... 207 22 167(1) 396
Additional paid-in capital......................... 441,891 494,456 64,944(1) 1,001,291
Deferred compensation.............................. (11,238) (2,043) 2,043(1) (11,238)
Loans to officers to finance stock purchases....... -- (191) 191(1) --
Cumulative net income.............................. 106,854 83,831 (83,831)(1) 102,854
(4,000)(2)
Cumulative dividends............................... (128,088) (85,480) 85,480(1) (128,088)
--------- -------- -------- ----------
409,626 490,598 65,021 965,245
Less: Treasury stock............................... -- (3,360) 3,360(1) --
--------- -------- -------- ----------
Total stockholders' equity.................. 409,626 487,238 68,381 965,245
--------- -------- -------- ----------
Total liabilities and stockholders'
equity.................................... $ 509,969 $815,081 $111,903 $1,436,953
========= ======== ======== ==========
</TABLE>
58
<PAGE> 66
HEALTHCARE REALTY TRUST INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------
HEALTHCARE CAPSTONE PRO FORMA
REALTY CAPITAL ADJUSTMENTS PRO FORMA
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Master lease rental income......................... $ 18,255 $ 32,535 $ 50,790
Property operating income.......................... 14,969 -- 14,969
Mortgage interest income........................... -- 9,883 9,883
Management fees.................................... 933 -- 933
Interest and other income.......................... 906 792 1,698
--------- -------- -------- ----------
35,063 43,210 -- 78,273
--------- -------- -------- ----------
EXPENSES:
General and administrative......................... 2,499 2,334 (1,634)(3) 3,199
Property operating expenses........................ 4,733 2,410 7,143
Interest........................................... 3,455 10,424 573(4) 14,452
Depreciation....................................... 6,220 6,159 2,563(5) 14,942
Amortization....................................... 169 318 (285)(6) 202
--------- -------- -------- ----------
17,076 21,645 1,217 39,938
--------- -------- -------- ----------
NET INCOME........................................... $ 17,987 $ 21,565 $ (1,217) $ 38,335
========= ======== ======== ==========
NET INCOME PER SHARE - BASIC......................... $ 0.91 $ 0.86 $ 0.92
========= ======== ==========
NET INCOME PER SHARE - DILUTED....................... $ 0.89 $ 0.85 $ 0.91
========= ======== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC.......... 19,769 21,195 (3,099)(7) 37,865
========= ======== ======== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED........ 20,232 21,433 (3,337)(7) 38,328
========= ======== ======== ==========
FUNDS FROM OPERATIONS................................ $ 23,920 $ 25,983 $ 642(8) $ 50,545
========= ======== ======== ==========
FUNDS FROM OPERATIONS PER SHARE - BASIC.............. $ 1.21 $ 1.07 $ 1.25
========= ======== ==========
FUNDS FROM OPERATIONS PER SHARE - DILUTED............ $ 1.18 $ 1.06 $ 1.23
========= ======== ==========
</TABLE>
59
<PAGE> 67
HEALTHCARE REALTY TRUST INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------
HEALTHCARE CAPSTONE PRO FORMA
REALTY CAPITAL ADJUSTMENTS PRO FORMA
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Master lease rental income......................... $ 40,298 $ 46,160 $ 86,458
Property operating income.......................... 14,631 -- 14,631
Mortgage interest income........................... -- 10,148 10,148
Management fees.................................... 1,499 -- 1,499
Interest and other income.......................... 3,368 870 4,238
--------- -------- -------- ----------
59,796 57,178 -- 116,974
--------- -------- -------- ----------
EXPENSES:
General and administrative......................... 3,807 2,902 (2,031)(3) 4,678
Property operating expenses........................ 5,008 1,143 6,151
Interest........................................... 7,969 14,767 1,147(4) 23,883
Depreciation....................................... 11,468 8,782 5,124(5) 25,374
Amortization....................................... 332 703 (636)(6) 399
--------- -------- -------- ----------
28,584 28,297 3,604 60,485
--------- -------- -------- ----------
NET INCOME........................................... $ 31,212 $ 28,881 $ (3,604) $ 56,489
========= ======== ======== ==========
NET INCOME PER SHARE - BASIC......................... $ 1.71 $ 1.76 $ 1.75
========= ======== ==========
NET INCOME PER SHARE - DILUTED....................... $ 1.68 $ 1.75 $ 1.75
========= ======== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC.......... 18,222 15,760 (2,357)(7) 31,625
========= ======== ======== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED........ 18,572 16,346 (2,943)(7) 31,975
========= ======== ======== ==========
FUNDS FROM OPERATIONS................................ $ 42,337 $ 34,744 $ 768(8) $ 77,849
========= ======== ======== ==========
FUNDS FROM OPERATIONS PER SHARE - BASIC.............. $ 2.32 $ 2.13 $ 2.43
========= ======== ==========
FUNDS FROM OPERATIONS PER SHARE - DILUTED............ $ 2.28 $ 2.11 $ 2.42
========= ======== ==========
</TABLE>
60
<PAGE> 68
HEALTHCARE REALTY TRUST INCORPORATED
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
BALANCE SHEET
(1) Adjustment to reflect: (a) the estimated relative fair value of assets
acquired and liabilities assumed; (b) the elimination of Capstone
stockholders' equity attributable to prior years' net income and dividends;
(c) the elimination of deferred compensation attributable to the Capstone
Restricted Stock redeemed pursuant to the Merger; and (d) the cancellation
of treasury stock pursuant to the Merger, in accordance with the purchase
method of accounting.
Calculation of estimated purchase price (in thousands):
<TABLE>
<S> <C>
LIABILITIES:
Existing Liabilities Assumed.............................. $327,843
Estimated Fair Value Increase In Liabilities.............. 7,235
Estimated Increase in Bank Credit Facilities (Note 2)..... 32,287
--------
Estimated Total Liabilities Assumed....................... 367,365
EQUITY:
Preferred Stock (3,000,000 shares valued at $23.9375 per
share, the closing price of Capstone Preferred Stock on
August 18, 1998)....................................... 71,813
Common Stock (18,903,947 shares valued at $25.8125 per
share, the closing price of Healthcare Realty Common
Stock on August 18, 1998).............................. 487,958
Estimated Registration Costs.............................. (152)
--------
Estimated Equity Issued................................... 559,619
--------
Estimated Total Purchase Price.............................. $926,984
========
</TABLE>
Fair values of the real estate properties are based on preliminary
estimates. As a condition to the closing of the Merger, Healthcare Realty will
enter into consulting and non-competition agreements under which three Capstone
directors or officers will receive in the aggregate cash payments of $3.4
million and contingent grants of 600,000 shares of Healthcare Realty Common
Stock, which management of Healthcare Realty believes will protect and enhance
the value of the real estate properties Healthcare Realty is acquiring from
Capstone. The estimated total purchase price does not include the contingent
consideration to be paid in connection with the consulting and non-competition
agreements. Healthcare Realty is in the process of determining fair values on a
property-by-property basis (including the contingent consideration under the
consulting and non-competition agreements) using the present value of future
cash flows. Mortgage notes receivable, convertible subordinated debentures and
mortgage notes payable have been adjusted to estimated fair values based upon
current interest rates.
Estimated allocation of purchase price (in thousands):
<TABLE>
<S> <C>
Cash and Cash Equivalents................................... $ 3,676
Estimated Real Estate Properties............................ 695,983
Estimated Mortgage Notes Receivable......................... 206,787
Estimated Other Assets...................................... 20,538
--------
Estimated Net Assets Acquired............................... $926,984
========
</TABLE>
(2) Adjustment to reflect borrowings under the bank credit facilities required
to fund the amounts listed below (in thousands) in connection with the
Merger. Other net estimated Merger related costs include: (a) financial
advisory fees; (b) professional fees (attorneys, accountants, etc.); (c) the
cash portion of the consulting and non-compete fees; (d) estimated
Healthcare Realty non-recurring charges directly
61
<PAGE> 69
HEALTHCARE REALTY TRUST INCORPORATED
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
related to the Merger, which will be charged to Healthcare Realty's earnings
within twelve months of the Merger date. The non-recurring charges have not
been reflected in the pro forma condensed consolidated statement of income.
<TABLE>
<S> <C>
Redemption of Restricted Stock and Purchase of Stock
Options................................................... $ 18,926
Other Net Estimated Merger Related Costs.................... 17,361
--------
Net Increase In Bank Credit Facilities...................... $ 36,287
Estimated Non-Recurring Merger Related Charges.............. (4,000)
--------
Net Increase in Bank Credit Facilities Attributable to
Purchase Price............................................ $ 32,287
========
</TABLE>
STATEMENTS OF INCOME
(3) Adjustment to reflect the net reduction in general and administrative
expenses resulting from the: (a) elimination of payroll costs associated
with Capstone employees (none of whom will continue as employees of
Healthcare Realty); (b) elimination of occupancy-related costs associated
with Capstone's corporate office (which will not be retained by Healthcare
Realty); (b) elimination of other costs duplicative of those currently
incurred by Healthcare Realty; and (d) addition of payroll and related costs
for new Healthcare Realty employees required due to the Merger.
(4) Adjustment to reflect the net effect of: (a) the increase in interest
expense calculated by applying a 6.875% annual rate to the increased
borrowings discussed in Note 2 above (a change of 0.125% in this interest
rate would change this adjustment by $45,600 per year or $22,800 per
semiannual period); and (b) the decrease in interest expense related to
adjusting liabilities assumed to estimated fair value.
(5) Adjustment to reflect the increase in depreciation expense based upon
depreciating the purchase accounting step-up in the basis of depreciable
properties acquired in the Merger, using the straight-line method over 6 and
39-year periods.
(6) Adjustment to eliminate amortization expense attributable to intangible
assets (loan costs, etc.) which have no continuing value and have therefore
been allocated no portion of the purchase price, pursuant to the Merger, net
of amortization of consulting and non-competition agreements entered into in
connection with the Merger.
(7) Adjustment to reflect the effect of the Merger upon weighted average shares
outstanding, calculated by assuming the redemption of the Capstone
Restricted Stock and by applying the Exchange Ratio of .8518 to the
remaining shares of Capstone Common Stock.
62
<PAGE> 70
HEALTHCARE REALTY TRUST INCORPORATED
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(8) Adjustment to reflect the effect of the Merger upon funds from operations
("FFO") due to: (a) the decrease in general and administrative expenses
(discussed in Note 3); (b) the increase in interest expense (discussed in
Note 4); (c) the decrease in amortization expense (discussed in Note 6); and
(d) the decrease due to conforming Capstone's historical method of
calculating FFO to Healthcare Realty's historical (and continuing) method of
calculating FFO. The following schedule includes calculations of Capstone's
historical FFO under its historical method (the "Historical" columns) and
under Healthcare Realty's historical method (the "Historical, As Adjusted"
columns):
CAPSTONE CAPITAL CORPORATION
FUNDS FROM OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
---------------------------- ----------------------------
HISTORICAL, AS HISTORICAL, AS
HISTORICAL ADJUSTED HISTORICAL ADJUSTED
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Net Income............................... $21,565 $21,565 $28,881 $28,881
Straight line rents.................... (2,478) (2,478) (3,183) (3,183)
Add:
Depreciation of real estate
assets............................ 6,159 6,159 8,782 8,782
Amortization........................ 318 -- 703 --
Stock-based compensation expense.... 419 -- 116 --
Undeclared preferred stock
dividends......................... -- -- (555) (555)
------- ------- ------- -------
Total Adjustments.............. 4,418 3,681 5,863 5,044
------- ------- ------- -------
Funds from Operations.................... $25,983 $25,246 $34,744 $33,925
Subtract:
Dividends paid on preferred stock... (3,328) (3,328) (1,109) (1,109)
------- ------- ------- -------
Funds from Operations Available to Common
Stockholders -- Basic.................. $22,655 $21,918 $33,635 $32,816
Add:
Impact of potential dilutive
securities........................ -- -- 785 785
------- ------- ------- -------
Funds from Operations Available to Common
Stockholders -- Diluted................ $22,655 $21,918 $34,420 $33,601
======= ======= ======= =======
Weighted Average Shares Outstanding......
-- Basic............................... 21,195 21,195 15,760 15,760
-- Diluted............................. 21,433 21,433 16,346 16,346
Funds from Operations per Share
-- Basic............................... $ 1.07 $ 1.03 $ 2.13 $ 2.08
-- Diluted............................. $ 1.06 $ 1.02 $ 2.11 $ 2.06
</TABLE>
63
<PAGE> 71
WHERE YOU CAN FIND MORE INFORMATION
Healthcare Realty has filed with the Commission under the Securities Act a
Registration Statement on Form S-4 that registers the distribution to Capstone
Stockholders of the shares of Healthcare Realty Common Stock and Healthcare
Realty Preferred Stock to be issued in connection with the Merger (collectively,
the "Registration Statement"). The Registration Statement, including the
attached exhibits and schedules, contains additional relevant information about
Healthcare Realty, the Healthcare Realty Common Stock and the Healthcare Realty
Preferred Stock. The rules and regulations of the Commission allows Healthcare
Realty to omit certain information included in the Registration Statement from
this Joint Proxy Statement-Prospectus.
In addition, Healthcare Realty and Capstone file reports, proxy statements
and other information with the Commission under the Securities Exchange Act of
1934. You may read and copy this information at the following locations of the
Commission:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 2054 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates.
The Commission also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issuers, like Healthcare
Realty and Capstone, who file electronically with the Commission. The address of
that site is http://www.sec.gov.
You can also inspect reports, proxy statements and other information about
Healthcare Realty and Capstone at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
The Commission allows Healthcare Realty and Capstone to "incorporate by
reference" information into this Joint Proxy Statement-Prospectus from documents
that Healthcare Realty and Capstone have previously filed with the Commission.
This means that the companies can disclose important information to you by
referring you to another document filed separately with the Commission. These
documents contain important information about the companies and their financial
condition. The information incorporated by reference is considered to be a part
of this Joint Proxy Statement-Prospectus, except for any information that is
superseded by other information that is set forth directly in this document.
This Joint Proxy Statement-Prospectus incorporates by reference the
following documents with respect to Capstone:
(1) Capstone's 1997 Annual Report to Stockholders (only as to the
portions that include Capstone's consolidated financial statements and
notes thereto and management's discussion and analysis of financial
condition and results of operations);
(2) Capstone's Annual Report on Form 10-K for the year ended December
31, 1997;
(3) Capstone's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998;
(4) Capstone's Current Report on Form 8-K, dated June 12, 1998;
(5) The description of Capstone Common Stock contained in Capstone's
Registration Statement on Form 8-A, dated June 21, 1994; and
(6) The description of Capstone Preferred Stock contained in
Capstone's Registration Statement on Form 8-A, dated September 25, 1997.
64
<PAGE> 72
This Joint Proxy Statement-Prospectus incorporates by reference the
following documents with respect to Healthcare Realty:
(1) Healthcare Realty's Annual Report on Form 10-K for the year ended
December 31, 1997;
(2) Healthcare Realty's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1998 and June 30, 1998;
(3) Healthcare Realty's Current Report on Form 8-K, dated June 12,
1998;
(4) The description of Healthcare Realty Common Stock contained in
Healthcare Realty's Registration Statement on Form 8-A, dated April 8,
1993.
(5) The description of Healthcare Realty Preferred Stock contained in
Healthcare Realty's Registration Statement on Form 8-A, dated August 3,
1998.
Healthcare Realty and Capstone incorporate by reference additional
documents that each may file with the Commission pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 between the date of
this Joint Proxy Statement-Prospectus and the date of the Capstone Special
Meeting and the Healthcare Realty Special Meeting. These documents include
periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K, as well as proxy statements. Healthcare
Realty has supplied all information contained or incorporated by reference in
this Joint Proxy Statement-Prospectus relating to Healthcare Realty, as well as
all pro forma financial information. Capstone has supplied all information
contained or incorporated by reference in this Joint Proxy Statement-Prospectus
relating to Capstone.
You can obtain copies of the documents incorporated by reference in this
Joint Proxy Statement-Prospectus with respect to Healthcare Realty without
charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit in this Joint Proxy
Statement-Prospectus, by requesting them in writing or by telephone from
Healthcare Realty at the following:
Healthcare Realty Trust Incorporated
3310 West End Avenue, Suite 700
Nashville, Tennessee 37203
Attention: Fredrick M. Langreck
(615) 269-8175
You can obtain copies of the documents incorporated by reference in this
Joint Proxy Statement-Prospectus with respect to Capstone without charge,
excluding any exhibits to those documents unless the exhibit is specifically
incorporated by reference as an exhibit in this Joint Proxy
Statement-Prospectus, by requesting them in writing or by telephone from
Capstone at the following:
Capstone Capital Corporation
1000 Urban Center Drive, Suite 630
Birmingham, Alabama 35242
Attention: Malcolm E. ("Tadd") McVay
(205) 967-2092
If you would like to request documents from Capstone or Healthcare Realty,
please do so by October 1, 1998 to receive them before the Capstone Special
Meeting or the Healthcare Realty Special Meeting. You can also obtain copies of
these documents from the Commission through the Commission's Internet world wide
web site or at the address described above.
You should rely only on the information contained in or incorporated by
reference in this Joint Proxy Statement-Prospectus in considering how to vote
your shares at the Capstone Special Meeting or the Healthcare Realty Special
Meeting. Neither Healthcare Realty nor Capstone has authorized anyone to provide
you with information that is different from the information in this document.
This Joint Proxy Statement-Prospectus is dated August 24, 1998. You should not
assume that the information contained in this document is accurate as of any
date other than that date. Neither the mailing of this Joint Proxy Statement-
Prospectus nor the issuance of Healthcare Realty Common Stock and the Healthcare
Realty Preferred Stock in the Merger shall create any implication to the
contrary.
65
<PAGE> 73
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This Joint Proxy Statement-Prospectus contains certain forward-looking
statements about the financial condition, results of operations and business of
each of our companies and about Healthcare Realty following the consummation of
the Merger. These statements concern the cost savings, revenue enhancements and
other advantages we expect to obtain from the Merger, and the anticipated impact
of the Merger on Capstone's financial performance and earnings estimates for
Healthcare Realty. These statements appear in several sections of this Joint
Proxy Statement-Prospectus, including "SUMMARY," "THE MERGER -- Capstone's
Reasons for the Merger; Recommendation of the Capstone Board," "THE MERGER --
Healthcare Realty's Reasons for the Merger; Recommendation of the Healthcare
Realty Board" and "THE MERGER -- Opinion of Capstone's Financial Advisor" and
"THE MERGER -- Opinion of Healthcare Realty's Financial Advisor." Also, when we
use any of the words "believes," "expects," "anticipates," "intends,"
"estimates," "plans" or similar expressions, we are making forward-looking
statements.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions. The future results and stockholder
values of Healthcare Realty and Capstone, and of the combined company, may
differ materially from those expressed in these forward-looking statements. Many
of the factors that could influence or determine actual results are
unpredictable and not within the control of Healthcare Realty or Capstone. In
addition, neither Healthcare Realty nor Capstone intend to, nor are they
obligated to, update these forward-looking statements after this Joint Proxy
Statement-Prospectus is distributed, even if new information, future events or
other circumstances have made them incorrect or misleading as of any future
date. For all of these statements, Healthcare Realty and Capstone claim the
protection of the safe harbor for forward-looking statements provided in the
Private Securities Litigation Reform Act of 1995.
Healthcare Realty has discussed certain factors that may cause its
forward-looking statements not to be realized in its Annual Report for the year
ended December 31, 1997 on Form 10-K. Capstone has discussed certain factors
that may cause its forward-looking statements not to be realized in its Annual
Report for the year ended December 31, 1997 on Form 10-K.
LEGAL MATTERS
The validity of the shares of Healthcare Realty Common Stock and Healthcare
Realty Preferred Stock to be issued to the Capstone Stockholders in the Merger
will be passed upon by Waller Lansden Dortch & Davis, A Professional Limited
Liability Company, Nashville, Tennessee, special counsel to Healthcare Realty.
Certain tax matters concerning the Merger will be passed upon on behalf of
Healthcare Realty by Farris, Warfield & Kanaday PLC, Nashville, Tennessee.
Certain legal matters concerning the Merger will be passed upon on behalf of
Capstone by Sirote & Permutt, P.C., Birmingham, Alabama. Certain matters of
Maryland law will be passed upon on behalf of Healthcare Realty by Brown & Wood
LLP, Washington, D.C., and on behalf of Capstone by Ballard Spahr Andrews &
Ingersoll, LLP, Baltimore, Maryland.
EXPERTS
The consolidated financial statements and schedule of Healthcare Realty
Trust Incorporated at December 31, 1997 and 1996, and for each of the three
years in the period ended December 31, 1997 appearing or incorporated by
reference in the Healthcare Realty Trust Incorporated Annual Report (Form 10-K)
for the year ended December 31, 1997, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included or
incorporated by reference therein and incorporated herein by reference. Such
consolidated financial statements and schedule are incorporated herein by
reference in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements and schedules of Capstone Capital
Corporation as of December 31, 1997 and 1996 and for each of the years in the
three-year period ended December 31, 1997, have been incorporated by reference
herein in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of such firm as experts in accounting and auditing.
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Annex A
PLAN AND AGREEMENT OF MERGER
DATED AS OF JUNE 8, 1998
by and among
HR ACQUISITION I CORPORATION,
HEALTHCARE REALTY TRUST INCORPORATED,
and
CAPSTONE CAPITAL CORPORATION
<PAGE> 75
PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER (this "Plan of Merger"), is
entered into as of June 8, 1998, by and among HR ACQUISITION I CORPORATION, a
Delaware corporation ("Buyer"), HEALTHCARE REALTY TRUST INCORPORATED, a Maryland
corporation ("HR"), and CAPSTONE CAPITAL CORPORATION, a Maryland corporation
("Target") (Buyer and Target being sometimes collectively referred to herein as
the "Constituent Entities").
WITNESSETH:
WHEREAS, the respective Boards of Directors of Target, HR and
Buyer have approved the merger of Buyer with and into Target (the "Merger"),
upon the terms and subject to the conditions set forth in this Plan of Merger,
whereby all issued and outstanding shares of (i) Target common stock, par value
$.001 per share (the "Target Common Stock"), and (ii) Target 8 7/8% Series A
Cumulative Preferred Stock, par value $.001 per share (the "Target Series A
Preferred Stock" and, together with the Target Common Stock, the "Target
Stock"), not owned directly or indirectly by Target (other than restricted
shares of Target Common Stock to be redeemed as hereinafter provided), will be
converted into the Merger Consideration (as hereinafter defined); and
WHEREAS, each of Buyer, HR, and Target desires to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the premises and the
mutual representations, warranties, covenants and agreements contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the
conditions set forth in this Plan of Merger, and in accordance with Section
3-101 et seq. of the Maryland General Corporation Law (the "MGCL") and in
accordance with Sections 251 and 252 of the Delaware General Corporation Law
(the "DGCL"), Buyer shall be merged with and into Target at the Effective Time
(as defined in Section 1.3). Following the Effective Time, the separate
corporate existence of Buyer shall cease and Target shall continue as the
surviving entity (the "Surviving Entity") under the name "HR Acquisition I
Corporation" and shall succeed to and assume all the rights and obligations of
Target and Buyer in accordance with the
<PAGE> 76
MGCL and the DGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time of the Merger, (a) the Surviving Entity shall
possess all assets and property of every description, and every interest
therein, wherever located, and the rights, privileges, immunities, powers,
franchises and authority, of a public as well as of a private nature, of each of
the Constituent Entities, (b) all obligations belonging to or due each of the
Constituent Entities shall be vested in, and become the obligations of, the
Surviving Entity without further act or deed, (c) title to any real estate or
any interest therein vested in either of the Constituent Entities shall not
revert or in any way be impaired by reason of the Merger, (d) all rights of
creditors and all liens upon any property of either of the Constituent Entities
shall be preserved unimpaired, and (e) the Surviving Entity shall be liable for
all of the debts and obligations of each of the Constituent Entities, and any
claim existing, or action or proceeding pending, by or against either of the
Constituent Entities may be prosecuted to judgment with right of appeal, as if
the Merger had not taken place.
Section 1.2 THE CLOSING. The closing of the Merger (the
"Closing") will take place at such time and on such date as is specified by the
parties (the "Closing Date"), which (subject to satisfaction or waiver of the
conditions set forth in Article VII) shall be no later than the second business
day after satisfaction or waiver of the conditions set forth in Section 7.1
(other than Section 7.1(d), which shall be satisfied at the Closing Date), at
such location as the parties may agree, unless another date is agreed to in
writing by the parties hereto.
Section 1.3 EFFECTIVE TIME. Subject to the provisions of this
Plan of Merger, the parties shall file articles of merger (the "Articles of
Merger") executed in accordance with Sections 3-109, 3-110 and 1-301 of the MGCL
and a certificate of merger (the "Certificate of Merger") executed in accordance
with Section 103 of the DGCL and shall make all other filings or records
required under the MGCL and the DGCL as soon as practical on or after the
Closing Date. The Merger shall become effective at such time as the Articles of
Merger are accepted for record by the State Department of Assessments and
Taxation of Maryland (the "SDAT") and the Certificate of Merger is accepted for
record by the Delaware Office of the Secretary of State, or at such other time
as Buyer and Target shall agree as specified in the Articles of Merger and the
Certificate of Merger but not exceeding 30 days after the later of the date the
Articles of Merger are accepted for record by the SDAT or the Certificate of
Merger is accepted for record by the Delaware Office of the Secretary of State
(the "Effective Time").
Section 1.4 EFFECT OF MERGER. The Merger shall have the effect
set forth in Section 3-114 of the MGCL and Section 259 of the DGCL.
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ARTICLE II
EFFECT OF THE MERGER ON THE STOCK OF
THE CONSTITUENT ENTITIES; EXCHANGE OF CERTIFICATES
Section 2.1 EFFECT ON STOCK. As of the Effective Time, by
virtue of the Merger and without any action on the part of any holder of any
stock of either of the Constituent Entities:
(a) CANCELLATION OF TREASURY STOCK. Each share of
Target Stock that is owned by Target or by any subsidiary of
Target shall automatically be canceled and retired and shall
cease to exist, and no consideration shall be delivered in
exchange therefor.
(b) CONVERSION OF TARGET COMMON STOCK AND TARGET
SERIES A PREFERRED STOCK. Subject to Section 2.2, each issued
and outstanding share of Target Common Stock (other than
restricted shares of Target Common Stock to be redeemed in
accordance with Section 2.1(c)) and each issued and
outstanding share of Target Series A Preferred Stock
(collectively, the "Exchanging Target Shares") shall be
converted into such number of shares of the common stock, par
value $.01 per share, of HR (the "HR Common Stock"), and
shares of the 8 7/8 % Series A Cumulative Preferred Stock, par
value $.01 per share, of HR (the "HR Preferred Stock") (such
shares of HR Common Stock and HR Preferred Stock being
delivered in connection with the Merger referred to herein as
the "Merger Consideration") in accordance with the following
provisions:
(i) Each issued and outstanding share of
Target Common Stock (other than restricted shares of
Target Common Stock to be redeemed in accordance with
Section 2.1(c) below) shall be converted into .8518
shares of HR Common Stock (the "Common Stock Exchange
Ratio"); and
(ii) Each issued and outstanding share of
Target Series A Preferred Stock, shall be converted
into one share of HR Preferred Stock having
substantially the same rights and preferences as the
Target Series A Preferred Stock (the "Preferred Stock
Exchange Ratio").
As of the Effective Time, all such Exchanging Target Shares
shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder
of a certificate representing any Exchanging Target Shares
shall cease to have any rights with respect thereto, except
the right to receive the Merger Consideration and any cash in
lieu of fractional shares to be issued or paid in
consideration therefor with respect to the Exchanging Target
Shares
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<PAGE> 78
upon surrender of such certificate in accordance with Section
2.2, without interest.
(c) RESTRICTED TARGET SHARES. Immediately prior to
the Effective Time, each outstanding restricted share of
Target Common Stock (whether vested or unvested) shall be
redeemed for cash in an amount of $24.33 per restricted share
of Target Common Stock. Such cash shall be provided by Target
from available cash resources or from Target borrowings. HR
agrees that any such borrowings will be repaid only from cash
flow generated from Target's operations and not from cash
furnished, directly or indirectly, by HR.
(d) STOCK OPTIONS. At the Effective Time, all rights
with respect to each option to purchase Target Common Stock
which is outstanding at the Effective Time, whether or not
then vested or exercisable, shall be purchased by Buyer for
cash in an amount equal to the excess of (i) $24.33 per share
of Target Common Stock over (ii) the stated exercise price of
such option.
(e) 10 1/2% DEBENTURES. On or before the Effective
Time, all of Target's 10 1/2% Convertible Subordinated
Debentures due 2000 (the "10 1/2% Debentures") which are
outstanding at the Effective Time shall remain outstanding in
accordance with the indenture pursuant to which the 10 1/2%
Debentures have been issued and the instruments by which such
10 1/2% Debentures are evidenced, in each case as the same may
have been amended or restated or otherwise modified in
accordance with the terms thereof, and HR shall assume each
and every obligation of Target contained in the indenture.
Each 10 1/2% Debenture shall be convertible into that number
of shares of HR Common Stock equal to the number of shares of
Target Common Stock into which such 10 1/2% Debenture was
convertible immediately prior to the Effective Time,
multiplied by the Common Stock Exchange Ratio; the indentures
and instruments pursuant to which such 10 1/2% Debentures have
been issued shall be amended or supplemented to provide for
the conversion of such 10 1/2% Debentures into HR Common
Stock, and such amendments shall provide for adjustments to
the conversion price for events subsequent to the Effective
Time that will be as nearly equal as may be practicable to the
conversion adjustments which currently apply to the 10 1/2%
Debentures.
(f) 6.55% DEBENTURES. All of Target's 6.55%
Convertible Subordinated Debentures due 2002 (the "6.55%
Debentures")which are outstanding at the Effective Time shall
remain outstanding in accordance with the indenture pursuant
to which the 6.55% Debentures have been issued and the
instruments by which such 6.55% Debentures are evidenced, in
each case as the same may have
4
<PAGE> 79
been amended or restated or otherwise modified in accordance
with the terms thereof, and HR shall assume each and every
obligation of Target contained in the indenture. Each 6.55%
Debenture shall be convertible into that number of shares of
HR Common Stock equal to the number of shares of Target
Common Stock into which such 6.55% Debenture was convertible
immediately prior to the Effective Time, multiplied by the
Common Stock Exchange Ratio. The indentures and instruments
pursuant to which such 6.55% Debentures into HR Common
Stock, and such amendments shall provide for adjustments to
the conversion price for events subsequent to the Effective
Time that will be as nearly equal as may be practicable to
the conversion adjustments which currently apply to the
6.55% Debentures.
(g) ANTI-DILUTION PROVISIONS. If after the date
hereof and prior to the Effective Time, the Board of Directors
of HR shall have declared a stock split (including a reverse
split) of HR Common Stock or a dividend payable in HR Common
Stock, or any other distribution of securities or dividend
payable in securities to holders of HR Common Stock with
respect to their HR Common Stock (including such a
distribution or dividend made in connection with a
recapitalization, reclassification, merger, consolidation,
reorganization or similar transaction), then (i) the Common
Stock Exchange Ratio shall be appropriately adjusted to
reflect such stock split or dividend or other distribution of
securities and (ii) if such stock split, dividend or
distribution has a record date prior to the Effective Time,
then the number of shares of HR Common Stock to be issued
pursuant to Section 2.1(b)(i) shall be appropriately adjusted
to reflect such stock split, dividend or other distribution of
securities.
Section 2.2 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time,
Buyer shall enter into an agreement with such bank or trust
company as may be designated by Buyer (the "Exchange Agent")
providing that Buyer shall deposit with the Exchange Agent as
of the Effective Time, for the benefit of the holders of
Exchanging Target Shares, for exchange in accordance with this
Article II, through the Exchange Agent, certificates
representing the Merger Consideration (the Merger
Consideration together with any distributions or dividends
with respect to such Merger Consideration with a record date
after the Effective Time and any cash to be paid in lieu of
fractional shares, being hereinafter referred to as the
"Exchange Fund").
(b) EXCHANGE PROCEDURES. As soon as reasonably
practicable after the Effective Time, the Surviving Entity
shall cause
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<PAGE> 80
the Exchange Agent to mail to each holder of record of a
certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Target
Stock (the "Certificates") whose shares were converted into
the Merger Consideration pursuant to Section 2.1, (i) a
letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the
Certificates shall pass only upon delivery of the
Certificates, to the Exchange Agent and shall be in such
form and have such other provisions as Buyer may reasonably
specify), and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Buyer, together with such
letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Exchange
Agent, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing that
number of whole shares of HR Common Stock or HR Preferred
Stock into which the shares of Target Stock held by such
holder have been converted pursuant to the provisions of
this Article II, and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of
ownership of shares of Exchanging Target Shares which are
not registered in the transfer records of Target, delivery
of the Merger Consideration may be made to a person other
than the person in whose name the Certificate so surrendered
is registered, if such Certificate shall be properly
endorsed or otherwise in proper form for transfer and the
person requesting such delivery shall pay any transfer or
other taxes required by reason of delivery of the Merger
Consideration to a person other than the registered holder
of such Certificate or establish to the satisfaction of
Buyer that such tax has been paid or is not applicable.
Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective
Time to represent only that number of whole shares of HR
Common Stock or HR Preferred Stock into which the shares of
Target Stock represented by such Certificate have been
converted pursuant to the provisions of this Article II and
the right to receive upon such surrender the amount of cash
payable in lieu of any fractional shares which the holder
thereof has the right to receive in respect of such
Certificate pursuant to this Article II. No interest will be
paid or will accrue on any cash payable in lieu of any
fractional shares to holders of Certificates pursuant to the
provisions of this Article II. Former stockholders of record
of Target shall be entitled to vote after the Effective Time
at any meeting of HR shareholders the number of shares of HR
Common Stock or of HR Preferred Stock, as applicable, into
which their respective shares of Target Common Stock or
Target Series A Preferred Stock are converted, regardless of
whether such holders have exchanged their
6
<PAGE> 81
Certificates for certificates representing shares of HR
Common Stock or of HR Preferred Stock, as applicable, in
accordance with this Section 2.2.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES.
No dividends or other distributions with respect to the Merger
Consideration shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of HR Common Stock or
HR Preferred Stock represented thereby until the surrender of
such Certificate in accordance with this Article II. Following
surrender of any such Certificate, there shall be paid to the
holder of the certificate representing whole shares of HR
Common Stock or HR Preferred Stock issued in exchange
therefor, without interest, (i) at the time of such surrender,
the amount of any cash payable to such holder pursuant to
Section 2.2(e) and the amount of dividends or other
distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of HR
Common Stock, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date
after the Effective Time but prior to such surrender and with
a payment date subsequent to such surrender payable with
respect to such whole shares of HR Common Stock.
(d) NO FURTHER OWNERSHIP RIGHTS IN EXCHANGING TARGET
SHARES. All shares of HR Common Stock or HR Preferred Stock
issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article II (including any
cash paid pursuant to Section 2.1, 2.2(c) or 2.2(e)) shall be
deemed to have been issued (and paid) in full satisfaction of
all rights pertaining to the Exchanging Target Shares
theretofore represented by such Certificates. If, after the
Effective Time, Certificates are presented to the Surviving
Entity or the Exchange Agent for any reason, they shall be
canceled and exchanged as provided in this Article II, except
as otherwise provided by law.
(e) NO FRACTIONAL SHARES. No certificates or scrip
representing fractional shares of HR Common Stock or HR
Preferred Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests
will not entitle the owner thereof to vote or to any rights of
a shareholder of HR. Notwithstanding any other provision of
this Plan of Merger, each holder of Exchanging Target Shares
exchanged pursuant to the Merger who would otherwise have been
entitled to receive a fraction of a share of HR Common Stock
or HR Preferred Stock (after taking into account all
Certificates delivered by such holder) shall receive, in lieu
thereof, cash (without
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<PAGE> 82
interest) in an amount equal to such fractional part of a
share of HR Common Stock multiplied by $28.5625.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the
Exchange Fund which remains undistributed to the holders of
the Certificates six months after the Effective Time shall be
delivered to Buyer, on demand, and any holders of the
Certificates who have not theretofore complied with this
Article II shall thereafter look only to Buyer for payment of
their claim for Merger Consideration and any dividends or
distributions with respect to HR Common Stock.
(g) NO LIABILITY. None of Buyer, HR, Target or the
Exchange Agent shall be liable to any person in respect of any
shares of HR Common Stock (or dividends or distributions with
respect thereto) or cash from the Exchange Fund delivered to a
public official pursuant to any applicable abandoned property,
escheat or similar law. If any Certificates shall not have
been surrendered prior to seven years after the Effective Time
(or immediately prior to such earlier date on which any Merger
Consideration would otherwise escheat to or become the
property of any governmental entity), any such Merger
Consideration shall, to the extent permitted by applicable
law, become the property of the Surviving Entity, free and
clear of all claims or interest of any person previously
entitled thereto.
(h) INVESTMENT OF EXCHANGE FUND. The Exchange Agent
shall invest any cash included in the Exchange Fund in deposit
accounts or short-term money market instruments, as directed
by Buyer, on a daily basis. Any interest and other income
resulting from such investments shall be paid to Buyer.
Section 2.3 CERTIFICATE OF INCORPORATION OF THE SURVIVING
ENTITY. The Certificate of Incorporation of Buyer, effective as of the Effective
Time, shall become the Certificate of Incorporation of the Surviving Entity from
and after the Effective Time and until thereafter amended as provided by law.
Section 2.4 BYLAWS OF THE SURVIVING ENTITY. The Bylaws of
Buyer shall be the Bylaws of the Surviving Entity from and after the Effective
Time and until thereafter altered, amended or repealed in accordance with the
DGCL, the Certificate of Incorporation of Buyer and said Bylaws.
Section 2.5 DIRECTORS. The Board of Directors of Buyer at the
Effective Time shall, from and after the Effective Time, be the Board of
Directors of the Surviving Entity until their successors have been duly elected
or appointed and qualified or until their earlier death, resignation or removal
in accordance with the Surviving Entity's Certificate of Incorporation and
applicable law.
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Section 2.6 OFFICERS. The officers of Buyer at the Effective
Time shall, from and after the Effective Time, be the officers of the Surviving
Entity until their successors have been duly elected or appointed and qualified
or until their earlier death, resignation or removal in accordance with the
Surviving Entity's Certificate of Incorporation and Bylaws.
Section 2.7 ASSETS, LIABILITIES. At the Effective Time, the
assets, liabilities, reserves and accounts of each of the Constituent Entities
shall be taken upon the books of the Surviving Entity at the amounts at which
they respectively shall be carried on the books of the Constituent Entities
immediately prior to the Effective Time, except as otherwise set forth in this
Plan of Merger and subject to such adjustments, or elimination of intercompany
items, as may be appropriate in giving effect to the Merger in accordance with
generally accepted accounting principles.
Section 2.8 TAX TREATMENT. The Constituent Entities
acknowledge that for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368(a)(2)(E)
of the Internal Revenue Code of 1986, as amended (the "Code").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TARGET
Target represents and warrants to Buyer and HR as follows (and
for purposes of this Article III, all references to "Target" shall be deemed to
include all Target Subsidiaries (as hereinafter defined) unless the context
otherwise requires):
Section 3.1 ORGANIZATION AND QUALIFICATION. Each of Target and
the Target Subsidiaries (as defined below in Section 3.3) is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, if a corporation, and is legally formed and validly existing
under the laws of the jurisdiction of its organization, if a trust, association,
partnership, limited liability company or business organization, and each has
the requisite corporate, trust or organizational power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted. Target and each Target Subsidiary is registered or
qualified to do business and is in good standing in each jurisdiction in which
the properties owned, leased or operated by it or the nature of the business
conducted by it makes such registration or qualification necessary, except where
the failure to be so registered or qualified and in good standing will not have
and would not reasonably be expected to have a material adverse effect (as
defined in Section 9.10 below) on Target. True, accurate and complete copies of
the charter and bylaws, if a corporation, and the partnership agreements or
other agreements and organizational documents, if a trust,
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<PAGE> 84
association, partnership, limited liability company or business organization, of
Target and each Target Subsidiary, in each case as in effect on the date hereof,
including all amendments thereto, have heretofore been delivered to Buyer.
Section 3.2 CAPITALIZATION.
(a) The authorized stock of Target consists of (i)
50,000,000 shares of Target Common Stock, and (ii) 10,000,000
shares of Target Preferred Stock, of which 3,450,000 shares
are classified as Target Series A Preferred Stock. As of the
date of this Plan of Merger, (i) 22,286,650 shares (including
99,900 restricted shares) of Target Common Stock were issued
and outstanding and (ii) 3,000,000 shares of Target Series A
Preferred Stock were issued and outstanding, and (iii) no
other shares of Target Preferred Stock were issued and
outstanding. All of the issued and outstanding shares of
Target Common Stock and Target Series A Preferred Stock are
validly issued and are fully paid, nonassessable and none have
been issued in violation of any preemptive rights of current
or former shareholders of Target. As of the date of this Plan
of Merger, Target holds 140,000 shares of Target Common Stock
in its treasury.
(b) Except as set forth on Exhibit 3.2 to the
Disclosure Schedule delivered by Target to Buyer
simultaneously with the execution and delivery of this Plan of
Merger (the "Target Disclosure Schedule"), all of the issued
and outstanding shares of stock of each Target Subsidiary is
owned by Target, free and clear of all liens, charges,
encumbrances, equities or claims and all of the issued and
outstanding shares of each Target Subsidiary are fully paid
and nonassessable. None of the outstanding shares of capital
stock of Target Subsidiaries has been issued in violation of
any preemptive rights of current or former shareholders of the
Target Subsidiaries.
(c) Except as set forth on Exhibit 3.2 to the Target
Disclosure Schedule or otherwise disclosed in the Target
Annual Report on Form 10-K for the fiscal year ended December
31, 1997, (i) there are no options, warrants or similar rights
granted, or debentures issued, by Target or any Target
Subsidiary or any other agreement to which Target or any
Target Subsidiary is a party providing for the issuance or
sale by it of any additional securities which would remain in
effect after the Effective Time, and (ii) there are no voting
trusts, proxies or other agreements or understandings to which
Target is a party or is bound with respect to the voting of
any shares of stock of Target or any Target Subsidiary.
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(d) Except as set forth on Exhibit 3.2 to the Target
Disclosure Schedule, there is no liability for dividends
declared or accumulated but unpaid with respect to any of the
shares of Target Common Stock or Target Series A Preferred
Stock.
Section 3.3 SUBSIDIARIES. Attached to the Target Disclosure
Schedule as Exhibit 3.3 is a list of all subsidiaries of Target (each a "Target
Subsidiary" and collectively, the "Target Subsidiaries") and their respective
states of incorporation or formation. Except as set forth on Exhibit 3.3 to the
Target Disclosure Schedule, neither Target nor any Target Subsidiary owns any
stock or other equity interests in, and does not control, directly or
indirectly, any other corporation, partnership, joint venture, limited liability
company, association or business organization. Except for Target Subsidiaries
which are limited partnerships or limited liability companies, each Target
Subsidiary is a "qualified REIT subsidiary" under Section 856 of the Code.
Except as set forth on Exhibit 3.3 to the Target Disclosure Schedule, neither
Target nor any Target Subsidiary is, or has been within the two years
immediately preceding the date of this Plan of Merger, a subsidiary or division
of another corporation (except Target), nor has Target or any Target Subsidiary
during such time owned, directly or indirectly, any shares of HR Common Stock.
Section 3.4 POWER AND AUTHORITY. Subject to the satisfaction
of the conditions precedent set forth herein, Target (a) has the corporate power
to execute, deliver and perform this Plan of Merger and all agreements and other
documents executed and delivered or to be executed and delivered by it pursuant
to this Plan of Merger, and (b) has taken all action required by its Charter,
Bylaws or otherwise, to authorize the execution, delivery and performance of
this Plan of Merger and such related documents. The execution and delivery of
this Plan of Merger has been approved by the Board of Directors of Target. This
Plan of Merger has been duly executed and delivered by Target and, assuming the
receipt of required stockholder and regulatory approvals and further assuming
that this Plan of Merger constitutes a valid and binding obligation of Buyer and
HR, constitutes a valid and binding obligation of Target, enforceable against
Target in accordance with its terms.
Section 3.5 NO VIOLATIONS. Except as set forth on Exhibit 3.5
to the Target Disclosure Schedule, the execution and delivery of this Plan of
Merger does not and, subject to the receipt of required stockholder approvals
(as set forth in Section 3.17) and regulatory approvals (as set forth in Section
3.6) and any other required third-party consents or approvals, the consummation
of the Merger will not, violate any provision of Target's Charter or Bylaws, or
any provisions of, or result in the acceleration of any obligation under, result
in the creation of any lien, charge, encumbrance or claim on any property or
assets of Target or Target Subsidiaries under any material mortgage, lien,
lease, agreement, instrument, order, arbitration award, judgment or decree to
which Target or any Target Subsidiary is a party, or by which it is bound, or
violate any restrictions of any kind
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to which it is subject which, if violated or accelerated, would have a material
adverse effect on Target.
Section 3.6 CONSENTS. Except for (i) the filing of the
Registration Statement and the Joint Proxy Statement (in each case as defined in
Section 6.2 below) with the Securities and Exchange Commission (the "SEC")
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
declaration of the effectiveness thereof by the SEC and filings with various
state blue sky authorities, (ii) the acceptance for record of the Articles of
Merger by the SDAT and by the Delaware Office of the Secretary of State in
connection with the Merger, (iii) any required filings with or approvals from
applicable state environmental authorities and (iv) any required filings with or
approvals from applicable state health care regulation and licensing authorities
(the filings and approvals referred to in clauses (i) through (iv) being
collectively referred to as the "Target Required Statutory Approvals"), no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Plan of Merger by Target or the
consummation by Target of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not, in the
aggregate, have a material adverse effect on Target. No filing or notice under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") is
required in connection with the execution and delivery of this Plan of Merger or
the consummation of the transactions contemplated hereby.
Section 3.7 TARGET PUBLIC INFORMATION. Target has heretofore
furnished Buyer with a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by it with the SEC
since January 1, 1997 (as any such documents have been amended since the time of
their original filing, the "Target SEC Documents"), which are all of the
documents (other than preliminary materials) that it was required to file from
such date through the date of this Plan of Merger. As of their respective dates,
the Target SEC Documents did not contain any untrue statements of material facts
or omit to state material facts required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the Target SEC Documents
complied in all material respects with the applicable requirements of the
Securities Act and the Exchange Act and the rules and regulations promulgated
under such statutes. The financial statements contained in the Target SEC
Documents, together with the notes thereto, have been prepared in accordance
with generally accepted accounting principles consistently followed throughout
the periods indicated (except, in the case of the unaudited financial
statements, as permitted by Form 10-Q), reflect all known liabilities of Target
required to be stated therein, including all known contingent liabilities as of
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the end of each period reflected therein, and present fairly the financial
condition of Target at said date and the consolidated results of operations and
cash flows of Target for the periods then ended. The consolidated balance sheet
of Target at December 31, 1997 included in the Target SEC Documents is herein
sometimes referred to as the "Target Balance Sheet." The consolidated financial
statements of Target at December 31, 1997 included in the Target SEC Documents
are herein sometimes referred to as the "Target Financial Statements."
Section 3.8 LEGAL PROCEEDINGS. Except as disclosed in the
Target SEC Documents or on Exhibit 3.8 to the Target Disclosure Schedule and,
except for actions in the ordinary course of business against space tenants for
breaches of space leases that either individually or in the aggregate will not
have a material adverse effect on Target, there is no material litigation,
governmental investigation or other proceeding pending or, to the best knowledge
of Target, threatened against or relating to Target, any Target Subsidiary, or
their respective properties or businesses or the transactions contemplated by
this Plan of Merger and, to the best knowledge of Target, no basis for any such
action exists.
Section 3.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except as
disclosed on Exhibit 3.9 to the Target Disclosure Schedule, neither Target nor
any Target Subsidiary had, at December 31, 1997, and has not incurred since that
date, any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature (other than ordinary and recurring operating expenses),
except (a) liabilities, obligations or contingencies which are accrued or
reserved against in the Target Financial Statements or reflected in the notes
thereto and (b) liabilities, obligations or contingencies which (i) would not,
in the aggregate, have, or be reasonably expected to have, a material adverse
effect on Target, or (ii) have been discharged or paid in full prior to the date
hereof or will be discharged or paid in full prior to the Effective Time.
Section 3.10 CONTRACTS, ETC. Except as set forth on Exhibit
3.10 to the Target Disclosure Schedule:
(a) each material contract, lease, agreement and
arrangement to which Target or any Target Subsidiary is a
party is legally valid and binding in accordance with its
terms and in full force and effect. To the best knowledge of
Target, no party is in material default thereunder, and no
event has occurred which, but for the lapse of time or the
giving of notice, or both, would constitute a default
thereunder, except, in each case, where the invalidity of such
lease, contract, agreement or arrangement or the default or
breach thereunder or thereof would not, individually or in the
aggregate, have a material adverse effect on Target;
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(b) no contract or agreement to which Target or any
Target Subsidiary is a party will, by its terms, terminate as
a result of the transaction contemplated hereby or require any
consent from any obligor thereto in order to remain in full
force and effect immediately after the Effective Time, except
for contracts or agreements which, if terminated, would not
have a material adverse effect on Target; and
(c) neither Target nor any Target Subsidiary has
granted any right of first refusal or similar right in favor
of any third party with respect to any material portion of its
properties or assets or entered into any noncompetition
agreement or similar agreement restricting its ability to
engage in any business in any location.
Section 3.11 SUBSEQUENT EVENTS. Except as set forth on Exhibit
3.11 to the Target Disclosure Schedule or disclosed in the Target SEC Documents,
Target has not, since the date of the last-filed Target SEC Document:
(a) suffered any material adverse change;
(b) paid or satisfied any material obligation or
liability (absolute, accrued, contingent or otherwise) other
than (i) liabilities shown in the Target Financial Statements
or (ii) liabilities incurred since the date of the last-filed
Target SEC Document in the ordinary course of business, which
payment or satisfaction would have a material adverse effect
on Target;
(c) increased or established any reserve for taxes or
any other liability on its books or otherwise provided
therefor which would have a material adverse affect on Target,
except as may have been required due to income or operations
of Target since the date of the last-filed Target SEC
Document;
(d) sold, transferred, mortgaged, pledged or
subjected to any lien, charge or other encumbrance any of its
assets which are material to its consolidated business or
financial condition, other than in the ordinary course of
business;
(e) granted any material increase in salary payable
or to become payable by Target to any officer or employee,
consultant or agent (other than merit increases in the
ordinary course of business consistent with past practice), or
by means of any bonus or pension plan, contract or other
commitment, increased in any material respect the compensation
of any officer, employee, consultant or agent;
(f) except for this Plan of Merger and any other
agreement executed and delivered pursuant hereto, entered into
any material
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transaction other than in the ordinary course of business or
permitted under other Sections hereof;
(g) changed its authorized or issued capital stock;
granted any stock option, warrant or right to purchase of
shares of its capital stock; issued any security convertible
into its capital stock; granted any registration rights with
respect to any securities issued by Target; purchased,
redeemed, or otherwise acquired any securities issued by
Target; or declared or paid any dividend or other distribution
or payment in respect of shares of its capital stock, except
for payment of any dividends consistent with past practice;
(h) amended Target's Articles of Incorporation or
ByLaws;
(i) adopted or increased any profit sharing, bonus,
deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any
employees of Target; and
(j) entered into any agreement or understanding,
whether or not in writing, to do, or the result of which would
cause, any of the foregoing.
Section 3.12 TAXES. Except as set forth on Exhibit 3.12 to the
Target Disclosure Schedule:
(a) Target (i) has duly filed with the appropriate
governmental authorities all Tax Returns (as hereinafter
defined) required to be filed by it for all periods ending on
or prior to the Effective Time, and such tax returns are true,
correct and complete in all material respects, (ii) has duly
paid in full or made adequate provision for the payment of all
Taxes (as hereinafter defined) for all periods ending at or
prior to the Effective Time (whether or not shown on any Tax
Return), and (iii) has not filed for an extension to file any
Tax Return not yet filed. No claim has been made by any
authority in a jurisdiction where Target or any Target
Subsidiary does not file a Tax Return that Target or any
Target Subsidiary is or may be subject to tax in such
jurisdiction. No waivers of statutes of limitation have been
given by or requested with respect to any Taxes. Target has
not agreed to any extension of time with respect to any Tax
deficiency. The liabilities and reserves for Taxes reflected
in the Target Balance Sheet are adequate to cover all Taxes
for all periods ending on or prior to December 31, 1997 and
there are no liens for Taxes upon any property or asset of
Target, except for liens for Taxes not yet due. Target is not
a party to any agreement providing for the allocation or
sharing of Taxes with any entity except for certain of the
Target Leases and Target Mortgage Loans (in each case as
hereinafter defined) which provide
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that the lessee or mortgagor thereunder shall pay all taxes
assessed with respect to the Target Property (as hereinafter
defined) demised under such Target Leases or securing such
Target Mortgage Loans. Target has not, with regard to any
assets or property held, acquired or to be acquired by it,
filed a consent to the application of Section 341(f) of the
Code. Target has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid
or owing to any employee, independent contractor, creditor,
stockholder, or other third party. Target has or will have,
by the Effective Time, received cash sufficient to satisfy
the requirements of Section 857(a) and Section 857(b)(3)(A)
of the Code and any applicable excise taxes relating to the
operation of Target for the taxable years of Target up to
the Effective Time.
(b) Target has not been notified that any tax returns
of Target or any Target Subsidiary are currently under audit
by the IRS or any state or local tax agency.
(c) Target has not been a member of any affiliated or
combined group of companies that files a consolidated,
affiliated, or other combined group Tax Return and Target has
no liability for the Taxes of any person under Treasury
Regulations 1.1502-6 (or any similar provision of non-federal
tax law) as a transferee or successor, by contract, or
otherwise, except for the Target Subsidiaries.
(d) For purposes of this Plan of Merger, the term
"Taxes" shall mean all taxes, charges, fees, levies or other
assessments, including gross receipts, excise, property,
sales, withholding, social security, occupation, use, service,
service use, license, payroll, franchise, transfer and
recording taxes, fees and charges, imposed by the United
States, or any state, local or foreign government or
subdivision or agency thereof whether computed on a separate,
consolidated, unitary, combined or any other basis; and such
term shall include any interest, fines, penalties or
additional amounts attributable or imposed or with respect to
any such taxes, charges, fees, levies or other assessments,
and the term "Tax Return" shall mean any return, report or
other document or information required to be supplied to a
taxing authority in connection with Taxes.
Section 3.13 COMMISSIONS AND FEES. Except as set forth on
Exhibit 3.13 to the Target Disclosure Schedule, there are no valid claims for
brokerage commissions or finder's or similar fees in connection with the
transactions contemplated by this Plan of Merger which may be now or hereafter
asserted against Target resulting from any action taken by Target or its
stockholders, officers or directors, or any of them.
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Section 3.14 EMPLOYEE BENEFIT PLANS; EMPLOYMENT MATTERS.
Except as described in the Target SEC Documents or set forth on Exhibit 3.14 to
the Target Disclosure Schedule, Target has neither established nor maintains nor
is obligated to make contributions to or under or otherwise participate in (i)
any bonus or other type of incentive compensation plan, program, agreement,
policy, commitment, contract or arrangement (whether or not set forth in a
written document), (ii) any pension, profit-sharing, retirement or other plan,
program or arrangement, or (iii) any other employee benefit plan, fund or
program, including, but not limited to, those described in Section 3(3) of the
Employee Retirement Income Security Act of 1976, as amended ("ERISA"). All such
plans (individually, a "Plan" and collectively, the "Plans") have been operated
and administered in all material respects in accordance with, as applicable,
ERISA, the Code, Title VII of the Civil Rights Act of 1964, as amended, the
Equal Pay Act of 1967, as amended, the Age Discrimination in Employment Act of
1967, as amended, and the related rules and regulations adopted by those federal
agencies responsible for the administration of such laws. No act or failure to
act by Target has resulted in a "prohibited transaction" (as defined in ERISA)
with respect to the Plans that is not subject to a statutory or regulatory
exception. No "reportable event" (as defined in ERISA) has occurred with respect
to any of the Plans which is subject to Title IV of ERISA. Target has not
previously made, is not currently making, and is not obligated in any way to
make, any contributions to any multi-employer plan within the meaning of the
Multi-Employer Pension Plan Amendments Act of 1980.
Section 3.15 COMPLIANCE WITH LAWS IN GENERAL. Except as set
forth on Exhibit 3.15 to the Target Disclosure Schedule or disclosed in the
Target SEC Documents, neither Target nor any Target Subsidiary, nor (to Target's
best knowledge) any of Target's borrowers or lessees, has received any notices
of material violations of any federal, state or local laws, regulations or
ordinances relating to its business and operations, and no notice of any pending
inspection or violation of any such law, regulation or ordinance has been
received by Target or any Target Subsidiary which, if it were determined that a
violation had occurred, would have a material adverse effect on Target.
Section 3.16 LICENSES. Target and the Target Subsidiaries,
and, to the best knowledge of Target, their respective borrowers and lessees,
hold all licenses, permits, certificates and other regulatory approvals
(collectively, the "Licenses") which are needed or required by law with respect
to their businesses, operations and facilities as currently conducted, except
for permits, licenses, franchises, variances, exemptions, orders,
authorizations, consents and approvals the absence of which, alone or in the
aggregate, would not have a material adverse effect on Target. Except as set
forth on Exhibit 3.16 to the Target Disclosure Schedule and subject to
compliance with applicable securities laws, the consummation of the Merger will
not violate any law or regulation to which Target is subject which, if violated,
would have a material adverse effect on Target. Except for routine notices
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to state authorities that may be required upon a change of control of assisted
living facilities, nursing homes or inpatient rehabilitation hospitals and
except as set forth on Exhibit 3.16 to the Target Disclosure Schedule, Target
and the Target Subsidiaries and, to the best knowledge of Target, each of their
borrowers and lessees (i) has duly and currently filed all reports and other
information required to be filed with any federal, state or local governmental
or regulatory authority in connection with the Licenses, (ii) is not in
violation of the terms of any License, except for delays in filing reports or
violations which, alone or in the aggregate, would not have a material adverse
effect on Target, and (iii) is using and occupying each of the Target Properties
in a manner that complies with all applicable codes and zoning laws and
regulations, except where the failure to so comply would not have, or would not
be reasonably expected to have, a material adverse effect on Target.
Section 3.17 VOTE REQUIRED. The affirmative vote of the
holders of two-thirds of the outstanding shares of the Target Common Stock
entitled to vote thereon and the affirmative vote of the holders of two-thirds
of the outstanding shares of the Target Series A Preferred Stock are the only
votes of the holders of any class or series of Target equity securities
necessary to approve this Plan of Merger, the Merger and the transactions
contemplated hereby.
Section 3.18 CERTAIN INDEBTEDNESS. Except as disclosed on
Exhibit 3.18 to the Target Disclosure Schedule, neither Target nor any Target
Subsidiary is indebted for money borrowed, either directly or indirectly, from
any of its officers, directors, or any Affiliate (as defined below), in any
amount whatsoever; nor are any of its officers, directors, or Affiliates
indebted for money borrowed from Target or any Target Subsidiary, nor are there
any transactions of a continuing nature between Target or any Target Subsidiary
and any of its officers, directors, or Affiliates (other than by or through the
regular employment thereof by Target) not subject to cancellation which will
continue beyond the time the Merger becomes effective, including use of Target's
or any Target Subsidiary's assets for personal benefit with or without adequate
compensation. As used herein, the term "Affiliate" shall mean any Person (as
defined below) that, directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control with, the Person
specified. As used in the foregoing definition, the term (i) "control" shall
mean the power through the ownership of voting securities, contract, or
otherwise to direct the affairs of another Person and (ii) "Person" shall mean
an individual, firm, trust, association, corporation, limited liability company,
partnership, government (whether federal, state, local or other political
subdivision, or any agency or bureau of any of them) or other entity.
Section 3.19 NYSE LISTING. Each share of the Target Common
Stock and the Target Series A Preferred Stock is, and immediately prior to the
Effective Time will be, listed on the NYSE.
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Section 3.20 TARGET OWNERSHIP OF HR COMMON STOCK. Target is
not, and its "affiliates" and "associates" collectively are not, and will not be
as of the Effective Time, the "beneficial owner" (as such terms are defined in
rules and regulations under the Securities Act, the Exchange Act, and the MGCL)
of one percent or more of the outstanding shares of HR Common Stock.
Section 3.21 REIT QUALIFICATION. At all times during its
existence, Target has been, and as of the Effective Time Target will be,
organized in conformity with the requirements for qualification and, as of the
date hereof for all taxable periods has qualified, as a "real estate investment
trust" under the Code and the rules and regulations thereunder. Target has at
all times during its existence (i) met the 75%, 95% and (through the tax year
ended December 31, 1997) 30% income tests set forth in Section 856 of the Code,
(ii) met the 75% and 25% asset tests set forth in Section 856 of the Code, (iii)
distributed dividends to its stockholders at least equal to the 95% requirements
of Section 857 of the Code, and (iv) been in compliance with Section 856(c)(5)
of the Code.
Section 3.22 TITLE TO PROPERTIES. Target has good title to all
real property owned or leased by it (individually, a "Target Property" and
collectively, the "Target Properties"), and good title to all personal property
owned by it which is material to its business, in each case free and clear of
all liens, encumbrances, claims, security interests and defects, other than (i)
those items disclosed on Exhibit 3.22 to the Target Disclosure Schedule, (ii)
the Target Mortgages (as hereinafter defined), and (iii) those liens,
encumbrances, claims, security interests and defects which would not, either
individually or in the aggregate, have a material adverse effect on any Target
Property (including the present maintenance, operation, occupancy or use
thereof) (collectively, "Permitted Target Encumbrances").
Section 3.23 TITLE INSURANCE.
(a) Except as set forth on Exhibit 3.23 to the Target
Disclosure Schedule, (x) an owner's policy of title insurance
issued by a nationally recognized title insurance company in a
form and containing coverages customarily approved and
required by institutional investors has been obtained for each
Target Property, and (y) each owner's policy of title
insurance insures the fee simple or leasehold ownership
interest of Target or the appropriate Target Subsidiary in
each Target Property subject only to Permitted Target
Encumbrances and is in an amount at least equal to the sum of
(i) the cost of the acquisition of such Target Property and
(ii) any subsequent cost of the construction and installation
of the improvements made by Target located on such Target
Property (measured at the time of such construction).
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(b) Except as set forth on Exhibit 3.23 to the Target
Disclosure Schedule, a mortgagee's policy of title insurance
issued by a nationally recognized title insurance company in a
form and containing coverages customarily approved and
required by institutional investors and insuring title in the
priority listed on Exhibit 3.23 to the Target Disclosure
Schedule has been obtained for each Target Mortgage Loan (as
hereinafter defined). Each mortgagee's policy of title
insurance insures the mortgage interest of Target or the
appropriate Target Subsidiary in the real property encumbered
by the Target Mortgage Loan and is in an amount at least equal
to the amount of the Target Mortgage Loan.
Section 3.24 ENVIRONMENTAL MATTERS. Except as disclosed on
Exhibit 3.24 to the Target Disclosure Schedule, (a) all of the Target Properties
and any of the real properties encumbered by a Tenant Mortgage Loan (as defined
in Section 3.30) have been the subject of preliminary environmental assessments,
inspections or reviews, and (b) Target has no knowledge of (i) the unlawful
presence of any Hazardous Materials (as defined below) on any of the Target
Properties or any of the real properties encumbered by a Tenant Mortgage Loan
(as defined in Section 3.30) that would have a material adverse effect on any of
the Target Properties or any of the real properties encumbered by a Tenant
Mortgage Loan (as defined in Section 3.30) or (ii) any unlawful spills,
releases, discharges or disposal of Hazardous Materials that have occurred or
are presently occurring on any of Target Properties or any of the real
properties encumbered by a Tenant Mortgage Loan (as defined in Section 3.30) as
a result of any construction on or operation and use of any of Target Properties
or any of the real properties encumbered by a Tenant Mortgage Loan (as defined
in Section 3.30) that would have a material adverse effect. The term "Hazardous
Materials" means any material which has been determined by any applicable
governmental authority to be harmful to the health or safety of human or animal
life or vegetation, regardless of whether such material is found on or below the
surface of the ground, in any surface or underground water, airborne in ambient
air or in the air inside any structure built or located upon or below the
surface of the ground or in building materials or in improvements of any
structures, or in any personal property located or used in any such structure,
including all hazardous substances, imminently hazardous substances, hazardous
wastes, toxic substances, infectious wastes, pollutants and contaminants from
time to time defined, listed, identified, designated or classified as such under
any Environmental Laws. The term "Environmental Laws" means any federal, state
or local statute, regulation, rule or ordinance, and any judicial or
administrative interpretation thereof, regulating the use, generation, handling,
storage, transportation, discharge, emission, spillage or other release of
Hazardous Materials or relating to the protection of the environment.
Section 3.25 DEFECTS. Except as set forth on Exhibit 3.25 to
the Target Disclosure Schedule and except for routine matters that typically
arise in
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connection with new construction of the Target Properties to the best of
Target's knowledge without any independent investigation, there are no material
defects in the improvements located on any of the Target Properties or any of
the real properties encumbered by a Tenant Mortgage Loan (as defined in Section
3.30) including any defect in the foundation, structural systems, roof or the
electrical, plumbing, heating, ventilating or air conditioning systems included
within the improvements located on any of the Target Properties or any of the
real properties encumbered by a Tenant Mortgage Loan (as defined in Section
3.30) and there are no repairs or deferred maintenance required to be made
thereto.
Section 3.26 CONDEMNATION. There is no pending or, to the best
of Target's knowledge, threatened public or private condemnation or similar
proceeding affecting any of the Target Properties or any of the real properties
encumbered by a Tenant Mortgage Loan (as defined in Section 3.30) or any part
thereof which could have a material adverse effect upon the present maintenance,
operation, occupancy or use of any of the Target Properties or any of the real
properties encumbered by a Tenant Mortgage Loan (as defined in Section 3.30).
Section 3.27 TAXES AND ASSESSMENTS ON TARGET PROPERTIES. There
are no material unpaid real estate property taxes or assessments due and payable
against any Target Property. Neither Target nor any Target Subsidiary has
received any notice of assessment for public improvements with respect to or
relating to a Target Property.
Section 3.28 PROPERTIES AND LEASES. Exhibit 3.28 to the Target
Disclosure Schedule sets forth a complete and correct list of (i) all Target
Properties and (ii) all leases of Target Properties or any part thereof, other
than space subleases and occupancy agreements (each a "Target Tenant Lease" and
collectively, the "Target Tenant Leases") under a Target Lease (as hereinafter
defined), in effect on the date hereof (individually, a "Target Lease" and
collectively, the "Target Leases") and sets forth a complete and correct
description of the following:
(a) the location of the Target Property encumbered by
each Target Lease;
(b) the approximate square footage of the building
under each Target Lease;
(c) the name of the tenant and any guarantor under
each Target Lease;
(d) the date of each Target Lease and any amendment
or modification thereof, the commencement or amendment start
date of
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each Target Lease and the expiration date of the term of each
Target Lease;
(e) the amount of annual or monthly base rent and
additional rent due under each Target Lease and the amount, or
the basis of calculation thereof, of any scheduled increase or
other escalation in the annual and monthly base rent or
additional rent;
(f) any renewal, extension, expansion or cancellation
right of the tenant under each Target Lease; and
(g) any security deposit or outstanding rent
concession or abatement under each Target Lease.
There are no material leases, tenancies, licenses or other rights of occupancy
or use of Target Properties or any portion thereof except for Target Leases and
Target Tenant Leases and except as set forth on Exhibit 3.28 to the Target
Disclosure Schedule. Except as set forth on Exhibit 3.28 to the Target
Disclosure Schedule, each Target Lease is valid and enforceable, is in full
force and effect, has not been materially amended, modified or supplemented, and
the tenant thereunder has accepted its demised premises, is in actual possession
in the normal course and has commenced payment of rent and additional rent, if
applicable, therefor. Except as set forth on Exhibit 3.28 to the Target
Disclosure Schedule, each Target Lease provides that the tenant thereunder is
required to pay all or its pro rata share of the operating expenses, repairs and
maintenance, and taxes and insurance in connection with the maintenance,
ownership, use and occupancy of the Target Property demised thereunder. Neither
Target nor any Target Subsidiary is in default in the payment or performance of
any material obligation binding on Target or a Target Subsidiary under a Target
Lease and neither Target nor any Target Subsidiary has given notice of material
default to a tenant (which default has not previously been cured), nor does any
condition or event exist which with the giving of notice or the passage of time,
or both, would constitute a material default by Target or any Target Subsidiary
or, to the best of Target's knowledge, by a tenant under a Target Lease. Target
does not have any knowledge of any material claim, offset, right of recoupment
or defense available to a tenant under a Target Lease, and there have been no
material waivers by Target or any Target Subsidiary of any material default
under or breach of a Target Lease by a tenant. Except for Target Mortgages (as
hereinafter defined), neither Target nor any Target Subsidiary has assigned,
pledged, hypothecated or otherwise encumbered any of its right, title or
interest in and to a Target Lease or any rents payable thereunder.
Section 3.29 MORTGAGES. Exhibit 3.29 to the Target Disclosure
Schedule sets forth a complete and correct list of all mortgages, deeds of
trust, deeds to secure debt and other similar security interests encumbering any
Target Property or any part thereof (individually, a "Target Mortgage" and
collectively, the
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"Target Mortgages") and sets forth a complete and correct description of the
following:
(a) the location of each Target Property encumbered
by each Target Mortgage;
(b) the name of the obligor, each guarantor and the
holder of each Target Mortgage;
(c) the priority of each Target Mortgage and any
mortgage, deed of trust or other similar instrument that is
prior to each Target Mortgage;
(d) the date of each Target Mortgage and any
amendment or modification thereof;
(e) the original principal amount of the debt secured
by each Target Mortgage, the current rate of interest
thereunder and the current outstanding principal balance
thereof;
(f) the maturity date of the debt secured by each
Target Mortgage, the type of debt secured thereby and whether
any balloon payment is due at the maturity of the debt secured
thereby;
(g) the amount of the current monthly payment of
interest, principal or other amounts due under each Target
Mortgage and the amount of any other mandatory principal or
other payment due thereunder prior to the maturity date of the
debt secured thereby;
(h) any amount that has not been disbursed or
advanced to Target by the holder of a Target Mortgage that
such holder is obligated to disburse or advance;
(i) any prepayment premiums with respect to the
prepayment (full or partial) of the debt secured by each
Target Mortgage and the current penalty payable in connection
with any such prepayment; and
(j) the amount of any escrow deposits or other
deposits or payments held under each Target Mortgage by the
holder of each Target Mortgage.
There are no mortgages, deeds of trusts, deeds to secure debt or other similar
instruments encumbering any Target Property or any portion thereof except for
the Target Mortgages. Each Target Mortgage is valid and enforceable, is in full
force and effect, and has not been amended, modified or supplemented except as
set forth
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on Exhibit 3.29 to the Target Disclosure Schedule. All payments, installments
and charges due and payable under the Target Mortgages have been paid in full.
Neither Target nor any Target Subsidiary has received notice of material default
by Target or any Target Subsidiary (which default has not previously been cured)
from the holder of a Target Mortgage nor does any condition or event exist which
with the giving of notice or the passage of time, or both, would constitute a
material default by Target or any Target Subsidiary under a Target Mortgage.
Except as set forth on Exhibit 3.29 to the Target Disclosure Schedule, the
occurrence of any of the transactions contemplated by this Plan of Merger will
not require the consent or approval of the holder of a Target Mortgage and will
not violate, conflict with or constitute a default by Target or any Target
Subsidiary under a Target Mortgage or result in a condition or event which with
the giving of notice or the passage of time, or both, would constitute a default
by Target under a Target Mortgage.
Section 3.30 TARGET MORTGAGE LOANS. Exhibit 3.30 to the Target
Disclosure Schedule sets forth a complete and correct list of all loans made by
Target or any Target Subsidiary to others secured by a mortgage, deed of trust,
deed to secure debt or other similar instrument encumbering real property and
personalty related to such real property (individually, a "Target Mortgage Loan"
and collectively, the "Target Mortgage Loans") and sets forth a complete and
accurate description of the following:
(a) the location of the real property encumbered by
each Target Mortgage Loan;
(b) the name of the obligor, each guarantor and the
holder of each Target Mortgage Loan;
(c) the priority of each Target Mortgage Loan and any
mortgage, deed of trust, deed to secure debt or other similar
instrument that is prior to each Target Mortgage Loan;
(d) the date of each Target Mortgage Loan and any
amendment or modification thereof;
(e) the original principal amount of the debt secured
by each Target Mortgage Loan, the current rate of interest
thereunder and the current outstanding principal thereof;
(f) the maturity date of the debt secured by each
Target Mortgage Loan, the type of debt secured thereby and
whether any balloon payment is due at the maturity of the debt
secured thereby;
(g) the amount of the current monthly payment of
interest, principal or other amounts due under each Target
Mortgage Loan and
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the amount of any other mandatory principal or other payment
due thereunder prior to the maturity date of the debt secured
thereby;
(h) any amount that has not been disbursed or
advanced to the obligor under each Target Mortgage Loan by
Target or a Target Subsidiary that Target or a Target
Subsidiary is obligated to disburse or advance;
(i) any prepayment premiums with respect to the
prepayment (full or partial) of the debt secured by each
Target Mortgage Loan and the current penalty payable in
connection with any such prepayment; and
(j) the amount of any escrow deposits or other
deposits or payments held under each Target Mortgage Loan by
Target or a Target Subsidiary.
Except as set forth on Exhibit 3.30 to the Target Disclosure Schedule, there are
no loans made by Target or any Target Subsidiary to others secured by a
mortgage, deed of trust, deed to secure debt or other similar instruments
encumbering real property and personalty related to such real property, except
for Target Mortgage Loans. Target has good title to all Target Mortgage Loans,
in each case free and clear of all encumbrances senior to the Target Mortgage
Loans, claims, security interests and defects. Each Target Mortgage Loan is
valid and enforceable, is in full force and effect and has not been amended,
modified or supplemented, except as set forth in Exhibit 3.30 to the Target
Disclosure Schedule. All payments, installments and material charges due and
payable under each Target Mortgage Loan have been paid in full. Target is not in
material default in the payment or performance of any obligation under a Target
Mortgage Loan and has not given any notice of material default to an obligor
under a Target Mortgage Loan (which default has not previously been cured) nor
does any condition or event exist which with the giving of notice or the passage
of time, or both, would constitute a material default by an obligor under a
Target Mortgage Loan. To the best of Target's knowledge, no obligor under a
Target Mortgage Loan has a valid defense to the payment in full of such Target
Mortgage Loan nor is such Target Mortgage Loan subject to any valid right of
rescission, set-off, abatement, diminution, counterclaim or defense. There have
been no waivers by Target or any Target Subsidiary of any material default under
or breach of a Target Mortgage Loan by an obligor under a Target Mortgage Loan.
The occurrence of any of the transactions contemplated by this Plan of Merger
does not require the consent or approval of the obligor under a Target Mortgage
Loan and will not violate, conflict with or constitute a default by Target or
any Target Subsidiary under a Target Mortgage Loan or result in a condition or
event which with the giving of notice or the passage of time, or both, would
constitute a default by Target or any Target Subsidiary under a Target Mortgage
Loan.
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Section 3.31 OPINION OF FINANCIAL ADVISOR. The Board of
Directors of Target has received from a financial advisor satisfactory to
Target's Board of Directors an opinion to the effect that, as of the date of
this Plan of Merger, the Common Stock Exchange Ratio is fair, from a financial
point of view, to the holders of Target Common Stock. A written copy of such
opinion will be delivered by Target to Buyer prior to the date on which the
definitive proxy materials for the Joint Proxy Statement are filed with the SEC.
Section 3.32 INVESTMENT COMPANY ACT. Target is not, and as of
the Effective Time will not be, an "investment company" or company "controlled"
by "an investment company" within the meaning of the Investment Company Act of
1940, as amended.
Section 3.33 BOOKS AND RECORDS. The books of account, minute
books, stock record books and other records of Target, all of which have been
made available to Buyer and HR, are complete and correct and have been
maintained in accordance with the sound business practices and the requirements
of Section 13(b)(2) of the Exchange Act, including, but not limited to, the
maintenance of an adequate system of internal controls. The minute books of
Target contain accurate and complete records of all meetings held of, and
corporate action taken by, the stockholders, the Board of Directors and
committees of the Board of Directors of Target and no meetings of any such
stockholders, Board of Directors or committees has been held for which minutes
have not been prepared and are not contained in such minute books. At the
Closing, all of those books and records will be in the possession of HR. Target
has furnished HR with any annual management letters from Target's independent
certified public accountants for each of the last three years to the extent such
letters address the business conducted by Target.
Section 3.34 INTELLECTUAL PROPERTY. Target has no intellectual
property assets which are material to Target's operations.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND HR
Buyer and HR represent and warrant to Target as follows:
Section 4.1 CORPORATE ORGANIZATION AND QUALIFICATION. Buyer is
legally formed and validly existing under the laws of the State of Delaware, and
has the requisite corporate power and authority to own, lease and operate its
assets and properties and to carry on its business as it is now being conducted.
Buyer is registered or qualified to do business and is in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such registration or qualification
necessary, except where the
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failure to be so registered or qualified and in good standing will not have and
would not reasonably be expected to have a material adverse effect on Buyer.
Section 4.2 SUBSIDIARIES. Buyer does not own any stock or
other equity interests in, and does not control, directly or indirectly, any
other corporation, partnership, joint venture, limited liability company,
association or business organization.
Section 4.3 CORPORATE POWER AND AUTHORITY. Subject to the
satisfaction of the conditions precedent set forth herein Buyer (i) has the
power to execute, deliver and perform this Plan of Merger and all agreements and
other documents executed and delivered or to be executed and delivered by it
pursuant to this Plan of Merger, and (ii) has taken all action required by its
Certificate of Incorporation, Bylaws, or otherwise, to authorize the execution,
delivery and performance of this Plan of Merger and such related documents. The
execution and delivery of this Plan of Merger has been approved by the Board of
Directors of Buyer. This Plan of Merger has been duly executed and delivered by
Buyer and, assuming the receipt of required stockholder and regulatory approvals
and further assuming that this Plan of Merger constitutes a valid and binding
obligation of Target and HR, constitutes a valid and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms.
Section 4.4 NO VIOLATIONS. The execution and delivery of this
Plan of Merger does not and, subject to the receipt of required stockholder and
regulatory approvals and any other required third-party consents or approvals,
the consummation of the Merger will not, violate any provision of Buyer's
Certificate of Incorporation or Bylaws, or any provisions of, or result in the
acceleration of any obligation under, any material mortgage, lien, lease,
agreement, instrument, order, arbitration award, judgment or decree, to which
Buyer is a party, or by which it is bound, or violate any restrictions of any
kind to which it is subject which, if violated or accelerated, would have a
material adverse effect on Buyer.
Section 4.5 CONSENTS. Except for (i) the filing of the
Registration Statement and the Joint Proxy Statement (in each case as defined in
Section 6.2 below) with the SEC pursuant to the Securities Act and the Exchange
Act, and the declaration of the effectiveness thereof by the SEC and filings
with various state blue sky authorities, (ii) the acceptance for record of the
Articles of Merger by the SDAT and the Certificate of Merger by the Delaware
Office of Secretary of State in connection with the Merger, (iii) any required
filings with or approvals from applicable state environmental authorities and
(iv) any required filings with or approvals from applicable state health care
regulation and licensing authorities (the filings and approvals referred to in
clauses (i) through (iv) being collectively referred to as the "Buyer Required
Statutory Approvals"), to Buyer's best knowledge, no declaration, filing or
registration with, or notice to, or authorization,
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consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Plan of Merger by Buyer or the
consummation by Buyer of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not, in the
aggregate, have a material adverse effect on Buyer. No filing or notice under
the HSR Act is required in connection with the execution and delivery of this
Plan of Merger or the consummation of the transactions contemplated hereby.
Section 4.6 LEGAL PROCEEDINGS. There is no material
litigation, governmental investigation or other proceeding pending or, to the
best knowledge of Buyer, threatened against or relating to Buyer, or its
properties or businesses or the transactions contemplated by this Plan of Merger
and, to the best knowledge of Buyer, no basis for any such action exists.
Section 4.7 COMPLIANCE WITH LAWS IN GENERAL. Buyer has not
received any notices of material violations of any federal, state or local laws,
regulations or ordinances relating to its business and operations, and no notice
of any pending inspection or violation of any such law, regulation or ordinance
has been received by Buyer which, if it were determined that a violation had
occurred, would have a material adverse effect on Buyer.
Section 4.8 LICENSES. Buyer holds all Licenses which are
needed or required by law with respect to its business, operations and
facilities as they are currently conducted, except for permits, licenses,
franchises, variances, exemptions, orders, authorizations, consents and
approvals the absence of which, alone or in the aggregate, would not have a
material adverse effect on Buyer.
Section 4.9 VOTE REQUIRED. A majority of the outstanding
shares of voting stock entitled to vote thereon is the only vote of the holders
of any class or series of Buyer's equity securities necessary to approve this
Plan of Merger, the Merger and the transactions contemplated hereby.
Section 4.10 INVESTMENT COMPANY ACT. Buyer is not, and as of
the Effective Time will not be, an "investment company" or company "controlled"
by "an investment company" within the meaning of the Investment Company Act of
1940, as amended.
Section 4.11 ORGANIZATION AND QUALIFICATION OF HR AND HR
SUBSIDIARIES. Each of HR and the subsidiaries of HR set forth in Exhibit 21 of
HR's Form 10-K for the year ended December 31, 1997 (each an "HR Subsidiary"
and, collectively, the "HR Subsidiaries") is a corporation duly organized,
validly existing, and in good standing under the laws of its jurisdiction of
incorporation,
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and each has the requisite corporate power to own its property and carry on its
business as it is now being conducted. HR and each HR Subsidiary is qualified to
transact business as a foreign corporation and is in good standing in all
jurisdictions in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing will not have
and would not reasonably be expected to have a material adverse effect on HR.
Section 4.12 POWER AND AUTHORITY. Subject to the satisfaction
of the conditions precedent set forth herein, HR (i) has the power to execute,
deliver and perform this Plan of Merger and all agreements and other documents
executed and delivered or to be executed and delivered by it pursuant to this
Plan of Merger, and (ii) has taken all action required by its Articles of
Incorporation, Bylaws or otherwise, to authorize the execution, delivery and
performance of this Plan of Merger and such related documents. The execution and
delivery of this Plan of Merger has been approved by the Board of Directors of
HR. This Plan of Merger has been duly executed and delivered by HR and, assuming
the receipt of required HR stockholder vote and regulatory approvals and further
assuming that this Plan of Merger constitutes a valid and binding obligation of
Buyer and Target, constitutes a valid and binding obligation of HR, enforceable
against HR in accordance with its terms.
Section 4.13 STATUS OF HR COMMON STOCK AND HR PREFERRED STOCK.
On and after the Effective Time, upon due and proper exchange of Exchanging
Target Shares therefor, the HR Common Stock and the HR Preferred Stock will be
validly authorized, duly issued, fully paid and nonassessable.
Section 4.14 AUTHORIZATION OF THE ISSUANCE OF THE HR COMMON
STOCK AND HR PREFERRED STOCK. HR has all requisite corporate power and authority
to issue the HR Common Stock and the HR Preferred Stock. No other corporate or
legal proceedings on the part of HR is necessary to approve and authorize the
issuance of the HR Common Stock and HR Preferred Stock, other than the approval
of the stockholders of HR in the case of the HR Common Stock.
Section 4.15 NO VIOLATIONS. The execution and delivery of this
Plan of Merger does not and, subject to the receipt of required stockholder and
regulatory approvals and any other required third-party consents or approvals,
the consummation of the Merger will not, violate any provision of HR's Articles
of Incorporation or Bylaws, or any provisions of, or result in the acceleration
of any obligation under, any material mortgage, lien, lease, agreement,
instrument, order, arbitration award, judgment or decree, to which HR is a
party, or by which it is bound, or violate any restrictions of any kind to which
it is subject which, if violated or accelerated, would have a material adverse
effect on HR.
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Section 4.16 SEC DOCUMENTS OF HR. Since January 1, 1997, HR
has filed all required reports, registration statements, proxy statements and
other documents, together with any amendments required to be made thereto (as
such documents have been amended since the time of their original filing, the
"HR SEC Documents"). As of their respective dates, the HR SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such HR SEC Documents and none of the HR SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Section 4.17 NYSE LISTING. On the Closing Date, the HR Common
Stock and the HR Preferred Stock will have been approved for listing on the New
York Stock Exchange upon official notice of issuance.
Section 4.18 HR REIT QUALIFICATION. At all times during its
existence, HR has been, and as of the Effective Time HR will be, organized in
conformity with the requirements for qualification and, as of the date hereof
for all taxable periods has qualified, as a "real estate investment trust" under
the Code and the rules and regulations thereunder. HR has at all times during
its existence (i) met the 75%, 95% and (through the tax year ended December 31,
1997) 30% income tests set forth in Section 856 of the Code, (ii) met the 75%
and 25% asset tests set forth in Section 856 of the Code and (iii) distributed
dividends to its stockholders at least equal to the 95% requirements of Section
857 of the Code.
Section 4.19 HR NOT AN INVESTMENT COMPANY. HR is not, and as
of the Effective Time will not be, an "investment company" or company
"controlled" by "an investment company" within the meaning of the Investment
Company Act of 1940, as amended.
Section 4.20 ABSENCE OF UNDISCLOSED LIABILITIES. HR did not,
at March 31, 1998, and has not incurred since that date, any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of any nature
(other than ordinary and recurring operating expenses), except (a) liabilities,
obligations or contingencies which are accrued or reserved against in HR's
financial statements included in the HR SEC Documents or reflected in the notes
thereto and (b) liabilities, obligations or contingencies which (i) would not,
in the aggregate, have, or be reasonably expected to have, a material adverse
effect on HR, or (ii) have been discharged or paid in full prior to the date
hereof or will be discharged or paid in full prior to the Effective Time.
Section 4.21 OPINION OF FINANCIAL ADVISOR. The Board of
Directors of HR has received from a financial advisor satisfactory to HR's Board
of Directors
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an opinion to the effect that, as of the date of this Plan of Merger, the Common
Stock Exchange Ratio is fair, from a financial point of view, to the holders of
HR Common Stock. A written copy of such opinion will be delivered by HR to
Target prior to the date on which the definitive proxy materials for the Joint
Proxy Statement are filed with the SEC.
Section 4.22 VOTE REQUIRED. The affirmative vote of the
holders of a majority of all the votes cast at a meeting at which a quorum is
present is the only vote of the holders of any class or series of HR equity
securities necessary to approve this Plan of Merger, the Merger and the
transactions contemplated hereby.
Section 4.23 STATEMENTS OF INTENT. (i) HR has no plans or
intent to liquidate Target following the Merger; (ii) HR will cause Target to
continue the historic business of Target or to use a significant portion of
Target's historic business assets in a business following the Merger; and (iii)
HR does not plan to cause Target to issue additional shares of stock of Target
in such manner that would cause HR to lose control of Target under Section
368(c) of the Code following the Merger.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
Section 5.1 CONDUCT OF BUSINESS BY TARGET PENDING THE MERGER.
Subject to compliance with applicable law, after the date hereof and prior to
the Closing Date or earlier termination of this Plan of Merger, unless Buyer and
HR shall otherwise agree in writing or as may be otherwise specifically
contemplated by this Plan of Merger, Target shall:
(a) conduct its business in the ordinary and usual
course of business and consistent with past practice;
(b) not amend or propose to amend its Articles of
Incorporation or Bylaws, or split, combine or reclassify its
outstanding stock, unless such action is necessary to preserve
its status as a REIT or a "qualified REIT subsidiary";
(c) not issue, sell, pledge or dispose of, or agree
to issue, sell, pledge or dispose of, any additional shares
of, or any options, warrants or rights of any kind to acquire
any shares of stock of Target of any class or any debt or
equity securities convertible into or exchangeable for such
stock or amend or modify the terms and conditions of any of
the foregoing, except that in the ordinary course of its
business and consistent with its past practices, Target may
issue shares upon exercise of outstanding options to purchase
Target Common Stock and
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in connection with the exercise of the rights to acquire
Target Common Stock as are described or referred to in
Section 3.2 above in accordance with the terms thereof,
including the right of holders of the 10 1/2% Debentures and
the 6.55% Debentures to convert such Debentures into Target
Common Stock;
(d) except as contemplated by Exhibit 5.1 to the
Target Disclosure Schedule, not (i) incur or become
contingently liable with respect to any indebtedness for
borrowed money, except in the ordinary course of business,
(ii) redeem, purchase, acquire or offer to purchase or acquire
any shares of its stock, other than as required by the
governing terms of such securities, (iii) take any action
which would jeopardize Target's status as a real estate
investment trust, (iv) make any acquisition of assets or
businesses, without HR's prior written consent, which shall
not be unreasonably withheld; provided, however, that HR will
not consent to any (a) investments in assisted living
facilities or skilled nursing facilities other than the
funding of commitments for such investments in existence on
the date of this Plan of Merger, (b) investments in
construction and/or development projects other than the
funding of commitments for such investments in existence on
the date of this Plan of Merger, (c) acquisitions or
investments which are not in the ordinary course of Target's
business, or (d) investments which, taken together with all
other assets, businesses, and investments of HR and Capstone,
would cause an event of default or breach of any material
agreement of HR, (v) sell any assets or businesses, in a
transaction or series of related transactions for a cost in
excess of $50,000, or (vi) enter into any contract, agreement,
commitment or arrangement with respect to any of the
foregoing;
(e) use reasonable efforts to preserve intact its
business organization and goodwill and business relationships
with all lessees, mortgagors, operators, suppliers,
distributors, customers, and others having business
relationships with Target and not engage in any action,
directly or indirectly, with the intent to adversely impact
the transactions contemplated by this Plan of Merger;
(f) subject to compliance with applicable law, confer
with one or more representatives of Buyer when requested, to
report on material operational matters and the general status
of ongoing operations of Target's business;
(g) not enter into or amend any employment,
severance, special pay arrangement with respect to termination
of employment or other similar arrangements or agreements with
any directors, officers, employees or other representatives,
or agree to do so;
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(h) other than in accordance with established
compensation adjustment policies and as contemplated by this
Plan of Merger, not increase the rate of remuneration payable
to any of its directors, officers, employees or other
representatives, or agree to do so, it being understood that
this Section 5.1(h) shall not preclude payment of bonuses
accrued as of the Closing Date in accordance with past
practice at the same rate as accrued during 1998 through the
date of this Plan of Merger not exceeding an aggregate of
$700,000 to persons (except Richard M. Scrushy, Michael D.
Martin and John W. McRoberts) who are employees of Target on
the Closing Date and who sign termination agreements
containing appropriate releases and confidentiality
provisions;
(i) except as may be contemplated by the terms
hereof, not adopt, enter into or amend any bonus, profit
sharing, compensation, stock option, pension, retirement,
deferred compensation, health care, employment or other
employee benefit plan, agreement, trust, fund or arrangement
for the benefit or welfare of any employee or retiree, except
as required to comply with changes in applicable law or as
contemplated by this Plan of Merger;
(j) file all required reports, including its
Quarterly Report on Form 10-Q for the quarter ending June 30,
1998, on or before the date prescribed for such reports
pursuant to the Exchange Act and cause such reports to comply
with the requirements of the Exchange Act; and
(k) maintain, in full force and effect, with all
premiums due thereon paid, policies of insurance covering all
of the insurable tangible assets and businesses of Target and
the Target Subsidiaries in amounts and as to foreseeable risks
usually insured against by persons operating similar
businesses under valid and enforceable policies of insurance
issued by insurers of recognized responsibility.
Section 5.2. NEGATIVE COVENANTS OF TARGET. Subject to
compliance with applicable laws, after the date hereof and prior to the Closing
Date or earlier termination of this Plan of Merger, unless Buyer and HR shall
otherwise agree in writing or as may be otherwise specifically contemplated by
this Plan of Merger, Target shall not:
(a) Incur any liabilities other than current
liabilities incurred in the ordinary course of business;
(b) Incur any mortgage, lien, pledge, hypothecation,
charge, encumbrance, or restriction of any kind, except liens
for taxes not due;
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(c) Become a party to any contract, or renew, extend,
or modify any existing contract, except in the ordinary course
of business;
(d) Make any capital expenditures, except for
ordinary repairs, maintenance, and replacement;
(e) Declare or pay any dividend on or make any other
distribution to stockholders, except for payment of any
dividends consistent with past practice;
(f) Pay or agree to pay any bonus, increase in
compensation, pension, or severance pay to any director,
stockholder, officer, consultant, agent, or employee, except
for bonuses accrued as of the Closing Date at the same rate as
accrued during 1998 through the date of this Plan of Merger in
accordance with past practice not exceeding an aggregate of
$700,000 to persons (except Richard M. Scrushy, Michael D.
Martin and John W. McRoberts) who are employees of Target on
the Closing Date and who sign termination agreements
containing appropriate releases and confidentiality
provisions;
(g) Discharge or satisfy any lien or encumbrance, or
pay any obligation or liability, except current liabilities
shown on the Target Balance Sheet, or incurred in the ordinary
course of business since the date of the Target Balance Sheet;
(h) Merge or consolidate with any other entity;
(i) Enter into any transactions or take any acts that
would constitute a breach of the representations, and
warranties contained in this Plan of Merger; and
(j) Institute, settle, or agree to settle any action
or proceeding before any court or governmental body.
Section 5.3 CONDUCT OF BUSINESS BY BUYER AND HR PENDING THE
MERGER. Subject to compliance with applicable law, after the date hereof and
prior to the Closing Date or earlier termination of this Plan of Merger, unless
Target shall otherwise agree in writing or as may be otherwise specifically
contemplated by this Plan of Merger, Buyer and HR shall conduct their respective
businesses in the ordinary and usual course of business and consistent with past
practice.
Section 5.4 NO SOLICITATION. Neither Target nor Target
Subsidiaries will, directly or indirectly, through any officer, director, agent
or otherwise, (i) solicit, initiate or encourage submission of proposals or
offers from any person relating to any acquisition or purchase of all or (other
than in the ordinary course of business) a material amount of the assets of, or
any equity interest in, Target or
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any merger, consolidation, or business combination with Target, or (ii) subject
to the obligations of Target's directors and officers under Section 2-405.1(a)
of the MGCL or under applicable law as advised by counsel, participate in any
discussions or negotiations regarding, or furnish to any other person any
information with respect to, any of the foregoing, or (iii) otherwise cooperate
in any way with, or assist or participate in, facilitate or encourage, any
effort or attempt by any other person to do or seek any of the foregoing. Target
shall promptly notify Buyer if any such proposal or offer, or any inquiry or
contact with any person with respect thereto, is made. Nothing contained herein
shall be construed to prohibit Target and its Board of Directors from taking any
particular position with respect to any such offer or proposal or from otherwise
withdrawing, modifying or amending its recommendation with respect to the
Merger, in each case to the extent required by the obligations of Target's
directors and officers under Section 2-405.1(a) of the MGCL or under applicable
law as advised by counsel, or from disclosing to its shareholders a position as
contemplated by Rule 14e-2 promulgated under the Exchange Act or from making
such other disclosure to shareholders which, in the judgment of its Board of
Directors on advice of counsel, may be required by law in connection with any
such proposal or offer.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 ACCESS TO INFORMATION; COOPERATION.
(a) ACCESS TO INFORMATION. Target shall afford to
Buyer, HR and their respective accountants, counsel, financial
advisors and other representatives (the "Buyer
Representatives") and Buyer and HR shall afford to Target and
its accountants, counsel, financial advisors and other
representatives (the "Target Representatives") full access
during normal business hours throughout the period prior to
the Effective Time to all of the properties, books, contracts,
commitments and records (including Tax returns) of Buyer, HR,
and Target, as appropriate, and, during such period, each
shall furnish promptly to the others (i) a copy of each
report, schedule and other document filed or received pursuant
to the requirements of federal or state securities laws or
filed with the SEC in connection with the transactions
contemplated by this Plan of Merger or which may have a
material effect on Buyer's, HR's or Target's business,
properties or financial condition, as appropriate, and (ii)
such other information concerning their respective businesses,
properties and financial condition as shall be reasonably
requested; provided that no investigation pursuant to this
Section 6.1 shall affect any representation or warranty made
herein or the conditions to the obligations of the respective
parties hereto to consummate the Merger. All non-public
documents and
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information furnished to Buyer, HR, or Target, as the case
may be, in connection with the transactions contemplated by
this Plan of Merger shall be deemed to have been received
pursuant to and shall be subject to the provisions of the
Confidentiality Agreement between HR and Target (the
"Confidentiality Agreement"), except that Buyer, HR and
Target may disclose such information as may be necessary in
connection with seeking Target Required Statutory Approvals,
Buyer Required Statutory Approvals, or the approval of
stockholders of Buyer, HR, or Target. Buyer and HR shall
promptly advise Target, and Target shall promptly advise
Buyer and HR, in writing of any change or the occurrence of
any event after the date of this Plan of Merger having, or
which, insofar as can reasonably be foreseen, in the future
may have, any material adverse effect on Buyer, HR, or
Target.
(b) COOPERATION. Subject to the terms and conditions
herein provided, each of the parties hereto shall cooperate
and use their respective best efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions
contemplated by this Plan of Merger, including using its best
efforts to identify and obtain all necessary or appropriate
waivers, consents and approvals to effect all necessary
registrations, filings and submissions (including Target
Required Statutory Approvals, Buyer Required Statutory
Approvals and any filings under federal and state securities
laws and to lift any injunction or other legal bar to the
Merger (and, in such case, to proceed with the Merger as
expeditiously as possible), subject, however, to obtaining the
necessary approvals by the stockholders of each of Target, HR,
and Buyer of this Plan of Merger and the transactions
contemplated hereby, and subject at all times to the duties of
the respective Boards of Directors of Target, HR, and Buyer.
(c) OTHER ACTIONS. Neither Target, HR, nor Buyer
shall knowingly or intentionally take any action, or omit to
take any action, if such action or omission would, or
reasonably might be expected to, result in any of its
representations and warranties set forth herein being or
becoming untrue in any material respect, or in any of the
conditions to the Merger set forth in this Plan of Merger not
being satisfied, or (unless such action is required by
applicable law) which would materially adversely affect the
ability of Target, HR, or Buyer to obtain any consents or
approvals required for the consummation of the Merger without
imposition of a condition or restriction which would have a
material adverse effect on the Surviving Entity or which would
otherwise materially impair the ability of Target, HR, or
Buyer to
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consummate the Merger in accordance with the terms of this
Plan of Merger or materially delay such consummation.
(d) CONTINUED QUALIFICATION AS A REAL ESTATE
INVESTMENT TRUST. From and after the date hereof through the
Effective Time, Target will maintain its qualification as a
"real estate investment trust" under the Code and the rules
and regulations thereunder. Without limiting the generality of
the foregoing, Target will make dividend distributions and all
other payments during its final taxable period sufficient to
satisfy the requirement of Section 857 of the Code.
Section 6.2 REGISTRATION STATEMENT; JOINT PROXY STATEMENT.
(a) Within 60 days after the execution of this Plan
of Merger, HR shall prepare and file with the SEC and any
other applicable regulatory bodies a Registration Statement on
Form S-4 with respect to the shares of HR Common Stock to be
issued in connection with the Merger (the "Registration
Statement"), and will otherwise proceed promptly to satisfy
the requirements of the Securities Act, including Rule 145
thereunder. Such Registration Statement shall contain a joint
proxy statement of HR and Target containing the information
required by the Exchange Act (the "Joint Proxy Statement"). HR
shall take all reasonable steps to cause the Registration
Statement to be declared effective and to maintain such
effectiveness until all of the shares covered thereby have
been distributed. HR shall promptly amend or supplement the
Registration Statement to the extent necessary in order to
make the statements therein not misleading or to correct any
misstatements which have become false or misleading. HR shall
use its best efforts to have the Joint Proxy Statement
approved by the SEC under the provisions of the Exchange Act.
HR shall provide Target with copies of all filings made
pursuant to this Section 6.2 and shall consult with Target on
responses to any comments made by the staff of the SEC with
respect thereto. If at any time prior to the Effective Time
any event or circumstance relating to Buyer or HR or their
respective officers or directors should be discovered by HR
which should be set forth in an amendment to the Registration
Statement or a supplement to the Joint Proxy Statement, HR
shall promptly inform Target.
(b) The information specifically designated as being
supplied by Target for inclusion in the Registration Statement
shall not, at the time the Registration Statement is declared
effective, at the time the Joint Proxy Statement is first
mailed to holders of Target Stock, at the time of the Special
Meetings (as defined below in Section 6.4) and at
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the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading. The information specifically
designated as being supplied by Target for inclusion in the
Joint Proxy Statement to be sent to the holders of Target
Stock in connection with the Special Meetings shall not, at
the date the Joint Proxy Statement (or any amendment thereof
or supplement thereto) is first mailed to holders of Target
Stock, at the time of the Special Meetings and at the
Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made,
not misleading. If at any time prior to the Effective Time
any event or circumstance relating to Target or its officers
or directors, should be discovered by Target which should be
set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement, Target shall promptly
inform HR. All documents, if any, that Target is responsible
for filing with the SEC in connection with the transactions
contemplated herein will comply as to form and substance in
all material respects with the applicable requirements of
the Securities Act and the rules and regulations thereunder
and the Exchange Act and the rules and regulations thereunder.
(c) The information specifically designated as being
supplied by Buyer or HR for inclusion in the Registration
Statement shall not, at the time the Registration Statement is
declared effective, at the time the Joint Proxy Statement is
first mailed to holders of Target Stock, at the time of the
Special Meetings and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances
under which they were made, not misleading. The information
specifically designated as being supplied by Buyer or HR for
inclusion in the Joint Proxy Statement to be sent to the
holders of Target Stock in connection with the Special
Meetings shall not, at the date the Joint Proxy Statement (or
any amendment thereof or supplement thereto) is first mailed
to holders of Target Stock, at the time of the Special
Meetings or at the Effective Time, contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances
under which they are made, not misleading. If at any time
prior to the Effective Time any event or circumstance relating
to Buyer or HR or their respective officers or directors,
should be
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discovered by Buyer or HR which should be set forth in an
amendment to the Registration Statement or a supplement to
the Joint Proxy Statement, HR shall promptly inform Target
and shall promptly file such amendment to the Registration
Statement. All documents that HR is responsible for filing
with the SEC in connection with the transactions contemplated
herein will comply as to form and substance in all material
respects with the applicable requirements of the Securities
Act and the rules and regulations thereunder and the Exchange
Act and the rules and regulations thereunder.
(d) Target shall furnish all information to HR with
respect to Target and the Target Subsidiaries as HR may
reasonably request for inclusion in the Registration
Statement, the Joint Proxy Statement and the Listing
Applications pertaining to the HR Common Stock and the HR
Preferred Stock, and shall otherwise cooperate with HR in the
preparation and filing of such documents.
Section 6.3 NYSE. HR shall use its best efforts to effect, at
or before the Effective Time, authorization for listing on the NYSE upon
official notice of issuance, of the HR Common Stock and the HR Preferred Stock.
Section 6.4 APPROVAL OF STOCKHOLDERS. Each of Buyer, HR, and
Target shall promptly take such action as may be required by their respective
governing documents and applicable law to obtain the requisite approval of this
Plan of Merger and the transactions contemplated hereby, and shall use their
respective best efforts to obtain approval and adoption of this Plan of Merger
and the transactions contemplated hereby as soon as practicable following the
date upon which the Registration Statement is declared effective by the SEC.
Subject to the duties of the respective Boards of Directors of Target, HR, and
Buyer under applicable law, and unless this Plan of Merger shall have been
validly terminated as provided herein, Buyer and Target shall, through their
respective Boards, recommend to their respective equity holders the approval of
this Plan of Merger and of the transactions contemplated by this Plan of Merger.
Without limiting the generality of the foregoing, each of Buyer, HR, and Target
will call, give notice of, convene and hold a meeting of its stockholders
(collectively, the "Special Meetings") as soon as practicable after the
effectiveness of the Registration Statement for the purpose of approving this
Plan of Merger (to the extent that such approval is required by applicable law
in order to consummate the Merger) and for such other purposes as may be
necessary; provided that nothing contained herein shall affect the right of
either Buyer, HR, or Target to take action by written consent in lieu of meeting
to the extent permitted by applicable law and their respective governing
documents.
Section 6.5 COMPLIANCE WITH THE SECURITIES ACT. Target shall
use its best efforts to cause each principal executive officer, each director
and each other
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person who is an "affiliate" (as such term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act) of Target to deliver to Buyer and HR on or
prior to the Effective Time a written agreement (an "Affiliate Agreement") to
the effect that such person will not offer to sell, sell or otherwise dispose of
any shares of HR Common Stock except, in each case, pursuant to an effective
registration statement or in compliance with Rule 145, as amended from time to
time, or in a transaction which, in the opinion of legal counsel satisfactory to
Buyer and HR, is exempt from the registration requirements of the Securities
Act.
Section 6.6 PUBLIC STATEMENTS. The parties shall consult with
each other prior to issuing any press release or any written public statement
with respect to this Plan of Merger or the transactions contemplated hereby and
shall not issue any such press release or written public statement prior to
review and approval by the other party, except that prior review and approval
shall not be required if, in the reasonable judgment of the party seeking to
issue such release or public statement, prior review and approval would prevent
the timely dissemination of such release or announcement in violation of any
applicable law, rule, regulation or policy of the NYSE. The parties shall issue
a joint press release, mutually acceptable to Buyer, HR, and Target, promptly
upon execution and delivery of this Plan of Merger.
Section 6.7 CERTAIN INFORMATION. For as long as any affiliate
(as defined for purposes of Rule 145 under the Securities Act) of Target holds
any HR Common Stock (but not for a period in excess of two years from the date
of consummation of the Merger), HR shall file with the SEC or otherwise make
publicly available all information about HR required pursuant to Rule 144(c)
under the Securities Act to enable such affiliate to resell such shares under
the provisions of Rule 145(d) under the Securities Act.
Section 6.9 ACCOUNTING METHODS. Neither Buyer, HR, nor Target
shall change, in any material respect, its methods of accounting in effect at
its most recent fiscal year end, except as required by changes in generally
accepted accounting principles as concurred in by both such parties' independent
accountants.
Section 6.10 NOTICE OF SUBSEQUENT EVENTS. Target shall notify
the other parties of any changes, additions or events which would cause any
material change in or material addition to any Exhibit to the Target Disclosure
Schedule delivered by Target under this Plan of Merger, promptly after the
occurrence of the same.
Section 6.11 RESIGNATION OF TARGET DIRECTORS. On or prior to
the Closing Date, Target shall deliver to Buyer evidence satisfactory to Buyer
of the
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resignation of the Directors of Target and all Target Subsidiaries, such
resignations to be effective on the Closing Date.
Section 6.12 BREAKUP FEE.
(a) (i) If this Plan of Merger is terminated for any
reason, after
(1) a tender or exchange offer for Target Common Stock
is announced by any corporation, partnership, person, other
entity, syndicate or group (as defined in Section 13(d)(3)
of the Exchange Act) (collectively, "Persons") other than
Buyer or any of its affiliates, and the Board of Directors
of Target takes any position under Rule 14e-2 under the
Exchange Act other than to recommend rejection of such
offer; or
(2) Target receives a proposal or offer from any Person
concerning: (x) a merger, consolidation, sale of a material
amount of assets or other business combination not in the
ordinary course of business involving Target or Target
Subsidiaries, or (y) any transaction involving transfer of
beneficial ownership of securities representing, or the
right to acquire beneficial ownership of or to vote
securities representing, more than 25% of the total voting
power of Target, and either:
(A) the Board of Directors resolves to accept, or
recommend acceptance of, such proposal or offer, or
determines such proposal or offer to be more favorable
to the shareholders of Target than the Merger as
contemplated herein; or
(B) the Board of Directors, after a reasonable time
for consideration thereof, does not resolve to reject
or recommend rejection of such proposal or offer; or
(3) in the absence of the announcement of a tender or
exchange offer and of any proposal or offer, described in
clauses (1) and (2) above, Target withdraws, modifies or
amends in any respect its favorable recommendation of the
Merger, or the Board of Directors resolves to do any of the
foregoing (except that the foregoing shall not apply to a
change solely in the reasons
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for such recommendation, so long as Target and its Board of
Directors continue to recommend acceptance of the Merger);
or
(ii) if this Plan of Merger is terminated for any reason,
and:
(1) at any time after the date hereof, within six
months after such termination, any Person, other than Buyer,
HR or any HR Subsidiary, shall have either: (x) directly or
indirectly acquired, or disclosed the direct or indirect
acquisition of, the beneficial ownership of securities
representing, or directly or indirectly acquired, or
disclosed the direct or indirect possession of, the right to
acquire beneficial ownership of, or the right to vote,
securities representing 25% or more of the total voting
power of Target, or publicly announced its intention to do
any of the foregoing; (y) commenced or publicly proposed a
tender or exchange offer for some portion or all of the
Target Common Stock, or publicly proposed any merger,
consolidation, acquisition of a material amount of assets or
other business combination not in the ordinary course of
business involving Target or the Target Subsidiaries or
publicly proposed a transaction involving the transfer of
beneficial ownership of securities representing, or of the
right to acquire beneficial ownership of or the right to
vote, securities representing more than 25% of the total
voting power of Target, or publicly announced its intention
to do any of the foregoing (any such commencement or
proposal being herein referred to as an "Acquisition
Proposal"); or (z) directly or indirectly had discussions
with Target or one or more of its executive officers or
directors (or had discussions with any agents of the
foregoing, of which the principal was aware), with respect
to any of the transactions described in clauses (x) or (y)
above; and
(2) at any time, not later than six months after the
date of such termination, any Person (whether or not a
Person referred to in clause (iii) (1) above), other than
Buyer, HR or any of their respective affiliates, either (x)
directly or indirectly acquires or discloses the direct or
indirect acquisition of securities representing, or directly
or indirectly acquires or discloses the direct or indirect
possession of the right to acquire beneficial ownership of
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or to vote securities representing, 25% or more of the total
voting power of Target; or (y) consummates, or enters into
an agreement with Target or any of its affiliates or the
Target Subsidiaries with respect to, any Acquisition
Proposal, other than acquisitions by Target which do not
result in a change in ownership of securities representing
25% or more of the total voting power of Target;
then Target will, within five days after the first of any such events
to occur, (1) pay Buyer a fee of $20 million and (2) reimburse HR and
Buyer for all reasonable out-of-pocket expenses and fees incurred by
them (including fees payable to their proposed lenders and investment
bankers) or on their behalf in connection with the Merger and the
consummation of all transactions contemplated by this Plan of Merger,
and the financing of such transactions, and incurred by financial
institutions and assumed by HR in connection with the negotiation,
preparation, execution and performance of this Plan of Merger.
(b) If this Plan of Merger is terminated pursuant to Section
8.1(c) because:
(i) any obligation, covenant, or agreement of Target under
this Plan of Merger shall have been breached or not performed as
required in any material respect, by a willful and deliberate
act or omission by or on behalf of Target; or
(ii) any of the representations and warranties of Target in
this Plan of Merger (including the Target Disclosure Schedule)
shall not have been accurate on the date of execution of this
Plan of Merger, except for inaccuracies which would not, either
individually or in the aggregate, have a material adverse effect
on Target,
then Target will, within five days of the first of any such events to
occur, reimburse HR and Buyer for all reasonable out-of-pocket
expenses and fees incurred by them (including fees payable to their
proposed lenders and investment bankers) or on their behalf in
connection with the Merger and the consummation of all transactions
contemplated by this Plan of Merger, and the financing of such
transactions, and incurred by financial institutions and assumed by HR
in connection with the negotiation, preparation, execution, and
performance of this Plan of Merger.
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(c) If the Plan of Merger is terminated pursuant to Section
8.1(c) because:
(i) any obligation, covenant, or agreement of Buyer and
HR under this Plan of Merger shall have been breached or not
performed as required in any material respect, by a willful
and deliberate act or omission by or on behalf of Buyer and
HR; or
(ii) any of the representations and warranties of Buyer
and HR in this Plan of Merger shall not have been accurate
on the date of execution of this Plan of Merger, except for
inaccuracies which would not, either individually or in the
aggregate, have a material adverse effect on HR,
then Buyer and HR will, within five days of the first of any such
events to occur, reimburse Target for all reasonable
out-of-pocket expenses and fees incurred by it (including fees
payable to its investment bankers) or on its behalf in connection
with the Merger and the consummation of all transactions
contemplated by this Plan of Merger, and incurred by Target in
connection with the negotiation, preparation, execution, and
performance of this Plan of Merger.
(d) Except as aforesaid, all costs and expenses incurred in
connection with this Plan of Merger and the transactions
contemplated hereby shall be paid in accordance with Section 6.16
hereof.
Section 6.13 TERMINATION OF EMPLOYEE BENEFIT PLANS. As soon as
practical, the Surviving Entity shall cause the termination of all pension,
profit-sharing and retirement Plans set forth on Exhibit 3.14 to the Target
Disclosure Schedule and take all necessary action to submit each such Plan to
the IRS for a determination that the termination of the Plan will not adversely
affect the qualification of each Plan and shall promptly pursue such
determination letter. Upon receipt of a letter from the IRS, the Surviving
Entity shall cause each of the trusts established to fund each Plan to be
promptly liquidated and shall cause the trustees to disburse all benefits to
participants pursuant to the terms of such Plans. All fees in connection with
such terminations and distributions, including but not limited to user fees,
attorneys' fees, accountants' fees and third-party administrators' fees shall be
paid by the Surviving Entity.
Section 6.14 ACQUISITION OF TARGET FURNITURE, FIXTURES AND
EQUIPMENT. Target and certain Target Subsidiaries will enter into an asset
purchase agreement with Orthopaedic Surgeons, Inc., a Delaware corporation
("OSI"), pursuant to which OSI will acquire at Closing all of the personal
property at Target's corporate headquarters used by Target or Target
Subsidiaries in the
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operation of the business as now conducted a list of which is set forth on
Schedule 6.14 including all furniture, fixtures and equipment but excluding the
split dollar life insurance policies on the life of John W. McRoberts and all
personal property located in any owned real estate. The consideration to be paid
for these assets will be (i) the assumption by OSI of all of Target's
obligations under that certain Office Lease dated June 28, 1994, as amended,
between Target and TMK Income Properties, L.P., a Delaware limited partnership
(successor in interest to Torchmark Development Corporation), (ii) the
assumption of all of Target's obligations under certain office equipment leases
a list of which is set forth on Schedule 6.14, and (iii) for the non-leased
assets, the sum of $350,000. HR agrees to give OSI the option to lease the
assets and sublease the facilities at fair market rents for a reasonable period
of time (not to exceed one year) to enable OSI to obtain capital financing. On
or prior to the date of purchase of the assets, Target shall obtain and deliver
to Buyer a release of Buyer and HR from any liability of Target under the
assumed leases effective as of the date of purchase. John W. McRoberts will
receive the policies of split dollar life insurance on his life without
additional consideration. Target agrees to make no further payments of premiums
on such policies.
Section 6.15. DIRECTORS AND OFFICERS INSURANCE. HR shall
provide to each officer and director of Target indemnification from acts or
omissions occurring prior to the Closing Date to the same extent as HR
indemnifies its officers and directors. Such indemnification shall be provided
through indemnification agreements which will be entered into at the Closing,
the form of which indemnification agreements will be provided to Target at least
ten days prior to the Closing. Buyer shall cause to be maintained in effect the
current policies of directors and officers liability insurance currently
maintained by Target.
Section 6.16 EXPENSES. Subject to Section 6.12, all costs and
expenses incurred in connection with this Plan of Merger and the transactions
contemplated hereby shall be paid by the party incurring such expenses (which
expenses of Target shall not exceed those set forth on Exhibit 3.9 to the Target
Disclosure Schedule), except that those expenses incurred in connection with
printing and distributing the Joint Proxy Statement shall be shared equally by
HR and Target.
Section 6.17 LIMITED LIABILITY COMPANY FORMATION. If requested
by Buyer at least ten days prior to the Closing Date, Target will form a
single-member limited liability company in each state designated by Buyer, and
Target shall contribute to such limited liability companies such properties and
assets of Target and Target Subsidiaries as are designated by Buyer.
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ARTICLE VII
CONDITIONS
Section 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE MERGER. The respective obligation of each party to effect the Merger and the
other transactions contemplated hereby shall be subject to the fulfillment at or
prior to the Closing Date of the following conditions unless waived by the
parties hereto:
(a) Target shall have obtained the necessary approval
of its holders of Target Common Stock and Target Series A
Preferred Stock (voting as a separate class) of this Plan of
Merger and the transactions contemplated hereby;
(b) Buyer shall have obtained the necessary approval
of its stockholders of this Plan of Merger and the
transactions contemplated hereby;
(c) HR shall have obtained the necessary approval of
its stockholders of this Plan of Merger and the transactions
contemplated hereby, including the approval to issue the HR
Common Stock and the HR Preferred Stock;
(d) The Registration Statement pertaining to the HR
Common Stock and the HR Preferred Stock shall have become
effective in accordance with the provisions of the Securities
Act, and no stop order suspending such effectiveness shall
have been issued and remain in effect;
(e) Neither Buyer nor Target, nor any of their
respective subsidiaries, shall be subject to any order, decree
or injunction by a court of competent jurisdiction which (i)
prevents or materially delays the consummation of the Merger
or (ii) would impose any material limitation on the ability of
Buyer effectively to exercise full rights of ownership of the
Surviving Entity or any material portion of the assets or
business of Target and the Target Subsidiaries, taken as a
whole;
(f) All governmental consents, orders and approvals
legally required for the consummation of the Merger and the
transactions contemplated hereby, including Target Required
Statutory Approvals and Buyer Required Statutory Approvals,
shall have been obtained and be in effect at the Effective
Time, and all consents, orders and approvals legally required
for the consummation of the Merger and the transactions
contemplated hereby shall have been obtained;
(g) The respective opinions of the financial advisors
described in Section 3.31 and Section 4.21 shall not have been
withdrawn,
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revoked or modified in any material respect as of the date of
the Joint Proxy Statement; and
(h) Each of Richard M. Scrushy, Michael D. Martin,
and John W. McRoberts shall execute and deliver the consulting
and non-competition agreements referred to on Exhibit 7.1(h)
to the Target Disclosure Schedule.
Section 7.2 CONDITIONS TO OBLIGATION OF TARGET TO EFFECT THE
MERGER. Unless waived by Target, the obligation of Target to effect the Merger
and the other transactions contemplated hereby shall be subject to the
fulfillment at or prior to the Closing Date of the following additional
conditions:
(a) Buyer and HR shall have performed in all material
respects their respective agreements contained in this Plan of
Merger required to be performed on or prior to the Closing
Date and the representations and warranties of Buyer and HR
contained in this Plan of Merger shall be true and correct,
except for inaccuracies which would not, either individually
or in the aggregate, have a material adverse effect on Buyer
or HR, on and as of (i) the date when made and (ii) the
Closing Date (except in the case of representations and
warranties expressly made solely with reference to a
particular date, which shall be true and correct as of the
date specified), and Target shall have received a certificate
of an officer of Buyer and HR to that effect;
(b) Target shall have received one or more legal
opinions from counsel to Buyer, dated the Closing Date, in
form and substance satisfactory to Target; and
(c) the HR Common Stock and the HR Preferred Stock
shall have been authorized for listing on the NYSE upon
official notice of issuance.
Section 7.3 CONDITIONS TO OBLIGATION OF BUYER AND HR TO EFFECT
THE MERGER. Unless waived by Buyer and HR, the obligations of Buyer and HR to
effect the Merger and the other transactions contemplated hereby shall be
subject to the fulfillment at or prior to the Closing Date of the following
additional conditions:
(a) Target shall have performed in all material
respects its agreements contained in this Plan of Merger
required to be performed on or prior to the Closing Date and
the representations and warranties of Target contained in this
Plan of Merger shall be true and correct, except for
inaccuracies which would not, either individually or in the
aggregate, have a material adverse effect on Target, on and as
of (i) the
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date when made and (ii) the Closing Date (except in the case
of representations and warranties expressly made solely with
reference to a particular date which shall be true and
correct as of the date specified), and Buyer and HR shall
have received a certificate of an officer of Target to that
effect;
(b) Buyer shall have received an opinion from Sirote
& Permutt, P.C., counsel to Target, dated the Closing Date, in
form and substance satisfactory to Buyer; and
(c) Buyer shall have received an opinion from Sirote
& Permutt, P.C., tax counsel to Target, dated the Closing
Date, in form and substance satisfactory to Buyer.
(d) All employment agreements between Target and its
officers (including without limitation, the Employment and
Non-Competition Agreement, dated November 1, 1996 between
Target and John W. McRoberts) shall be cancelled without
termination payment or other compensation. In lieu thereof,
the consulting and non-competition agreements referred to in
Section 7.1(h) shall be executed and delivered.
ARTICLE VIII
TERMINATION
Section 8.1 TERMINATION. This Plan of Merger may be terminated
at any time prior to the Closing Date, whether before or after approval by the
stockholders of Target and Buyer:
(a) by mutual consent of the respective Boards of
Directors of Target, HR, and Buyer, whether before or after a
vote of shareholders;
(b) by either Buyer, HR, or Target, so long as such
party has not breached any of its obligations hereunder
(except for such breaches as are immaterial), if the Merger
shall not have been consummated on or before December 31, 1998
(the "Termination Date");
(c) unilaterally by Buyer and HR or Target, (i) if
the other (A) fails to perform any covenant or agreement in
this Plan of Merger in any material respect, and does not cure
the failure, in all material respects within 15 business days
after the terminating party delivers written notice of the
alleged failure, or (B) fails to fulfill or complete a
condition to the obligations of that party (which condition is
not waived) by reason of a breach by that party of its
obligations hereunder, or (ii) if any condition to the
obligations of that party is not
48
<PAGE> 123
satisfied (other than by reason of a breach by that party of
its obligations hereunder), and it reasonably appears that
the condition cannot be satisfied prior to the Termination
Date;
(d) unilaterally by Buyer or HR if Target, through
its Board of Directors in the exercise of its duties under
applicable law, either fails to recommend to Target's
stockholders the approval of this Plan of Merger and the
transactions contemplated hereby or withdraws such
recommendation; and
(e) unilaterally by either Buyer or Target upon
execution of a definitive agreement by Target in connection
with an Acquisition Proposal.
Section 8.2 EFFECT OF TERMINATION. In the event of termination
of this Plan of Merger by either Target, HR, or Buyer as provided in Section
8.1, this Plan of Merger shall forthwith become void and there shall be no
further obligation on the part of either Target, HR, or Buyer or their
respective officers or directors (except as set forth in this Section 8.2 and
Section 6.12 which shall survive such termination).
Section 8.3 AMENDMENT. This Plan of Merger may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto and in compliance with applicable law.
Section 8.4 EXTENSION; WAIVER. At any time prior to the
Effective Time, the parties hereto may (i) extend the time for the performance
of any of the obligations or other acts of the other parties hereto, (ii) waive
any inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant hereto and (iii) waive compliance with any of
the agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties in this Plan of Merger shall terminate at the
Effective Time or upon the termination of this Plan of Merger pursuant to
Section 8.1, as the case may be. Each party agrees that, except for the
representations and warranties contained in this Plan of Merger and the Target
Disclosure Schedule, no party hereto has made any other representations or
warranties, and each party hereby disclaims any other representations and
warranties made by itself or any of
49
<PAGE> 124
its officers, directors, employees, agents, financial and legal advisors or
other representatives, with respect to the execution and delivery of this Plan
of Merger or the Merger contemplated herein, notwithstanding the delivery or
disclosure to any other party or any party's representatives of any
documentation or other information with respect to any one or more of the
foregoing.
Section 9.2 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
sent via a recognized overnight courier with delivery confirmed in writing or
sent via facsimile to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) If to Buyer and HR, to:
Healthcare Realty Trust Incorporated
3310 West End Avenue, Suite 700
Nashville, Tennessee 37203
Attn: Roger O. West
Facsimile: (615) 269-8461
With a copy to:
Theodore W. Lenz, Esq.
Waller Lansden Dortch & Davis, PLLC
511 Union Street, Suite 2100
Nashville, Tennessee 37219
Facsimile: (615) 244-6804
(b) If to Target, to:
Capstone Capital Corporation
1000 Urban Center Drive, Suite 630
Birmingham, Alabama 35242
Attn: John W. McRoberts
Facsimile: (205) 967-9066
with a copy to:
Sirote & Permutt, P.C.
2222 Arlington Avenue South
Birmingham, Alabama 35205
Attn: John H. Cooper, Esq.
Facsimile: (205) 930-5301
50
<PAGE> 125
Section 9.3 SEVERABILITY. If any term or other provision of
this Plan of Merger is invalid, illegal or incapable of being enforced by any
rule of law or public policy, all other conditions and provisions of this Plan
of Merger shall nevertheless remain in full force and effect so long as the
economic or legal substance of the Merger is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Plan of Merger so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner to the fullest extent permitted by applicable law in order that the
Merger may be consummated as originally contemplated to the fullest extent
possible.
Section 9.4 ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this
Plan of Merger nor any of the rights, interests or obligations hereunder shall
be assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties hereto.
Subject to the preceding sentence, this Plan of Merger shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns. Notwithstanding anything contained in this Plan of Merger
to the contrary, nothing in this Plan of Merger, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors and permitted assigns any rights or remedies under or by
reason of this Plan of Merger.
Section 9.5 INCORPORATION OF EXHIBITS. The Target Disclosure
Schedule and all Exhibits attached hereto and referred to herein are hereby
incorporated herein and made a part of this Plan of Merger for all purposes as
if fully set forth herein.
Section 9.6 GOVERNING LAW. THIS PLAN OF MERGER SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF MARYLAND (WITHOUT REFERENCE TO CONFLICT OF LAW PRINCIPLES).
Section 9.7 HEADINGS. The descriptive headings contained in
this Plan of Merger are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Plan of Merger.
Section 9.8 COUNTERPARTS. This Plan of Merger may be executed
and delivered (including by facsimile transmission) in one or more counterparts,
and by the different parties hereto in separate counterparts, each of which when
executed and delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
51
<PAGE> 126
Section 9.9 ENTIRE AGREEMENT. This Plan of Merger (including
the Exhibits and the Target Disclosure Schedule) and the Confidentiality
Agreement (which shall survive the termination of this Plan of Merger)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings among the
parties with respect thereto. No addition to or modification of any provision of
this Plan of Merger shall be binding upon any party hereto unless made in
writing and signed by all parties hereto.
Section 9.10 "MATERIAL ADVERSE CHANGE" OR "MATERIAL ADVERSE
EFFECT." As used in this Plan of Merger, "material adverse change" or "material
adverse effect" means, when used in connection with Buyer, HR, any HR
Subsidiary, Target or any Target Subsidiary, any change, effect, event or
occurrence that has, or is reasonably likely to have, individually or in the
aggregate, a material adverse impact on the business or financial condition of
such Person and its subsidiaries taken as a whole.
Section 9.11 "INCLUDING." As used herein, the terms
"including" and "includes" means "including without limitation."
Section 9.12 PARTIES IN INTEREST. This Plan of Merger shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Plan of Merger, express or implied, is intended to confer upon any other
person any rights or remedies of any nature whatsoever under or by reason of
this Plan of Merger.
52
<PAGE> 127
IN WITNESS WHEREOF, each of Buyer, HR and Target has caused
this Plan of Merger to be signed by their respective officers thereunto duly
authorized as of the date first written above.
HR ACQUISITION I CORPORATION
By: /s/ Timothy Wallace
-----------------------------------
Name: Timothy Wallace
Title: Executive Vice President
HEALTHCARE REALTY TRUST
INCORPORATED
By: /s/ David R. Emery
-----------------------------------
Name: David R. Emery
Title: Chief Executive Officer
CAPSTONE CAPITAL CORPORATION
By: /s/ John W. McRoberts
-----------------------------------
Name: John W. McRoberts
Title: President
53
<PAGE> 128
ANNEX B
[LETTERHEAD OF SALOMON SMITH BARNEY]
June 8, 1998
The Board of Directors
Capstone Capital Corporation
1000 Urban Center Drive
Birmingham, Alabama 35242
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of Capstone Capital Corporation
("Capstone") of the consideration to be received by such holders pursuant to the
terms and subject to the conditions set forth in the Plan and Agreement of
Merger, dated as of June 8, 1998 (the "Merger Agreement"), by and among
Healthcare Realty Trust Incorporated ("HRT"), HR Acquisition I Corporation, a
wholly owned subsidiary of HRT ("Sub"), and Capstone. As more fully described in
the Merger Agreement, (i) Sub will be merged with and into Capstone (the
"Merger") and (ii) each outstanding share of the common stock, par value $0.001
per share, of Capstone (the "Capstone Common Stock") will be converted into the
right to receive 0.8518 (the "Exchange Ratio") of a share of the common stock,
par value $0.01 per share, of HRT (the "HRT Common Stock").
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of Capstone and certain senior officers and other representatives
and advisors of HRT concerning the businesses, operations and prospects of
Capstone and HRT. We examined certain publicly available business and financial
information relating to Capstone and HRT as well as certain financial forecasts
and other information and data for Capstone and HRT which were provided to or
otherwise discussed with us by the respective managements of Capstone and HRT,
including information relating to certain strategic implications and operational
benefits anticipated to result from the Merger. We reviewed the financial terms
of the Merger as set forth in the Merger Agreement in relation to, among other
things: current and historical market prices and trading volumes of the Capstone
Common Stock and HRT Common Stock; the historical and projected earnings and
other operating data of Capstone and HRT; and the capitalization and financial
condition of Capstone and HRT. We considered, to the extent publicly available,
the financial terms of other transactions recently effected which we considered
relevant in evaluating the Merger and analyzed certain financial, stock market
and other publicly available information relating to the businesses of other
companies whose operations we considered relevant in evaluating those of
Capstone and HRT. We also evaluated the potential pro forma financial impact of
the Merger on HRT. In connection with our engagement, we were requested to
approach on a selected basis, and we held discussions with, certain third
parties to solicit indications of interest in the possible acquisition of
Capstone. In addition to the foregoing, we conducted such other analyses and
examinations and considered such other financial, economic and market criteria
as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have been
advised by the managements of Capstone and HRT that such forecasts and other
information and data were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of Capstone and
HRT as to the future financial performance of Capstone and HRT and the strategic
implications and operational benefits anticipated to result from the Merger. We
have assumed, with your consent, that the Merger will be treated as a tax-free
reorganization for federal income tax purposes and that the Merger and the
transactions contemplated thereby will not adversely affect the real estate
investment trust status of the combined entity resulting from the Merger. We are
not expressing any opinion as to what the value of the HRT Common Stock actually
will be when issued to Capstone stockholders pursuant to the Merger or the price
at which the
<PAGE> 129
The Board of Directors
Capstone Capital Corporation
June 8, 1998
Page 2
HRT Common Stock will trade subsequent to the Merger. We have not made or been
provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Capstone or HRT nor have we made any
physical inspection of the properties or assets of Capstone or HRT. We express
no view as to, and our opinion does not address, the relative merits of the
Merger as compared to any alternative business strategies that might exist for
Capstone or the effect of any other transaction in which Capstone might engage.
Our opinion is necessarily based upon information available to us, and
financial, stock market and other conditions and circumstances existing and
disclosed to us, as of the date hereof.
Smith Barney Inc. and Salomon Brothers Inc (collectively doing business as
Salomon Smith Barney) have acted as financial advisors to Capstone in connection
with the proposed Merger and will receive a fee for such services, a significant
portion of which is contingent upon the consummation of the Merger. We also will
receive a fee upon the delivery of this opinion. In the ordinary course of our
business, we and our affiliates may actively trade or hold the securities of
Capstone and HRT for our own account or for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
We have in the past provided investment banking services to Capstone and HRT
unrelated to the proposed Merger, for which services we have received
compensation. In addition, we and our affiliates (including Travelers Group Inc.
and its affiliates) may maintain relationships with Capstone, HRT and their
respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Capstone in its evaluation of the
proposed Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed Merger. Our opinion may not be published or otherwise used or referred
to, nor shall any public reference to Salomon Smith Barney be made, without our
prior written consent.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to the holders of Capstone Common Stock.
Very truly yours,
SALOMON SMITH BARNEY
<PAGE> 130
ANNEX C
[LETTERHEAD OF NATIONSBANC MONTGOMERY SECURITIES LLC]
June 8, 1998
Board of Directors
Healthcare Realty Trust Incorporated
3310 West End Avenue
Suite 700
Nashville, TN 37203
Ladies and Gentlemen:
We understand that Capstone Capital Corporation, a Maryland corporation
("Capstone"), Healthcare Realty Trust Incorporated, a Maryland corporation
("HR"), and HR Acquisition I Corporation, a Delaware corporation and a
wholly-owned subsidiary of HR ("Buyer"), propose to enter into a Plan and
Agreement of Merger dated June 8, 1998 (the "Merger Agreement"), pursuant to
which Buyer shall be merged with and into Capstone, which will be the surviving
entity and become a wholly owned subsidiary of HR (the "Merger"). Pursuant to
the Merger, as more fully described in the Merger Agreement and as further
described to us by management of Buyer, we understand that subject to certain
adjustments (i) each issued and outstanding share of common stock, $0.001 par
value per share, of Capstone ("Capstone Common Stock"), other than restricted
shares which will be redeemed prior to the Merger, shall be exchanged for 0.8518
shares common stock, $0.01 par value per share, of HR, ("HR Common Stock"), (ii)
each issued and outstanding share of Capstone Series A Preferred Stock shall be
exchanged for one share of HR voting preferred stock having substantially the
same rights and preferences as Capstone Series A Preferred Stock, (iii) each
outstanding restricted share of Capstone Common Stock (whether vested or
unvested) shall be redeemed for cash in an amount of $24.33 per restricted share
of Capstone Common Stock, (iv) all rights with respect to each option to
purchase Capstone Common Stock which is outstanding at closing, whether or not
then vested or exercisable, shall be purchased by Buyer for cash in an amount
equal to the excess of (a) $24.33 per share of Capstone Common Stock over (b)
the stated exercise price of such option, (v) all of Capstone's 10 1/2%
Convertible Subordinated Debentures due 2000 which are outstanding at closing
shall remain outstanding, and HR shall assume each and every obligation of
Capstone contained in the related indenture and (vi) all of Capstone's 6.55%
Convertible Subordinated Debentures due 2002 which are outstanding at closing
shall remain outstanding, and HR shall assume each and every obligation of
Capstone contained in the related indenture (the "Consideration"). The terms and
conditions of the Merger are set forth in more detail in the Merger Agreement.
You have asked for our opinion as investment bankers as to whether the
Consideration to be paid by HR pursuant to the Merger is fair to HR from a
financial point of view, as of the date hereof. As you are aware, we were not
retained to nor did we advise HR with respect to alternatives to the Merger or
HR's underlying decision to proceed with or effect the Merger.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to Capstone and
HR, including their respective consolidated financial statements for recent
years and interim periods to March 31, 1998 and certain other relevant financial
and operating data relating to Capstone and HR made available to us from
published sources and from the internal records of Capstone and HR; (ii)
reviewed the Merger Agreement; (iii) reviewed certain publicly available
information concerning the trading of, and the trading market for, Capstone
Common Stock and HR Common Stock; (iv) compared Capstone from a financial point
of view with certain other publicly traded companies in the healthcare REIT
industry which we deemed to be relevant; (v) considered the financial terms, to
the extent publicly available, of selected recent business combinations of
companies in the REIT industry which we deemed to be comparable, in whole or in
part, to the Merger; (vi) reviewed and discussed with representatives of the
management of Capstone and HR certain information of a business and financial
nature regarding Capstone and HR, furnished to us by Capstone and HR, including
financial forecasts and
<PAGE> 131
related assumptions of Capstone and HR; (vii) made inquiries regarding and
discussed the Merger and the Merger Agreement and other matters related thereto
with HR's counsel; and (viii) performed such other analyses and examinations as
we have deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for Capstone and HR provided to us by their respective management,
upon their advice and with your consent we have assumed for purposes of our
opinion that the forecasts have been reasonably prepared on bases reflecting the
best available estimates and judgments of their respective management at the
time of preparation as to the future financial performance of Capstone and HR
and that they provide a reasonable basis upon which we can form our opinion. We
have also assumed that there have been no material changes in Capstone's or HR's
assets, financial condition, results of operations, business or prospects since
the respective dates of their last financial statements made available to us. We
have relied on advice of counsel and independent accountants to HR as to all
legal and financial reporting matters with respect to Capstone, the Merger and
the Merger Agreement. We have assumed that the Merger will be consummated in a
manner that complies in all respects with the applicable provisions of the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934 and all other applicable federal and state statutes, rules
and regulations. In addition, we have not assumed responsibility for reviewing
any individual credit, loan or real estate files, or making an independent
evaluation, appraisal or physical inspection of any of the assets or liabilities
(contingent or otherwise) of Capstone, nor have we been furnished with any such
appraisals. You have informed us, and we have assumed, that the Merger will be
recorded as a purchase under generally accepted accounting principles. Finally,
our opinion is based on economic, monetary and market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
Accordingly, although subsequent developments may affect this opinion, we have
not assumed any obligation to update, revise or reaffirm this opinion.
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the Merger Agreement,
without any further amendments thereto, and without waiver by Capstone of any of
the conditions to its obligations thereunder. We have also assumed that in the
course of obtaining the necessary regulatory approvals for the Merger, no
restrictions, including any divestiture requirements, will be imposed that could
have a meaningful effect on the contemplated benefits of the Merger.
We have acted as financial advisor to HR in connection with the Merger and
will receive a fee for our services, including rendering this opinion, a
significant portion of which is contingent upon the consummation of the Merger.
In the ordinary course of our business, we may actively trade the equity
securities of Capstone and HR for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. NationsBank, N.A. ("NationsBank") and its affiliates maintain
active banking and other business relationships with Capstone and HR and serve
as the lead lending agent for both Capstone and HR. In addition, NationsBank and
its affiliates maintain active banking, investment banking and other business
relationships with HEALTHSOUTH Corporation. ("HEALTHSOUTH") and MedPartners,
Inc. ("MedPartners") and serve as the lead lending agent for both HEALTHSOUTH
and MedPartners. Richard M. Scrushy, Chairman of Capstone, also serves as
Chairman and CEO of HEALTHSOUTH and Chairman of MedPartners.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be paid by HR pursuant to the
Merger is fair to HR from a financial point of view, as of the date hereof.
This opinion is directed to the Board of Directors of HR in its
consideration of the Merger and is not a recommendation to any shareholder as to
how such shareholder should vote with respect to the Merger. Further, this
opinion addresses only the financial fairness of the Consideration to HR and
does not address the relative merits of the Merger and any alternatives to the
Merger, HR's underlying decision to proceed with or effect the Merger, or any
other aspect of the Merger. This opinion may not be used or referred to by HR,
or quoted or disclosed to any person in any manner, without our prior written
consent, which consent is hereby given to the inclusion of this opinion in any
proxy statement or prospectus filed with the Securities and
2
<PAGE> 132
Exchange Commission in connection with the Merger. In furnishing this opinion,
we do not admit that we are experts within the meaning of the term "experts" as
used in the Securities Act and the rules and regulations promulgated thereunder,
nor do we admit that this opinion constitutes a report or valuation within the
meaning of Section 11 of the Securities Act.
Very truly yours,
NATIONSBANC MONTGOMERY SECURITIES LLC
3
<PAGE> 133
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The MGCL permits a Maryland corporation to include in its articles of
incorporation a provision limiting the liability of its directors and officers
to the corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
judgment or other final adjudication as being material to the cause of action.
The Registrant's Second Articles of Amendment and Restatement (the "Articles")
provide that, if Maryland law is amended to authorize corporate action further
limiting or eliminating the personal liability of directors or officers or
expanding such liability, then the liability of the Registrant's directors or
officers to the Registrant or its stockholders will be limited or eliminated to
the fullest extent permitted by Maryland law.
The Registrant's Articles obligate it, to the maximum extent permitted by
Maryland law, to indemnify directors, officers, employees and agents. The
Registrant's Second Amended and Restated Bylaws (the "Bylaws") obligate it, to
the maximum extent permitted by Maryland law, to indemnify and hold harmless,
and permits it to pay expenses incurred by or satisfy a judgment or fine levied
against, each director and officer. The Registrant's Articles and Bylaws also
permit the Registrant to pay expenses to any officer, employee or agent to the
same extent as its directors, and to such further extent as is consistent with
law.
The MGCL requires a corporation (unless its articles of incorporation
provide otherwise, which the Registrant's Articles do not) to indemnify a
director or officer who has been successful, on the merits or otherwise, in the
defense of any proceeding to which he is made a party by reason of his service
in that capacity. The MGCL permits a corporation to indemnify its present and
former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or omission of the director or officer was material to the matter giving
rise to the proceeding and (i) was committed in bad faith or (ii) was the result
of active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation. In addition, the MGCL requires the Registrant, as a
condition to advancing expenses, to obtain (a) a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the Registrant as authorized by the
Bylaws and (b) a written statement by or on his behalf to repay the amount paid
or reimbursed by the Registrant if it shall ultimately be determined that the
standard of conduct was not met.
In addition, the Registrant's Articles and Bylaws provide that it may
purchase and maintain liability insurance, or make other arrangements for such
obligations or otherwise, to the extent permitted by the law of the State of
Maryland, whether or not the corporation would have the power to indemnify
against liability under the provisions of such law. The Bylaws also provide that
the indemnification provisions contained therein shall not be construed as a
limitation upon the power of the corporation to enter into contracts or
undertakings of indemnity with a director, officer, employee or agent of the
Registrant, nor shall it be construed as a limitation upon any other rights to
which a person seeking indemnification may be entitled under any agreement, vote
of shareholders or his official capacity and as to action in another capacity
while holding office. These indemnification provisions are also applicable to
the officers (including without limitation the Chairman, Treasurer, and
Assistant Treasurer) appointed to serve in the administration and management of
any separate, segregated fund established for purposes of collecting and
distributing voluntary employee political contributions to federal, state or
local election campaigns pursuant to the Federal Election Campaign Act of 1971,
as amended or any similar federal, state or local statute or ordinance.
The Registrant's Bylaws permit it to purchase and maintain liability
insurance for directors, officers, employees and agents of the Registrant as and
to the extent permitted by Maryland law. The Registrant
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<PAGE> 134
maintains insurance on behalf of its directors and officers against liability
asserted against or incurred by such persons in or arising from their capacity
as such.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
2.1 -- Plan and Agreement of Merger, dated as of June 8, 1998, by
and among HR Acquisition I Corporation, the Registrant and
Capstone Capital Corporation(1)
3.1 -- Second Articles of Amendment and Restatement of the
Registrant(2)
3.2 -- Second Amended and Restated Bylaws of the Registrant(3)
3.3 -- Form of Articles Supplementary of the Registrant classifying
the 8 7/8% Series A Voting Cumulative Preferred Stock+
4.1 -- Specimen Common Stock Certificate(4)
4.2 -- Specimen 8 7/8% Series A Voting Cumulative Preferred Stock
Certificate+
4.3 -- Indenture for the 10 1/2% Convertible Subordinated
Debentures due 2002, dated March 30, 1995, between Capstone
Capital Corporation and AmSouth Bank of Alabama+
4.4 -- Form of First Supplemental Indenture for the 10 1/2%
Convertible Subordinated Debentures due 2002, dated
, 1998, among Registrant, Capstone Capital
Corporation and The Bank of New York*
4.5 -- Indenture dated as of March 14, 1997, between Capstone
Capital Corporation and AmSouth Bank of Alabama+
4.6 -- First Supplemental Indenture for the 6.55% Convertible
Subordinated Debentures due 2002, dated as of March 14,
1997, between Capstone Capital Corporation and AmSouth Bank
of Alabama+
4.7 -- Form of Second Supplemental Indenture for the 6.55%
Convertible Subordinated Debentures due 2002, dated
, 1998, among Registrant, Capstone Capital
Corporation and The Bank of New York*
5 -- Opinion of Waller Lansden Dortch & Davis, A Professional
Limited Liability Company+
8 -- Opinion of Farris, Warfield & Kanaday PLC, as to tax
matters+
10.1 -- Form of Consulting Agreement*
10.2 -- Form of Asset Purchase Agreement, dated , 1998,
between Capstone Capital Corporation and Orthopaedic
Surgeons, Inc.+
11 -- Statement re computation of earnings per share(5)
21 -- List of subsidiaries of the Registrant(6)
23.1 -- Consent of KPMG Peat Marwick LLP*
23.2 -- Consent of Ernst & Young LLP*
23.3 -- Consent of Waller Lansden Dortch & Davis, A Professional
Limited Liability Company (included in opinion filed as
Exhibit 5)
23.4 -- Consent of Farris, Warfield & Kanaday PLC (included in
opinion filed as Exhibit 8)
24.1 -- Power of Attorney (included on page II-5)
</TABLE>
II-2
<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
99.1 -- Consent of Salomon Smith Barney+
99.2 -- Consent of NationsBanc Montgomery Securities LLC (included
in opinion filed as Annex C of the Joint Proxy
Statement-Prospectus)
99.3 -- Form of Proxy for Healthcare Realty holders of Common Stock*
99.4 -- Form of Proxy for Capstone holders of Common Stock*
99.5 -- Form of Proxy for Capstone holders of Preferred Stock*
</TABLE>
- ---------------
+ Filed previously.
* Filed herewith.
(1) Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report
on Form 8-K, filed on June 12, 1998.
(2) Incorporated by reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-11, (No. 33-60506).
(3) Incorporated by reference to Exhibit 3.2 to the Registrant's Registration
Statement on Form S-11 (No. 33-72860).
(4) Incorporated by reference to Exhibit 4 to the Registrant's Registration
Statement on Form S-11 (No. 33-60506).
(5) Incorporated by reference to Part I, Item 1, footnote 9 of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
(6) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
Registration Statement to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
Registration Statement thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) For the purpose of determining any liability under the Securities Act,
each such Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a Registration Statement any of
the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d)
II-3
<PAGE> 136
of the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The Registrant undertakes that every prospectus: (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such Registration Statement shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE> 137
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Nashville, State of
Tennessee, on August 19, 1998.
HEALTHCARE REALTY TRUST
INCORPORATED
By: /s/ DAVID R. EMERY
------------------------------------
David R. Emery
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID R. EMERY Chairman, President and Chief August 19, 1998
- ----------------------------------------------------- Executive Officer (Principal
David R. Emery Executive Officer)
* Executive Vice President and August 19, 1998
- ----------------------------------------------------- Chief Financial Officer
Timothy G. Wallace (Principal Financial Officer)
* Senior Vice President and August 19, 1998
- ----------------------------------------------------- Treasurer (Principal
Fredrick M. Langreck Accounting Officer)
* Director August 19, 1998
- -----------------------------------------------------
Errol L. Biggs, Ph.D.
* Director August 19, 1998
- -----------------------------------------------------
Thompson S. Dent
* Director August 19, 1998
- -----------------------------------------------------
Charles Raymond Fernandez, M.D.
* Director August 19, 1998
- -----------------------------------------------------
Batey M. Gresham, Jr.
* Director August 19, 1998
- -----------------------------------------------------
Marliese E. Mooney
</TABLE>
II-5
<PAGE> 138
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director August 19, 1998
- -----------------------------------------------------
Edwin B. Morris, III
* Director August 19, 1998
- -----------------------------------------------------
John Knox Singleton
*By: /s/ DAVID R. EMERY
-------------------------------------------------
David R. Emery
Attorney-in-fact
</TABLE>
II-6
<PAGE> 1
EXHIBIT 4.4
CAPSTONE CAPITAL CORPORATION
------------------
10 1/2 % CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002
------------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of ______ __, 1998
------------------
Supplementing Indenture dated as of March 30, 1995
------------------
THE BANK OF NEW YORK
------------------
Trustee
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE ONE
Definitions
<S> <C>
SECTION 101. Definition of Terms..................................................................................4
ARTICLE TWO
Representations and Warranties
SECTION 201. Representations of the Company.......................................................................5
SECTION 202. Representations of HR................................................................................5
ARTICLE THREE
Assumption of Obligations
SECTION 301. Assumption by HR of Obligations of the Company under the Debentures and the Indenture................5
SECTION 302. Substitution of HR for the Company...................................................................5
SECTION 303. Substitution of Merger Consideration for Common Stock of Company upon Exercise of Conversion Option..5
ARTICLE FOUR
Successor Trustee and Miscellaneous
SECTION 401. Successor Trustee....................................................................................6
SECTION 402. Counterpart Originals................................................................................7
SECTION 403. Governing Law........................................................................................7
SECTION 404. Notices..............................................................................................7
SECTION 405. Reaffirmation of Indenture...........................................................................7
</TABLE>
i
<PAGE> 3
FIRST SUPPLEMENTAL INDENTURE, dated as of , 1998 (the "First
Supplemental Indenture"), among CAPSTONE CAPITAL CORPORATION, a Maryland
corporation (the "Company"), HEALTHCARE REALTY TRUST INCORPORATED, a Maryland
corporation ("HR"), and THE BANK OF NEW YORK, a New York banking corporation, as
trustee (the "Trustee").
WHEREAS, the Company has executed and delivered to AmSouth Bank of
Alabama that certain Indenture dated as of March 30, 1995 among the Company and
AmSouth Bank of Alabama, as Trustee (the "Original Indenture", and as amended by
this First Supplemental Indenture being herein referred to as the "Indenture");
and
WHEREAS, on July 1, 1998, The Bank of New York acquired substantially
all the corporate trust business of AmSouth Bank f/k/a AmSouth of Alabama, and
in accordance with Section 7.9 of the Original Indenture replaced and succeeded
AmSouth Bank of Alabama as trustee under the Original Indenture; and
WHEREAS, there have been issued and are now outstanding under the
Indenture $____________ principal amount of 10 1/2% Convertible Subordinated
Debentures due 2002 (the "Debentures"); and
WHEREAS, HR, Healthcare Realty Acquisition I Corporation, a Delaware
corporation ("Buyer") and a wholly owned subsidiary of HR, and the Company have
entered into an Agreement and Plan of Merger, dated as of June 8, 1998 (the
"Merger Agreement"), pursuant to which, among other things, (a) Buyer will merge
into the Company, with the Company being the surviving entity, and (b) HR will
issue to the stockholders of the Company shares of common stock of HR in
exchange for shares of common stock of the Company and shares of preferred stock
of HR in exchange for shares of preferred stock of the Company; and
WHEREAS, a condition to the consummation of the transactions
contemplated by the Merger Agreement is HR assumption of all of the indebtedness
and other obligations of the Company in connection with the Debentures and HR
substitution for the Company under the Indenture; and
WHEREAS, Section 5. l(a) of the Indenture provides that the Company may
not consolidate with or merge with or into any other person, or directly or
indirectly, sell, lease, assign, transfer or convey or otherwise dispose of all
or substantially all of its assets to another person, unless, among other
things, (a) either (i) the Company shall be the continuing person, or (ii) the
person formed by such consolidation or into which the Company is merged or to
which all or substantially all of the properties and assets of the Company are
transferred shall be a corporation or partnership organized and validly existing
under the laws of the United States, any state thereof or the District of
Columbia, and shall expressly assume, by an indenture supplemental, all
obligations of the Company under the
2
<PAGE> 4
Debentures and the Indenture, and (b) immediately after such transaction no
Default or Event of Default exists; and
WHEREAS, Section 13.10(a) of the Indenture provides, in relevant part,
that in the case of any consolidation of the Company with, or merger of the
Company into any other corporation, or in the case of any merger of another
corporation into the Company (other than a merger which does not result in any
conversion or exchange of shares of common stock of the Company), the
corporation formed by such consolidation or resulting from such merger shall
execute and deliver to the Trustee a supplemental indenture providing (i) that
the holder of each Debenture shall have the right, during the conversion period
specified in the Indenture, to convert the Debenture only into the kind and
amount of securities, cash and other property receivable upon such consolidation
or merger by a holder of the number of shares of common stock of the Company
which such Debenture might have been converted immediately prior to such
consolidation or merger, and (ii) for adjustments for events subsequent to the
effective date of the supplemental indenture as nearly equivalent as may be
practicable to the adjustments provided for in Article XIII of the Indenture;
and
WHEREAS, Section 13.10(b) of the Indenture provides that the Trustee
shall have no responsibility for determining the correctness of any provision in
any supplemental indenture regarding the kind or amount of securities or
property receivable by holders of Debentures upon conversion of Debentures after
any transaction described in Section 13.10(a) of the Indenture.
WHEREAS, the criteria enumerated in Sections 5.01 and 13.10 of the
Indenture have been satisfied to the satisfaction of the Trustee; and
WHEREAS, Section 9.1 of the Indenture provides, in relevant part, that
the Company and the Trustee may enter into indentures supplemental to the
Indenture without the consent of any holder of a Debenture to, among other
things, evidence the succession of another person to the Company and the
assumption by any such successor of the obligations of the Company contained in
the Indenture and the Debentures; and
WHEREAS, all things necessary to make this First Supplemental Indenture
a valid and binding supplemental indenture and agreement according to its terms
have been done;
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company, HR and the Trustee covenant and agree as follows:
3
<PAGE> 5
ARTICLE ONE
DEFINITIONS
SECTION 101. DEFINITION OF TERMS.
Unless the context otherwise requires:
(a) a term defined in the Original Indenture has the same meaning when
used in this First Supplemental Indenture unless otherwise defined herein (in
which case the definition set forth herein shall govern);
(b) a term defined anywhere in this First Supplemental Indenture has
the same meaning throughout;
(c) the singular includes the plural and vice versa; and
(d) headings are for convenience of reference only and do not affect
interpretation.
(e) As used herein, the following terms shall have the meanings set
forth below:
"Company" means Capstone Capital Corporation, a Maryland corporation.
"Common Stock" means the common stock, par value $.01 per share, of HR.
"First Supplemental Indenture" has the meaning set forth in the
recitals above.
"HR" means Healthcare Realty Trust Incorporated, a Maryland
corporation.
"Indenture" means the Original Indenture, as supplemented by this First
Supplemental Indenture, as the same may from time to time be further
supplemented or amended by one or more supplemental indentures thereto.
"Original Indenture" has the meaning set forth in the recitals above.
"Trustee" means the Person named as "Trustee" in the first paragraph of
this First Supplemental Indenture until a successor replaces it in accordance
with the applicable provisions of the Indenture, and thereafter "Trustee" shall
mean such successor.
4
<PAGE> 6
ARTICLE TWO
REPRESENTATIONS AND WARRANTIES
SECTION 201. REPRESENTATIONS OF THE COMPANY
The Company hereby represents and warrants that no Default or Event of
Default exists.
SECTION 202. REPRESENTATIONS OF HR
HR hereby represents and warrants that (i) it is a corporation duly
organized and validly existing under the laws of the State of Maryland and (ii)
that immediately after the transaction contemplated by the Merger Agreement, no
Default or Event of Default shall exist.
ARTICLE THREE
ASSUMPTION OF OBLIGATIONS
SECTION 301. ASSUMPTION BY HR OF OBLIGATIONS OF THE COMPANY UNDER THE
DEBENTURES AND THE INDENTURE.
HR hereby assumes and agrees to comply with all of the obligations of
the Company under the Debentures and the Indenture and hereby succeeds to and is
substituted for the Company thereunder.
SECTION 302. SUBSTITUTION OF HR FOR THE COMPANY.
In accordance with Section 5.1 of the Indenture, HR hereby succeeds to,
and is substituted for, the Company under the Debentures and the Indenture, and
from and after the date hereof, (a) the provisions of the Indenture and the
Debentures referring to the "Company" shall refer instead to HR and not to the
Company, (b) HR may exercise every right and power of the Company under the
Debentures and the Indenture with the same effect as if HR had been named as the
Company.
SECTION 303. SUBSTITUTION OF MERGER CONSIDERATION FOR COMMON STOCK OF
COMPANY UPON EXERCISE OF CONVERSION OPTION.
Section 13.1 of the Indenture is hereby deleted in its entirety and
substituted in lieu thereof is the following:
5
<PAGE> 7
"Subject to the provision of Section 14 of the Debentures and
Section 13.13 hereof, the Holder of any such Debenture or Debentures
shall have the right, at his option, at any time after ____________,
1998 and before the close of business on April 1, 2002 (except that,
with respect to any Debenture or portion of a Debenture which shall be
called for redemption, such right shall terminate, at the close of
business on the last Business Day prior to the date fixed for
redemption of such Debenture or portion of a Debenture unless the
Company shall default in payment due upon redemption thereof), to
convert, subject to the terms and provisions of this Article XIII, the
principal of any such Debenture or Debentures or any portion thereof
which is $1,000 principal amount or an integral multiple thereof into
shares of Common Stock, initially at the conversion price per share of
$18.9305; or, in case an adjustment of such price has taken place
pursuant to the provisions of Section 13.4 hereof, then at the price as
last adjusted (such price or adjusted price being referred to herein as
the "conversion price"), upon surrender of the Debenture or Debentures,
the principal of which is so to be converted, accompanied by written
notice of conversion duly executed, to the Company, at any time during
usual business hours at the office or agency maintained by it for such
purpose, and, if so required by the Conversion Agent or Registrar,
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Conversion Agent or Registrar duly executed by the
Holder or his duly authorized representative in writing. For
convenience, the conversion of any portion of the principal of any
Debenture or Debentures into Common Stock is hereinafter sometimes
referred to as the conversion of such Debenture or Debentures."
Furthermore, any references in the Indenture or the Debentures to
"Common Stock" shall be deemed to refer to the Common Stock of HR.
ARTICLE FOUR
SUCCESSOR TRUSTEE AND MISCELLANEOUS
SECTION 401. SUCCESSOR TRUSTEE.
In accordance with Section 7.9 of the Original Indenture, The Bank of
New York became the successor Trustee under the Indenture on July 1, 1998. The
Bank of New York hereby accepts the trust imposed upon it by the Indenture and
covenants and agrees to perform the same as expressed in the Indenture. The Bank
of New York hereby succeeds to and is substituted as Trustee under the
Indenture.
6
<PAGE> 8
SECTION 402. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this First Supplemental
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
SECTION 403. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS FIRST SUPPLEMENTAL INDENTURE, THE INDENTURE AND THE DEBENTURES.
SECTION 404. NOTICES.
In accordance with Section 14.2 of the Indenture, the address for
notice to HR and the Trustee shall be as follows: If to HR:
Healthcare Realty Trust Incorporated
3310 West End Avenue, Suite 700
Nashville, Tennessee 37203
Attention: Roger O. West
Facsimile: (615) 269-8461
If to Trustee:
The Bank of New York
AmSouth/Harbert Plaza
1901 Sixth Avenue North, Suite 730
Birmingham, Alabama 35203
Attention: Corporate Trust Administrator
Facsimile: (205) 581-7661
SECTION 405. REAFFIRMATION OF INDENTURE.
Except as supplemented by this First Supplemental Indenture, the
Original Indenture is in all respects ratified and confirmed, and the Original
Indenture as supplemented by this First Supplemental Indenture shall be read,
taken and construed as one and the same instrument so that all of the rights,
remedies, terms and conditions, covenants and agreements of the Original
Indenture, as amended, shall apply and remain in full force and effect.
7
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, all as of the day and year first above
written.
CAPSTONE CAPITAL
CORPORATION
By:
-------------------------------
Name:
Title:
Attest:
By:
---------------------------------
Name:
Title:
HEALTHCARE REALTY
TRUST INCORPORATED
By:
-------------------------------
Name:
Title:
Attest:
By:
---------------------------------
Name:
Title:
THE BANK OF NEW YORK,
as Trustee
By: The Bank of New York Trust
Company of Florida, N.A., as
Agent
By:
-------------------------------
Name:
Title:
Attest:
By:
---------------------------------
Name:
Title:
<PAGE> 10
STATE OF ALABAMA )
)
COUNTY OF JEFFERSON)
I, the undersigned, a Notary Public in and for said County in said
State, do hereby certify that ________________________________, whose name as
_________________of Capstone Capital Corporation, a Maryland corporation, is
signed to the foregoing instrument, and who is known to me, and known to be such
officer, acknowledged before me on this day that, being informed of the contents
of said instrument, (s)he, as such officer and with full authority, executed the
same voluntarily for and as the act of said corporation.
Given under my hand and official seal this the ________ day of
_____________, 1998.
-----------------------------
Notary Public
My Commission expires:
- ---------------------------
STATE OF TENNESSEE)
)
COUNTY OF ________)
I, the undersigned, a Notary Public in and for said County in said
State, do hereby certify that __________________________________, whose name as
_____________________of Healthcare Realty Trust Incorporated, a Maryland
corporation, is signed to the foregoing instrument, and who is known to me, and
known to be such officer, acknowledged before me on this day that, being
informed of the contents of said instrument, (s)he, as such officer and with
full authority, executed the same voluntarily for and as the act of said
corporation.
Given under my hand and official seal this the _______ day of
_____________, 1998.
-----------------------------
Notary Public
My Commission expires:
- ---------------------------
9
<PAGE> 11
STATE OF __________________________ )
)
COUNTY OF _________________________ )
I, the undersigned, a Notary Public in and for said County in said
State, do hereby certify that , whose name as of The Bank of New York Trust
Company of Florida, N.A., as agent of The Bank of New York, a New York banking
corporation, is signed to the foregoing instrument, and who is known to me, and
known to be such officer, acknowledged before me on this day that being informed
of the contents of said instrument, (s)he, as such officer and with full
authority, executed the same voluntarily for and as the act of said national
association for and as the act of said banking corporation.
Given under my hand and official seal this the _______ day of
_____________, 1998.
-----------------------------
Notary Public
My Commission expires:
- ---------------------------
10
<PAGE> 1
EXHIBIT 4.7
CAPSTONE CAPITAL CORPORATION
-----------------
6.55% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002
-----------------
SECOND SUPPLEMENTAL INDENTURE
Dated as of __________, 1998
-----------------
SUPPLEMENTING INDENTURE DATED AS OF MARCH 14, 1997
-----------------
THE BANK OF NEW YORK
-----------------
Trustee
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE ONE
Definitions
<S> <C> <C>
SECTION 101. Definition of Terms...................................................................3
ARTICLE TWO
Representations and Warranties
SECTION 201. Representations of the Company........................................................4
SECTION 202. Representations of HR.................................................................4
ARTICLE THREE
Assumption of Obligations
SECTION 301. Assumption by HR of Obligations of the Company under the Debentures
and the indenture................................................................4
SECTION 302. Substitution of HR for the Company....................................................4
SECTION 303. Substitution of Merger Consideration for Common Stock of Company upon
Exercise of Conversion Option....................................................5
ARTICLE FOUR
Successor Trustee and Miscellaneous
SECTION 401. Successor Trustee.....................................................................5
SECTION 402. Counterpart Originals.................................................................5
SECTION 403. Governing Law.........................................................................5
SECTION 404. Notices...............................................................................5
SECTION 405. Reaffirmation of Indenture............................................................6
</TABLE>
i
<PAGE> 3
SECOND SUPPLEMENTAL INDENTURE, dated as of _______________, 1998 (the
"Second Supplemental Indenture"), among CAPSTONE CAPITAL CORPORATION, a Maryland
corporation (the "Company"), HEALTHCARE REALTY TRUST INCORPORATED, a Maryland
corporation ("HR"), and THE BANK OF NEW YORK, a New York banking corporation, as
trustee (the "Trustee").
WHEREAS, the Company has executed and delivered to AmSouth Bank of
Alabama that certain Indenture, dated as of March 14, l997, among the Company
and AmSouth Bank of Alabama, as Trustee (the "Original Indenture"), as amended
by that certain First Supplemental Indenture dated as of March 14, 1997 (the
"First Supplemental Indenture") (the Original Indenture as amended by the First
Supplemental Indenture and as amended by this Second Supplemental Indenture
being herein referred to as the "Indenture"); and
WHEREAS, on July 1, 1998, The Bank of New York acquired substantially
all the corporate trust business of AmSouth Bank f/k/a AmSouth Bank of Alabama,
and in accordance with Section 612 of the Original Indenture succeeded AmSouth
Bank of Alabama as trustee under the Indenture; and
WHEREAS, there have been issued and are now outstanding under the
Indenture $ principal amount of 6.55 %Convertible Subordinated Debentures due
2002 (the "Debentures"); and
WHEREAS, HR, Healthcare Realty Acquisition I Corporation, a Delaware
corporation ("Buyer") and a wholly owned subsidiary of HR, and the Company have
entered into an Agreement and Plan of Merger, dated as of June 8, 1998 (the
"Merger Agreement"), pursuant to which, among other things, (a) Buyer will merge
into the Company, with the Company being the surviving entity, and (b) HR will
issue to the stockholders of the Company shares of common stock of HR in
exchange for shares of common stock of the Company and shares of preferred stock
of HR in exchange for shares of preferred stock of the Company; and
WHEREAS, a condition to the consummation of the transactions
contemplated by the Merger Agreement is Hit's assumption of all of the
indebtedness and other obligations of the Company in connection with the
Debentures and Hit's substitution for the Company under the Indenture; and
WHEREAS, Section 801 of the Original Indenture provides, in relevant
part, that the Company may not consolidate with or merge into any other person,
or permit any person to consolidate with or merge into the Company unless, among
other things, (i) the person formed by such consolidation or the person which
acquires by conveyance or transfer the property or assets of the Company is a
corporation, partnership or trust organized and validly existing under the laws
of the United States of America, any state thereof or the District of Columbia
and said
1
<PAGE> 4
entity expressly assumes, by supplemental indenture, the due and punctual
payment of the principal of and any premium and interest on the Debentures and
the performance or observance of every covenant of the Indenture on the part of
the Company and shall have provided for conversion rights in accordance with
Section 1411 of the Indenture with respect to the Debentures, and (ii)
immediately after such transaction no Default or Event of Default exists; and
WHEREAS, Section 1411 of the Original Indenture provides, in relevant
part, that in the case of any consolidation of the Company with, or merger of
the Company into any other person, or in the case of any merger of another
person into the Company (other than a merger which does not result in any
conversion or exchange of shares of common stock of the Company) (i) the holder
of each Debenture shall have the right, during the conversion period specified
in the Original Indenture, to convert the Debenture only into the kind and
amount of securities, cash and other property receivable upon such consolidation
or merger by a holder of the number of shares of common stock of the Company
into which such Debenture might have been converted immediately prior to such
consolidation or merger, and (ii) that the person formed by such consolidation
or merger or which acquires such assets, as the case may be, executes a
supplemental indenture pursuant to which such person assumes the obligation to
deliver to the holder of such Debentures the security, cash and other security
described in (i) above, and such supplemental indenture provides for adjustments
for events subsequent to the effective date of the supplemental indenture as
nearly equivalent as may be practicable to the adjustments provided for in
Article Fourteen of the Original Indenture; and
WHEREAS, Section 1412 of the Original Indenture provides that neither
the Trustee nor any conversion agent has a responsibility to any holder of
Debentures to determine whether any facts exist which require an adjustment of
the conversion price, or the nature of any such adjustment or the method
employed to make such adjustment, and provides that neither the Trustee nor any
conversion agent shall be accountable with respect to validity or value (or the
kind or amount) of any securities or property which may at any time be issued or
delivered upon the conversion of the Debentures; and
WHEREAS, the criteria enumerated in Sections 801 and 1411 of the
Original Indenture have been satisfied to the satisfaction of the Trustee; and
WHEREAS, Section 901 of the Original Indenture provides, in relevant
part, that the Company and the Trustee may enter into indentures supplemental to
the Indenture without the consent of any holder of a Debenture to, among other
things, evidence the succession of another person to the Company and the
assumption by any such successor of the covenants of the Company contained in
the Indenture and the Debentures; and
2
<PAGE> 5
WHEREAS, all things necessary to make this Second Supplemental
Indenture a valid and binding supplemental indenture and agreement according to
its terms have been done;
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company, HR and the Trustee covenant and agree as follows:
ARTICLE ONE
DEFINITIONS
SECTION 101. DEFINITION OF TERMS.
Unless the context otherwise requires:
(a) a term defined in the Original Indenture has the same meaning when
used in this Second Supplemental Indenture unless otherwise defined herein (in
which case the definition set forth herein shall govern);
(b) a term defined anywhere in this Second Supplemental Indenture has
the same meaning throughout;
(c) the singular includes the plural and vice versa; and
(d) headings are for convenience of reference only and do not affect
interpretation.
(e) As used herein, the following terms shall have the meanings set
forth below:
"Company" means Capstone Capital Corporation, a Maryland corporation.
"Common Stock" means the common stock, par value $.01 per share, of HR.
"First Supplemental Indenture" has the meaning set forth in the
recitals above.
"HR" means Healthcare Realty Trust Incorporated, a Maryland
corporation.
"Indenture" means the Original Indenture, as supplemented by the First
Supplemental Indenture and by this Second Supplemental Indenture, as the same
may from time to time be further supplemented or amended by one or more
supplemental indentures thereto.
"Original Indenture" has the meaning set forth in the recitals above.
3
<PAGE> 6
"Second Supplemental Indenture" has the meaning set forth in the
recitals above.
"Trustee" means the Person named as "Trustee" in the first paragraph of
this Second Supplemental Indenture until a successor replaces it in accordance
with the applicable provisions of the Indenture, and thereafter "Trustee" shall
mean such successor.
ARTICLE TWO
REPRESENTATIONS AND WARRANTIES
SECTION 201. REPRESENTATIONS OF THE COMPANY.
The Company hereby represents and warrants that no Default or Event of
Default exists.
SECTION 202. REPRESENTATIONS OF HR.
HR hereby represents and warrants (i) that it is a corporation duly
organized and validly existing under the laws of the State of Maryland and (ii)
that immediately after the transaction contemplated by the Merger Agreement no
Default or Event of Default shall exist.
ARTICLE THREE
ASSUMPTION OF OBLIGATIONS
SECTION 301. ASSUMPTION BY HR OF OBLIGATIONS OF THE COMPANY UNDER THE DEBENTURES
AND THE INDENTURE.
HR hereby assumes and agrees to comply with all of the obligations of
the Company under the Debentures and the Indenture and hereby succeeds to and is
substituted for the Company thereunder.
SECTION 302. SUBSTITUTION OF HR FOR THE COMPANY.
In accordance with Section 802 of the Original Indenture, HR hereby
succeeds to, and is substituted for, the Company under the Debentures and the
Indenture, and from and after the date hereof, (a) the provisions of the
Indenture and the Debentures referring to the "Company" shall refer instead to
HR and not to the Company, (b) HR may exercise every right and power of the
Company under the Debentures and the Indenture with the same effect as if HR had
been named as the Company.
4
<PAGE> 7
SECTION 303. SUBSTITUTION OF MERGER CONSIDERATION FOR COMMON STOCK OF COMPANY
UPON EXERCISE OF CONVERSION OPTION.
The second paragraph of Section 501 of the First Supplemental Indenture
is hereby deleted in its entirety and substituted in lieu thereof is the
following:
"The rate at which shares of Common Stock shall be delivered upon
conversion (herein called the "Conversion Rate") shall be initially
33.6251 shares of Common Stock for each $1,000 principal amount of
Debentures. The Conversion Rate shall be adjusted in certain instances
as provided in paragraphs (a), (b), (c), (d), (e) and (h) of Section
1504.
Furthermore, any references in the Indenture or the Debentures to
"Common Stock" shall be deemed to refer to the Common Stock of HR.
ARTICLE FOUR
SUCCESSOR TRUSTEE AND MISCELLANEOUS
SECTION 401. SUCCESSOR TRUSTEE.
In accordance with Section 612 of the Original Indenture, The Bank of
New York became the successor Trustee under the Indenture on July 1, 1998. The
Bank of New York hereby accepts the trust imposed upon it by the Indenture and
covenants and agrees to perform the same as expressed in the Indenture. The Bank
of New York hereby succeeds to and is substituted as Trustee under the
Indenture.
SECTION 402. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Second Supplemental
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
SECTION 403. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS SECOND SUPPLEMENTAL INDENTURE, THE INDENTURE AND THE DEBENTURES.
SECTION 404. NOTICES.
In accordance with Section 105 of the Original Indenture, the address
for notice to HR and the Trustee shall be as follows:
5
<PAGE> 8
If to HR:
Healthcare Realty Trust Incorporated
3310 West End Avenue, Suite 700
Nashville, Tennessee 37203
Attention: Roger O. West
Facsimile: (615) 269-8461
If to Trustee:
The Bank of New York
AmSouth/Harbert Plaza
1901 Sixth Avenue North, Suite 730
Birmingham, Alabama 35203
Attention: Corporate Trust Administrator
Facsimile: (205) 581-7661
SECTION 405. REAFFIRMATION OF INDENTURE.
Except as supplemented by this Second Supplemental Indenture, the
Original Indenture as supplemented by the First Supplemental Indenture is in all
respects ratified and confirmed, and the Original Indenture as supplemented by
the First Supplemental Indenture and by this Second Supplemental Indenture shall
be read, taken and construed as one and the same instrument so that all of the
rights, remedies, terms and conditions, covenants and agreements of the Original
Indenture, as amended, shall apply and remain in full force and effect.
6
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, all as of the day and year first above
written.
CAPSTONE CAPITAL CORPORATION
By:
------------------------------
Name:
Attest: Title:
By:
-----------------------------------
Name:
Title:
HEALTHCARE REALTY TRUST INCORPORATED
By:
---------------------------------
Name:
Attest: Title:
By:
-----------------------------------
Name:
Title:
THE BANK OF NEW YORK, as Trustee
By: the Bank of New York Trust
Company of Florida, N.A., as
Agent
By:
---------------------------------
Name:
Attest: Title:
By:
-----------------------------------
Name:
Title:
7
<PAGE> 10
STATE OF ALABAMA )
)
COUNTY OF JEFFERSON )
I, the undersigned, a Notary Public in and for said County in said
State, do hereby certify that _____________________, whose name as ____________
of Capstone Capital Corporation, a Maryland corporation, is signed to the
foregoing instrument, and who is known to me, and known to be such officer,
acknowledged before me on this day that, being informed of the contents of said
instrument, (s)he, as such officer and with full authority, executed the same
voluntarily for and as the act of said corporation.
Given under my hand and official seal this the ___ day of ____________,
1998.
----------------------------------------------
Notary Public
My Commission expires:
------------------------
STATE OF TENNESSEE )
)
COUNTY OF )
I, the undersigned, a Notary Public in and for said County in said
State, do hereby certify that _______________________, whose name as
____________ of Healthcare Realty Trust Incorporated, a Maryland corporation, is
signed to the foregoing instrument, and who is known to me, and known to be such
officer, acknowledged before me on this day that, being informed of the contents
of said instrument, (s)he, as such officer and with full authority, executed the
same voluntarily for and as the act of said corporation.
Given under my hand and official seal this the ___ day of ____________,
1998.
----------------------------------------------
Notary Public
My Commission expires:
------------------------
8
<PAGE> 11
STATE OF )
)
COUNTY OF )
I, the undersigned, a Notary Public in and for said County in said
State, do hereby certify that _____________________, whose name as ___________
of The Bank of New York Trust company of Florida, N.A., as agent of The Bank of
New York, a New York banking corporation, is signed to the foregoing instrument,
and who is known to me, and known to be such officer, acknowledged before me on
this day that being informed of the contents of said instrument, (s)he, as such
officer and with full authority, executed the same voluntarily for and as the
act of said national association for and as the act of said banking corporation.
Given under my hand and official seal this the ____ day of ___________,
1998.
----------------------------------------------
Notary Public
My Commission expires:
------------------------
9
<PAGE> 1
EXHIBIT 10.1
FORM OF
CONSULTING AGREEMENT
AGREEMENT, dated as of ______________, 1998, between
_________________ ("Consultant,") and HEALTHCARE REALTY TRUST INCORPORATED, a
Maryland corporation ("HR").
WITNESSETH:
WHEREAS, HR is an equity real estate investment trust that
acquires existing healthcare facilities and provides capital for the acquisition
and construction of healthcare facilities and among other things provides asset
administration, property management, leasing and build-to-suit development
services to the healthcare industry (referred to herein as the "business").
WHEREAS, HR, its wholly-owned subsidiary, HR Acquisition I
Corporation, ("HR Acquisition"), and Capstone Capital Corporation, a Maryland
corporation ("Capstone"), entered into a Plan and Agreement of Merger, dated as
of June 8, 1998, whereby Capstone merged with HR Acquisition and was the
surviving corporation (the "Merger"). Capstone has become a wholly owned
subsidiary of HR.
WHEREAS, Consultant was an executive officer and/or a director
of Capstone.
WHEREAS, as a condition to the Merger, HR and Consultant must
consummate a consulting and non-competition agreement
WHEREAS, HR desires to engage Consultant to provide services
relating to (i) the transition of Capstone to HR and the continuing integration
of Capstone's business into that of HR and (ii) the promotion and enhancement of
the business of HR, and Consultant is willing to accept such engagement, all on
the terms set forth in this Agreement.
NOW, THEREFORE, for the reasons set forth above, and in
consideration of the mutual promises and agreements herein set forth, HR and
Consultant agree as follows:
1. ENGAGEMENT. Subject to the terms and conditions hereof,
HR hereby engages Consultant as a consultant and Consultant agrees to accept
such engagement and agrees to perform the following services for the period of
this Agreement:
(a) During the term and for the duration of this
Agreement and at the request of HR upon reasonable notice, Consultant
will use his reasonable best efforts to assist in the transition of the
assets and activities
<PAGE> 2
of Capstone to HR and the integration of those assets and activities
with the assets and activities of HR.
(b) During the term and for the duration of this
Agreement and at the request of HR upon reasonable notice, Consultant
will use his reasonable best efforts to provide HR assistance, advice
and counsel in the promotion and enhancement of its business.
The consulting services provided hereunder shall not require substantially all
of the business time of Consultant, and Consultant shall be free to pursue other
business opportunities. Consultant shall provide such services as HR reasonably
requests and at reasonable times agreeable to Consultant; provided that
Consultant shall not be required to be available other than during normal
business hours in the location where he resides or is otherwise staying from
time to time, and shall not be required to consult in person, or to travel, or
to be available at specific times or on weekends or holidays.
2. TERM OF ENGAGEMENT. The term of this Agreement shall
commence on the first date stated above and shall terminate on October _, 2004
unless terminated prior to that date as hereinafter provided.
3. CONSIDERATION TO CONSULTANT. (a) HR shall pay to
Consultant as consideration for the services to be performed by Consultant the
sum of $____________________, payable upon the execution of this Agreement.
(b) In addition to the compensation set forth elsewhere in
this Section 3, HR shall issue and deliver shares of HR's Common Stock, par
value $.01 per share (the "Stock"), to Consultant in accordance with the
following schedule:
<TABLE>
<CAPTION>
Date No. of Shares
---- -------------
<S> <C>
October __, 1999
----------------------
October __, 2000
----------------------
October __, 2001
----------------------
October __, 2002
----------------------
</TABLE>
The issuance of such shares of Stock shall not be registered with the Securities
and Exchange Commission. If this Agreement is terminated prior to October __
2002, Consultant will lose all rights to any such shares of Stock remaining to
be distributed.
(c) HR shall provide for the payment or reimbursement of
all reasonable and necessary expenses incurred by Consultant in connection with
the
2
<PAGE> 3
performance of his duties hereunder and approved by HR in advance. Consultant
shall submit expense reports and documentation as HR shall reasonably request.
4. RECAPITALIZATION. The number of shares of Stock to be
granted pursuant to Section 3(b) shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Stock resulting from a
subdivision or combination of shares or the payment of a stock dividend in
shares of Stock to holders of outstanding shares of Stock or any other increase
or decrease in the number of such shares effected without receipt of
consideration by HR.
5. OBLIGATIONS CONTINGENT ON PERFORMANCE. The obligations
of HR hereunder, including its obligation to pay the compensation provided for
herein, shall be contingent upon Consultant's performance of his obligations
hereunder.
6. TRADE SECRETS AND CUSTOMER LISTS. Consultant agrees to
hold in strict confidence all information concerning any matters affecting or
relating to the business of Capstone and HR, including without limiting the
generality of the foregoing, its manner of operation, plans, agreements,
protocols, processes, computer programs, customer lists, marketing information
and analyses, or other data, without regard to whether all of the foregoing
matters will be deemed confidential or material. Consultant agrees that he will
not, directly or indirectly, use any such information for the benefit of others
than HR or disclose or communicate any of such information in any manner
whatsoever other than to the directors, officers, employees, agents, and
representatives of HR who need to know such information, who shall be informed
by Consultant of the confidential nature of such information and directed by
Consultant to treat such information confidentially. Such information does not
include information which (i) was or becomes generally available to the public
other than as a result of a disclosure by Consultant or his representatives, or
(ii) was or becomes available to Consultant on a non-confidential basis from a
source other than HR or its advisors provided that such source is not known to
Consultant to be bound by a confidentiality agreement with HR, or otherwise
prohibited from transmitting the information to Consultant by a contractual,
legal or fiduciary obligation; notwithstanding the foregoing, if any such
information does become generally available to the public, Consultant agrees not
to further discuss or disseminate such information except in the performance of
his duties as Consultant. Upon HR's request, Consultant will return all
information furnished to him related to the business of HR. The parties hereto
stipulate that all such information is material and confidential and gravely
affects the effective and successful conduct of the business of HR and HR's
goodwill, and that any breach of the terms of this Section 6 shall be a material
breach of this Agreement. The terms of this Section 6 shall remain in effect
following the termination of this Agreement.
7. USE OF PROPRIETARY INFORMATION. Consultant recognizes
that HR possesses a proprietary interest in all of the information described in
Section 6 and has the exclusive right and privilege to use, protect by
copyright, patent or trademark, manufacture or otherwise exploit the processes,
ideas and concepts
3
<PAGE> 4
described therein to the exclusion of Consultant, except as otherwise agreed
between HR and Consultant in writing. Consultant expressly agrees that any
products, inventions, discoveries or improvements made by Consultant, his agents
or affiliates, during the term of this Agreement, based on or arising out of the
information described in Section 6 shall be the property of and inure to the
exclusive benefit of HR.
8. NON-COMPETITION AGREEMENT. (a) Consultant agrees that,
during the six-year period commencing with the execution of this Agreement, he
shall not, without the prior written consent of HR, directly or indirectly, own,
manage, operate, control, be connected with as an officer, employee, partner,
consultant or otherwise, or otherwise engage or participate in, except as a
Consultant of HR, any corporation directly or indirectly controlled by it, any
corporation or other business entity operated as a real estate investment trust
or otherwise primarily engaged in the business of providing capital for the
acquisition and construction of healthcare facilities (other than as an
operator) and, among other things, providing asset administration, property
management, leasing and build-to-suit development services to any healthcare
provider. Notwithstanding the foregoing, the ownership by Consultant of less
than 5% of any class of the outstanding capital stock of any corporation
conducting such a competitive business which is regularly traded on a national
securities exchange or in the over-the-counter market shall not be a violation
of the foregoing covenant.
(b) During the six-year period commencing with the
execution of this Agreement, Consultant shall not contact or solicit, directly
or indirectly, any customer or account whose identity Consultant obtained
through association with Capstone or HR for purposes of competing with HR during
the term of this Agreement, regardless of the geographical location of such
customer or account, nor shall Consultant, directly or indirectly, entice or
induce, or attempt to entice or induce, any employee of HR to leave such employ,
nor shall Consultant employ any such person in any business similar to or in
competition with that of HR during the six-year period commencing with the
execution of this Agreement. Consultant hereby acknowledges and agrees that the
provisions set forth in this Section constitute a reasonable restriction on his
ability to compete with HR.
(c) The parties hereto agree that, in the event a court of
competent jurisdiction shall determine that the geographical or durational
elements of this covenant are unenforceable, such determination shall not render
the entire covenant unenforceable. Rather, the excessive aspects of the covenant
shall be reduced to the threshold which is enforceable, and the remaining
aspects shall not be affected thereby.
9. INJUNCTIVE RELIEF. Consultant acknowledges that the
extent of damages to HR from a breach of Sections 6, 7 and 8 of this Agreement
would not be readily quantifiable or ascertainable, that monetary damages would
be inadequate to make HR whole in case of such a breach, and that there is not
and would not be an adequate remedy at law for such a breach. Therefore,
Consultant specifically
4
<PAGE> 5
agrees that HR is entitled to injunctive or other equitable relief from a breach
of Sections 6, 7 and 8 of this Agreement, and hereby waives and covenants not to
assert against a prayer for such relief that there exists an adequate remedy at
law, in monetary damages or otherwise.
10. TERMINATION OF ENGAGEMENT. (a) Consultant's
engagement hereunder:
(i) Shall terminate forthwith upon the death of
Consultant;
(ii) May be terminated by HR at any time if
Consultant shall become ill or be injured or
otherwise incapacitated and such illness,
injury or incapacity shall be of such nature
as to prevent him from performing the duties
to be performed by him hereunder and shall
continue for a period of three consecutive
months; and
(iii) May be terminated by HR for a material
breach of this Agreement.
(b) In the event Consultant's engagement hereunder
terminates pursuant to this Section 10, Consultant (or his heirs, executors or
administrators in the event of termination by reason of the death of Consultant)
shall be entitled to receive the compensation deliverable to Consultant under
Section 3 through the end of the month of Consultant's death, and thereafter
upon each of the dates set forth under Section 3, his heirs, executors or
administrators shall be entitled to receive one-half (1/2) of the compensation
otherwise deliverable to Consultant through the end of the term of this
Agreement. In the event of termination with cause, all compensation described
hereunder and associated herewith shall cease to be an obligation of HR to
Consultant, as of the date which HR notifies Consultant or Consultant's heirs of
its decision to terminate this Agreement with cause or the date of the event
causing termination (whichever is applicable), and the Consultant shall not be
entitled to any other compensation hereunder.
11. REPRESENTATIONS AND WARRANTIES.
(a) HR represents and warrants that:
(i) It is a corporation duly organized, validly
existing and in good standing under the laws of the state of Maryland, with the
requisite corporate power and authority to enter in to this Agreement and to
perform its obligations hereunder.
(ii) It has obtained all corporate and government
approvals, if any, necessary for it to enter into this Agreement and to comply
with its obligations hereunder.
5
<PAGE> 6
(iii) This Agreement constitutes a valid and
binding obligation of HR enforceable against it in accordance with its terms,
subject to applicable bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium and similar laws affecting the rights of creditors
generally (whether enforcement is sought in equity or at law).
(iv) The execution and delivery of this
Agreement, and the consummation of the transaction contemplated hereby, and the
fulfillment and compliance with the terms and conditions hereof, do not and will
not violate or conflict with or constitute a default under any judicial or
administrative order, award, judgment or decree, or any statute, rule or
regulation applicable to it, or any agreement or instrument to which it is a
party or by which it is bound, or its articles of incorporation or by-laws.
(b) Consultant represents and warrants that:
(i) He has the requisite individual capacity
to enter into this Agreement and to perform his obligations hereunder.
(ii) He has obtained all corporate and government
approvals, if any, necessary for him to enter into this Agreement and to perform
his obligations hereunder.
(iii) This Agreement constitutes a valid and
binding obligation of Consultant enforceable against him in accordance with its
terms, subject to applicable bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium and similar laws affecting the rights of creditors
generally (whether enforcement is sought in equity or at law).
(iv) The execution and delivery of this
Agreement, and the consummation of the transactions contemplated hereby, and the
fulfillment and compliance with the terms and conditions hereof, do not and will
not violate or conflict with or constitute a default under any judicial or
administrative order, award, judgment or decree, or any statute, rule or
regulation applicable to him, or any agreement or instrument to which he is a
party or by which he is bound.
12. ENTIRE AGREEMENT. This Agreement contains the
complete agreement concerning the consultancy arrangement between the parties
and shall, as of the date hereof, supersede all other agreements or arrangements
between the parties with regard to the subject matter hereof.
13. BINDING AGREEMENT. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns.
6
<PAGE> 7
14. MODIFICATION. No waiver or modification of this
Agreement or of any covenant, condition, or limitation herein contained shall be
valid unless in writing and duly executed by the party to be charged therewith
and no evidence of any waiver or modification shall be offered or received in
evidence of any proceeding, arbitration, or litigation between the parties
hereto arising out of or affecting this Agreement, or the rights or obligations
of the parties hereunder, unless such waiver or modification is in writing, duly
executed as aforesaid.
15. SEVERABILITY. All agreements and covenants contained
herein are severable, and in the event any of them shall be held to be invalid
or unenforceable by any court of competent jurisdiction, this Agreement shall be
interpreted as if such invalid agreements or covenants were not contained
herein.
16. MANNER OF GIVING NOTICE. All notices, requests and
demands to or upon the respective parties hereto shall be sent by hand,
certified mail, overnight air courier service, or telecopier (if within a
reasonable time a permanent copy is given by any of the other methods described
above), in each case with all applicable charges paid or otherwise provided for,
addressed as follows, or to such other address as may hereafter be designated in
writing by the respective parties hereto:
To HR:
Healthcare Realty Trust Incorporated
3310 West End Avenue
Suite 700
Nashville, Tennessee 37203
Attention: Roger O. West, Executive Vice President
Telephone: (615) 269-8175
Telecopy: (615) 269-8461
To Consultant:
--------------------------------
--------------------------------
--------------------------------
--------------------------------
Telephone: (205)
---------------
Telecopy: (205)
---------------
Such notices, requests and demands shall be deemed to have been given or made on
the date of delivery if delivered by hand or by telecopy and on the next
following date if sent by mail or by air courier service.
17. REMEDIES. In the event of a breach of this Agreement,
the nonbreaching party shall be entitled to such legal and equitable relief as
may be provided by law, and shall further be entitled to recover all costs and
expenses, including reasonable attorney's fees, incurred in enforcing his rights
hereunder.
7
<PAGE> 8
18. CAPTIONS. The captions have been inserted for
convenience only and shall not be deemed to limit or otherwise affect any of the
provisions of this Agreement.
19. CHOICE OF LAW. It is the intention of the parties
hereto that this Agreement and the performance hereunder be construed in
accordance with, under and pursuant to the laws of the State of Maryland without
regard to the jurisdiction in which any action or special proceeding may be
instituted.
20. INDEPENDENT CONTRACTOR. None of the provisions of
this Agreement is intended to create, nor shall any provision in this Agreement
be deemed or construed to create, any relationship between HR and Consultant
other than that of independent parties contracting with each other under this
Agreement solely for the purpose of effecting the provisions of this Agreement.
Neither of the parties, nor any of their employees, shall be construed to be the
agent, employer, employee or representative of the other.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first stated above.
HR:
HEALTHCARE REALTY TRUST INCORPORATED
By:
---------------------------------
Title:
------------------------------
CONSULTANT:
------------------------------------
8
<PAGE> 1
Exhibit 23.1
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
Capstone Capital Corporation:
We consent to the use of our reports incorporated by reference herein related
to the financial statements of Capstone Capital Corporation and the financial
statement schedules as of December 31, 1997 and 1996, and for each of the years
in the three-year period ended December 31, 1997, and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Birmingham, Alabama
August 19, 1998
<PAGE> 1
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to Registration Statement No. 333-59907 on Form S-4 and related Prospectus
of Healthcare Realty Trust Incorporated (Healthcare Realty) and to the
incorporation by reference therein of our reports dated January 30, 1998 (except
for the 2nd paragraph of Note 13 of the consolidated financial statements as to
which the date is February 27, 1998), with respect to the consolidated financial
statements of Healthcare Realty incorporated by reference in its Annual Report
(Form 10-K) for the year ended December 31, 1997 and the related financial
statement schedule included therein, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Nashville, TN
August 18, 1998
<PAGE> 1
EXHIBIT 99.3
HEALTHCARE REALTY TRUST INCORPORATED
SPECIAL MEETING OF STOCKHOLDERS
OCTOBER 15, 1998
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
HEALTHCARE REALTY TRUST INCORPORATED
The undersigned hereby appoints David R. Emery and Timothy G.
Wallace and each of them, with full power of substitution, attorneys and proxies
of the undersigned to vote the shares of Common Stock, $.01 par value per share
(the "Common Stock"), of Healthcare Realty Trust Incorporated ("Healthcare
Realty"), which the undersigned could vote, and with all power the undersigned
would possess, if personally present at the special meeting of stockholders of
Healthcare Realty to be held at Healthcare Realty Trust Incorporated, The Board
Room, 3310 West End Avenue, Suite 700, Nashville, Tennessee on Thursday, October
15, 1998, at 10:00 a.m. (local time), and any adjournment thereof:
1. To approve of the issuance of shares of Common Stock and 8 7/8%
Series A Voting Cumulative Preferred Stock of Healthcare Realty in connection
with the transactions contemplated in the Plan and Agreement of Merger, dated as
of June 8, 1998 (attached as Annex A to the Joint Proxy Statement-Prospectus
that has been transmitted in connection with the special meeting), among
Healthcare Realty, HR Acquisition I Corporation, a newly formed Delaware
corporation and wholly owned subsidiary of Healthcare Realty, and Capstone
Capital Corporation, all as described in the Joint Proxy Statement-Prospectus.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
This Proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder. If no direction is made, the
above named proxies will vote in favor of the issuance of shares of Common Stock
and 8 7/8% Series A Voting Cumulative Preferred Stock of Healthcare Realty
referred to in Item 1 above.
Dated: , 1998
---------------------------------
Signature
---------------------------------
Signature if held jointly
Important: Please sign exactly as
your name or names appear on this
proxy and mail promptly in the
enclosed envelope. Joint owners
should sign personally. If you
sign as agent or in any other
capacity, please state the
capacity in which you sign.
<PAGE> 1
EXHIBIT 99.4
CAPSTONE CAPITAL CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
OCTOBER 14, 1998
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
CAPSTONE CAPITAL CORPORATION
The undersigned holder of Common Stock, $.001 par value per share, of
Capstone Capital Corporation, a Maryland corporation ("Capstone"), hereby
appoints Richard M. Scrushy and John W. McRoberts as proxies for the
undersigned, with full power of substitution in each of them, to attend the
Special Meeting of the Stockholders of Capstone to be held at the Sheraton
Perimeter Park South Hotel, The Ballroom, 8 Perimeter Park Drive, Birmingham,
Alabama, on Wednesday, October 14, 1998 at 3:00 p.m., and any adjournment or
postponement thereof, to cast on behalf of the undersigned all votes that the
undersigned is entitled to cast at such meeting and otherwise to represent the
undersigned at the meeting with all powers possessed by the undersigned if
personally present at the meeting. The undersigned hereby acknowledges receipt
of the Notice of the Special Meeting of Stockholders and of the accompanying
Proxy Statement and revokes any proxy heretofore given with respect to such
meeting.
The votes entitled to be cast by the undersigned will be cast as instructed
below. If this proxy is executed but no instruction is given, the votes entitled
to be cast by the undersigned will be cast "for" the proposal as described in
the Proxy Statement and in the discretion of the proxy holder on any other
matter that may properly come before the meeting or any adjournment or
postponement thereof.
1. Approval of the merger contemplated by the Plan and Agreement of Merger,
dated as of June 8, 1998 (attached as Annex A to the Joint Proxy
Statement-Prospectus that has been transmitted in connection with the Special
Meeting), among Capstone, Healthcare Realty Trust Incorporated, a Maryland
corporation ("Healthcare Realty"), and HR Acquisition I Corporation, a newly
formed Delaware corporation and wholly owned subsidiary of Healthcare Realty,
all as described in the Joint Proxy Statement-Prospectus.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. To vote and otherwise represent the undersigned on any other matter that
may properly come before the meeting or any adjournment or postponement thereof.
Dated:
, 1998
--------------------------
--------------------------------
Signature
--------------------------------
Signature if held jointly
Important: Please sign exactly
as your name or names appear on
this proxy and mail promptly in
the enclosed envelope. Joint
owners should each sign
personally. If you sign as agent
or in any other capacity, please
give the full title of the
capacity in which you sign under
the signatures.
<PAGE> 1
EXHIBIT 99.5
CAPSTONE CAPITAL CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
OCTOBER 14, 1998
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
CAPSTONE CAPITAL CORPORATION
The undersigned holder of 8 7/8% Series A Cumulative Preferred Stock, $.001
par value per share, of Capstone Capital Corporation, a Maryland corporation
("Capstone"), hereby appoints Richard M. Scrushy and John W. McRoberts as
proxies for the undersigned, with full power of substitution in each of them, to
attend the Special Meeting of the Stockholders of Capstone to be held at the
Sheraton Perimeter Park South Hotel, The Ballroom, 8 Perimeter Park Drive,
Birmingham, Alabama, on Wednesday, October 14, 1998 at 3:00 p.m., and any
adjournment or postponement thereof, to cast on behalf of the undersigned all
votes that the undersigned is entitled to cast at such meeting and otherwise to
represent the undersigned at the meeting with all powers possessed by the
undersigned if personally present at the meeting. The undersigned hereby
acknowledges receipt of the Notice of the Special Meeting of Stockholders and of
the accompanying Proxy Statement and revokes any proxy heretofore given with
respect to such meeting.
The votes entitled to be cast by the undersigned will be cast as instructed
below. If this proxy is executed but no instruction is given, the votes entitled
to be cast by the undersigned will be cast "for" the proposal as described in
the Proxy Statement and in the discretion of the proxy holder on any other
matter that may properly come before the meeting or any adjournment or
postponement thereof.
1. Approval of the merger contemplated by the Plan and Agreement of Merger,
dated as of June 8, 1998 (attached as Annex A to the Joint Proxy
Statement-Prospectus that has been transmitted in connection with the Special
Meeting), among Capstone, Healthcare Realty Trust Incorporated, a Maryland
corporation ("Healthcare Realty"), and HR Acquisition I Corporation, a newly
formed Delaware corporation and wholly owned subsidiary of Healthcare Realty,
all as described in the Joint Proxy Statement-Prospectus.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. To vote and otherwise represent the undersigned on any other matter that
may properly come before the meeting or any adjournment or postponement thereof.
Dated:
, 1998
-------------------------
--------------------------------
Signature
--------------------------------
Signature if held jointly
Important: Please sign exactly
as your name or names appear on
this proxy and mail promptly in
the enclosed envelope. Joint
owners should each sign
personally. If you sign as agent
or in any other capacity, please
give the full title of the
capacity in which you sign under
the signatures.
