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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR
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15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission File Number: 1-11852
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HEALTHCARE REALTY TRUST INCORPORATED
(Exact name of Registrant as specified in its charter)
Maryland 62-1507028
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3310 West End Avenue
Suite 700
Nashville, Tennessee 37203
(Address of principal executive offices)
(615) 269-8175
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common stock, $.01 par value per share New York Stock Exchange
87/8% Series A Voting Cumulative Preferred
Stock, $.01 par value per share New York Stock Exchange
101/2% Convertible Subordinated Debentures due 2002 New York Stock Exchange
6.55% Convertible Subordinated Debentures due 2002 New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
======
The aggregate market value of the shares of Common Stock and Preferred
Stock (based upon the closing prices of these shares on the New York Stock
Exchange, Inc. on March 11, 1999) of the Registrant held by non-affiliates on
March 11, 1999, were approximately $769,544,429 and $57,750,000, respectively.
As of March 11, 1999, 39,806,032 shares of the Registrant's Common
Stock and 3,000,000 shares of the Registrant's Preferred Stock were outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference and the part of Form 10-K into
which the document is incorporated:
Portions of the Registrant's 1998 Annual Report to Shareholders are
incorporated into Part II of this Report.
Portions of the Registrant's definitive Proxy Statement relating to the
Annual Meeting of Shareholders to be held on May 11, 1999 are incorporated into
Part III of this Report.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Item 1. Business..................................................................................................4
The Company.......................................................................................4
Property Acquisition Activity.....................................................................6
Continuing Property Development Activity..........................................................6
Mortgage Portfolio................................................................................6
Investment Policy.................................................................................7
Competition.......................................................................................8
Government Regulation.............................................................................9
Environmental Matters............................................................................10
Insurance........................................................................................11
Employees........................................................................................11
Federal Income Tax Information...................................................................11
ERISA Considerations.............................................................................23
Cautionary Statements............................................................................25
Item 2. Properties...............................................................................................30
Executive Offices................................................................................30
Property Operations..............................................................................30
Item 3. Legal Proceedings........................................................................................35
Item 4. Submission of Matters to a Vote of Securityholders.......................................................35
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................36
Item 6. Selected Financial Data..................................................................................36
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....................36
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..............................................36
Item 8. Financial Statements and Supplementary Data..............................................................36
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....................36
Item 10. Directors and Executive Officers of the Registrant......................................................37
Directors........................................................................................37
Executive Officers...............................................................................37
Item 11. Executive Compensation..................................................................................37
Item 12. Security Ownership of Certain Beneficial Owners and Management..........................................37
Item 13. Certain Relationships and Related Transactions..........................................................38
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.........................................39
</TABLE>
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PART I
Item 1. Business
The Company
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Healthcare Realty Trust Incorporated ("Healthcare Realty" or the
"Company") is a self-managed and self-administered real estate investment trust
("REIT") that integrates owning, acquiring, managing and developing
income-producing real estate properties and mortgages associated with the
delivery of healthcare services throughout the United States.
On October 15, 1998, Healthcare Realty completed its acquisition of
Capstone Capital Corporation, a Maryland corporation ("Capstone"), through the
merger of HR Acquisition I Corporation, a wholly owned subsidiary of the
Company, into Capstone. The acquisition is accounted for as a tax-free
reorganization for federal income tax purposes and as a purchase for financial
reporting purposes. The following table sets forth the assets acquired in the
transaction:
<TABLE>
<CAPTION>
Property Type No. of Facilities Amount Invested (Millions)
<S> <C> <C>
Ancillary Hospital Facilities 19 $215.3
Assisted Living Facilities 35 174.8
Physician Clinics 18 106.4
Inpatient Rehabilitation Facilities 6 93.0
Comprehensive Ambulatory Care Centers 12 79.9
Skilled Nursing Facilities 11 74.2
Ambulatory Surgery Centers 6 34.6
Other Facilities 4 26.0
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TOTAL 111 $804.2
</TABLE>
The Company also acquired $211.6 million in mortgage notes receivable, secured
by mortgages on 45 assisted living facilities, 25 senior nursing facilities and
5 other facility types.
From the commencement of its operations in June 1993 through January
31, 1999, the Company has invested or committed to invest, directly and
indirectly, over $1.7 billion in 280 income-producing real estate properties and
mortgages associated with the delivery of healthcare services. As of December
31, 1998, the Company's real estate portfolio, containing over 9.4 million
square feet, was comprised of nine facility types and was operated pursuant to
contractual arrangements with 35 healthcare providers. Also, the Company's
mortgage portfolio was comprised of four facility types and was operated by 34
healthcare providers. At December 31, 1998, the Company provided property
management services for 322 healthcare-related properties nationwide, totaling
over 7.5 million square feet, and third-party asset management services for 305
properties nationwide, totaling over 1.6 million square feet. The Company
intends to maintain a portfolio of properties that are focused predominantly on
the outpatient services segment of the healthcare industry and are diversified
by tenant, geographic location and facility type.
Healthcare Realty believes that it has a competitive advantage in the
healthcare real estate industry as a result of its use of innovative transaction
structures, the strength of its management expertise and its extensive
experience and client relationships with healthcare providers. Management
believes that the Company is the largest fully integrated real estate company
focused on income-producing real estate properties related to the delivery of
healthcare services. The Company believes that its experience and client
relationships with a diverse group of healthcare providers and its access to the
various capital markets make it one of a limited number of companies that can
acquire, manage and develop income-producing real estate related to healthcare
services on a national scale. Unlike other healthcare REITs, the Company seeks
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to generate internal growth by actively managing the properties within its
portfolio and by controlling and minimizing operating expenses with respect to
its properties, and providing management services for properties owned by
healthcare provider clients.
Healthcare Realty's strategy is to be a full service provider of
integrated real estate solutions to quality healthcare providers. Consistent
with this strategy, the Company seeks to provide a spectrum of services needed
to own, acquire, manage and develop healthcare properties, including leasing,
development, management, market research, budgeting, accounting, collection,
construction management, tenant coordination and financial services. The
Company's development activities are primarily accomplished through pre-leased
build-to-suit projects.
Healthcare Realty was formed as an independent, unaffiliated healthcare
REIT. The Company acquires income-producing real estate properties associated
with a diverse group of quality healthcare provider clients in markets where the
respective healthcare provider maintains a strong presence. Management believes
that because the Company is not affiliated with any of its clients and does not
expect to be affiliated with potential clients, the Company has a strategic
advantage in providing its services to a more diverse group of healthcare
providers.
Management believes that diversification among clients reduces the
Company's potential exposure to unsuccessful healthcare service strategies and
to a concentration of credit with any one healthcare provider. Approximately
76.0% of the Company's real estate investments, at cost, are in properties
associated with publicly-traded companies or private companies with an
investment grade credit rating. The following table sets forth the Company's
five largest healthcare provider clients:
<TABLE>
<CAPTION>
Client Percent of Investments
<S> <C> <C>
HealthSouth Corporation 19.1%
Columbia/HCA Healthcare Corporation 14.7%
Tenet Healthcare Corporation 10.2%
MedPartners, Inc. 8.1%
Life Care Centers of America 5.4%
</TABLE>
Healthcare Realty focuses predominantly on outpatient healthcare
facilities, which are designed to provide medical services outside of
traditional inpatient hospital or nursing home settings. Management believes the
outpatient services segment of healthcare provides the most cost-effective
delivery setting and, because of increasing cost pressures, this segment of the
healthcare related real estate market offers the greatest potential for future
growth.
The Company acquires existing healthcare facilities, provides property
management, leasing and build-to-suit development services, and capital for the
construction of build-to-suit developments for qualified healthcare operators.
The Company owns a diversified portfolio of healthcare properties, most of which
are subject to long-term leases or financial support arrangements to ensure the
continuity of revenues and coverage of costs and expenses relating to the
properties by the tenants and the related healthcare operators.
Development funding arrangements require the Company to provide funding
to enable healthcare operators to build facilities on property owned or leased
by the Company. Prior to making any funding advance for a development, the
Company enters into a contract to acquire or ground lease the real estate and
enters into a long-term net lease with a healthcare operator or guarantee of the
return on the Company's investment in the property or similar financial support
agreement in favor of the Company. In most development transactions, the Company
either acts as developer, or employs the healthcare operator to act as the
developer of the property, and has approval authority with regard to plans,
specifications, budgets and time schedules for the completion of the development
of the property. Under its customary development funding format, the Company
receives funding fees (the economic equivalent of construction period interest)
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on all funds advanced. Timely completion of the development in compliance with
the plans, specifications, budgets and time schedules is the contractual
responsibility of third parties, and construction costs are guaranteed by the
healthcare operator or developer, or both. All construction and service
contracts relating to the development are collaterally assigned to the Company.
During the term of the development of a facility, funds are advanced pursuant to
requests made by the developer in accordance with the terms and conditions of
the applicable funding agreement based on costs incurred prior to the date of
such requests.
Approximately 97.5% of the Company's investments in properties consist
of properties currently leased to unaffiliated lessees pursuant to long-term net
lease agreements or subject to financial support agreements with the healthcare
operators that provide guarantees of the return on the Company's investment in
the properties. Most of the current property agreements were entered into upon
the conveyance to the Company of the facilities, and have initial terms of ten
to 20 years with, in some cases, one or more renewal terms exercisable by the
healthcare provider of five years each. Most of the agreements are subject to
earlier termination upon the occurrence of certain contingencies. Certain of the
agreements also have an option to repurchase the property at specified times
during the term of the agreements for a price approximately equal to the greater
of the fair market value of such property or the Company's investment in such
property. Base rent or support payments vary by agreement taking into
consideration various factors, including the credit of the property lessee, the
healthcare operator, and the operating performance, location, and physical
condition of the property. Many of the property agreements contain provisions
for additional rent or support payment increases. The existence and nature of
provisions for additional payments in any given agreement relate to, among other
factors, the financial strength of the respective property lessee, the
healthcare operator, or both, as well as other lease terms.
The Company operates so as to qualify as a REIT for federal income tax
purposes. If so qualified, with limited exceptions, the Company will not be
subject to corporate federal income tax with respect to net income distributed
to its shareholders. See "Federal Income Tax Information" below.
Property Acquisition Activity
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In addition to the properties acquired pursuant to the Capstone merger
described previously, during the fourth quarter of 1998, the Company acquired a
25,652 square-foot ancillary hospital facility in Lititz, Pennsylvania for
approximately $4.2 million.
Continuing Property Development Activity
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At December 31, 1998, the Company had commitments to invest in 13
real estate developments and 21 mortgage transactions totaling $62.9 million.
Mortgage Portfolio
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Mortgage notes receivable, substantially all of which were acquired in
the Capstone merger, are recorded at their fair value at the date of
acquisition. Approximately 50% of the mortgage notes receivable are secured by
assisted living facilities and 33% are secured by skilled nursing facilities.
The 77 mortgages in the portfolio at December 31, 1998 represent 35 operators.
Twenty-one of these mortgages, representing $69.4 million or 30% of the balance
at December 31, 1998, are secured by properties under development. The remaining
loan commitment at December 31, 1998 on these transactions totals $28.2 million.
The weighted average maturity of the mortgage portfolio is
approximately seven years, with maturity dates ranging from February 1, 2001 to
August 31, 2009. Interest rates, which range from 8.1% to 12.5%, are generally
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adjustable each year to reflect increases in the Consumer Price Index.
Substantially all mortgages are subject to a prepayment penalty.
Investment Policy
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The Company's investment objectives are to:
Generate current cash flow;
Provide the opportunity for additional returns through rent
provisions in the Company's leases, or for increased support
payments through provisions in financial support agreements and
through participating interest provisions;
Provide the opportunity to realize capital growth resulting from
appreciation, if any, in the residual values of any properties
acquired; and
Preserve and protect the Company's existing capital.
The Company intends to invest in real property principally for the
production of income, although the prospect for capital appreciation is a factor
that will be considered in making such investments. The Company will invest in
healthcare related facilities, including, but not limited to, acute care
hospitals, rehabilitation hospitals, physician clinics, ambulatory surgery
centers, clinical laboratories, ancillary hospital facilities, long-term care
facilities, medical centers, comprehensive ambulatory care centers and office
buildings predominantly occupied by healthcare related companies. The Company,
however, may also consider opportunities in other kinds of income producing real
property. Management has no present intention to invest in properties unrelated
to the healthcare industry.
Management of the Company will conduct market research and analysis for
all potential investments. In evaluating potential investments, the Company will
consider such factors as:
The geographic area, type of property and demographic profile;
The location, construction quality, condition and design of the
property;
The current and anticipated cash available for distribution and
its adequacy to meet operational needs and lease obligations and
to provide a competitive market return on equity to the Company's
investors;
The potential for capital appreciation, if any;
The growth, tax and regulatory environment of the communities in
which the properties are located;
The occupancy and demand for similar health facilities in the same
or nearby communities;
The potential mix of private and government sponsored patients;
Any potential alternative uses of the facilities;
Prospects for liquidity through financing or refinancing;
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Industry segment and operator diversification; and
The suitability of the potential investments in light of maintaining
REIT status.
The Company intends to focus on established, creditworthy healthcare
operators which meet the Company's standards for quality and experience of
management. In order to determine creditworthiness of healthcare operators, the
Company will review historical and prospective financial information of the
healthcare operator, together with appropriate financial information of a
guarantor, if any. Factors considered in connection with such financial review
with respect to the healthcare operator and any guarantor will include the net
worth, profitability and cash flow, debt position, and the ability of the
healthcare operators and any guarantor to provide additional credit
enhancements. The term of any long term net lease, financial support agreement
guaranteeing the return on the investment of the property or similar obligation
in favor of the Company, generally, shall be for a period of not less than ten
years from closing of an acquisition.
Competition
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The Company competes for property acquisitions with, among others:
Investors;
Healthcare providers;
Other healthcare related REITs;
Real estate partnerships; and
Financial institutions.
Since 1992, the REIT industry has been in an expansion mode and the
growth of market valuation of REIT shares had provided REITs with increasing
access to the capital markets. By the end of 1998, however, market valuations of
REIT shares (including the Company's shares) had declined substantially with the
result that the Company presently has limited access to capital from the equity
market. The Company may not be able to obtain additional equity or debt capital
or dispose of assets at the time it requires additional capital. Moreover, the
Company may not be able to obtain capital on terms that will enable it to
acquire healthcare properties on a competitive basis.
The operation of all of the Company's properties is subject to
competition from similar properties. Certain operators of other properties may
have capital resources in excess of those of the operators of the Company's
properties. In addition, the extent to which the Company's properties are
utilized depends upon several factors, including the number of physicians using
the healthcare facilities or referring patients there, competitive systems of
healthcare delivery, and the area population, size and composition. Private,
federal and state payment programs and other laws and regulations may also have
a significant effect on the utilization of the properties. Virtually all of the
Company's properties operate in a competitive environment, and patients and
referral sources, including physicians, may change their preferences for a
healthcare facility from time to time.
The business of providing services relating to the day-to-day
management and leasing of multi-tenanted healthcare properties and to the
supervision of the development of new healthcare facilities is highly
competitive and is subject to price, personnel cost and other competitive
pressures upon its profitability. The Company will compete for management
contracts and development agreements with respect to properties owned or to be
developed by the Company, as well as with respect to properties that are owned
by third parties.
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More information is contained in the section "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Company's
1998 Annual Report to Shareholders which is incorporated by reference herein.
Government Regulation
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The investments made by the Company are with active participants in the
healthcare industry. The healthcare industry is undergoing substantial changes
due to rising costs in the delivery of healthcare services, rising competition
for patients, and reduction of reimbursement by private and governmental payors.
Further, the healthcare industry is faced with increased scrutiny by federal and
state legislative and administrative authorities, thus presenting the industry
and its individual participants with significant uncertainty. The Company
believes that these changes and uncertainties present significant opportunities
for the Company to assist in providing solutions to some of these pressures;
however, these various changes can affect the economic performance of some or
all of its tenants and clients. The Company cannot predict the degree to which
these changes may affect the economic performance of the Company, positively or
negatively.
The facilities leased by the Company are affected by changes in the
reimbursement, licensing and certification policies of federal, state and local
governments for healthcare related facilities. Facilities may also be affected
by changes in accreditation standards or procedures of accrediting agencies that
are recognized by governments in the certification process. In addition,
expansion (including the addition of new beds or services or acquisition of
medical equipment) and occasionally the discontinuation of services of
healthcare facilities are generally subjected to state regulatory approval
through certificate of need programs.
A significant portion of the revenue of healthcare operators is derived
from government reimbursement programs, such as Medicare and Medicaid. Although
lease payments to the Company are not directly affected by the level of
government reimbursement, to the extent that changes in these programs adversely
affect healthcare operators, such changes could have an impact on their ability
to make lease payments to the Company. The Medicare program is highly regulated
and subject to frequent and substantial changes. In recent years, fundamental
changes in the Medicare program (including the implementation of a prospective
payment system in which facilities are reimbursed generally a flat amount based
on a patient's diagnosis and not based on the facilities' cost for inpatient
services at medical surgical hospitals) have resulted in reduced levels of
payment for a substantial portion of healthcare services.
Considerable uncertainties surround the future determination of payment
levels under government reimbursement programs. In addition, governmental
budgetary concerns may significantly reduce future payments made to healthcare
operators as a result of government financed programs. It is possible that
future payment rates will not be sufficient to cover cost increases in providing
services to patients. Reductions in payments pursuant to government healthcare
programs could have an adverse impact on a healthcare operator's financial
condition and, therefore, could adversely affect the ability of such operator to
make rental payments.
Loss by a facility of its ability to participate in government
sponsored programs because of licensing, certification or accreditation
deficiencies or because of program exclusion resulting from violations of law
would have material adverse effects on facility revenues.
Legislative Developments
A number of legislative proposals have been introduced or proposed in
Congress and in some state legislatures that would effect major changes in the
healthcare system, either nationally or at the state level. Among the proposals
under consideration are cost controls on hospitals, insurance market reforms to
increase the availability of group health insurance to small businesses,
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requirements that all businesses offer health insurance coverage to their
employees and the creation of a single government health insurance plan that
would cover all citizens. There can be no assurance whether any proposals will
be adopted or, if adopted, what effect, if any, such proposals would have on the
Company's business.
In recent years Congress and various state legislatures have considered
various proposals that would have prohibited or severely limited the ability of
physicians and other referral sources to refer Medicare or Medicaid patients to
ventures with which the referral source has a financial relationship. The
Company's leases require the lessees to covenant that they will comply with all
applicable laws.
Environmental Matters
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Under various federal, state and local environmental laws, ordinances
and regulations, an owner of real property (such as the Company) may be liable
for the costs of removal or remediation of certain hazardous or toxic substances
at, under or disposed of in connection with such property, as well as certain
other potential costs relating to hazardous or toxic substances (including
government fines and injuries to persons and adjacent property). Most, if not
all, of these laws, ordinances and regulations contain stringent enforcement
provisions including, but not limited to, the authority to impose substantial
administrative, civil and criminal fines and penalties upon violators. Such laws
often impose liability without regard to whether the owner knew of, or was
responsible therefor, the presence or disposal of such substances and may be
imposed on the owner in connection with the activities of an operator of the
property. The cost of any required remediation, removal, fines or personal or
property damages and the owner's liability therefor could exceed the value of
the property and/or the aggregate assets of the owner. In addition, the presence
of such substances, or the failure to properly dispose of or remediate such
substances, may adversely affect the owner's ability to sell or lease such
property or to borrow using such property as collateral.
A property can also be negatively impacted either through physical
contamination or by virtue of an adverse effect on value, from contamination
that has or may have emanated from other properties. Certain of the properties
owned by the Company or managed or developed by its property management
subsidiary are adjacent to or near properties that contain underground storage
tanks or that have released petroleum products or other hazardous or toxic
materials into the soils or groundwater.
Operations of the properties owned, developed or managed by the Company
are and will continue to be subject to numerous federal, state, and local
environmental laws, ordinances and regulations, including those relating to the
generation, segregation, handling, packaging and disposal of medical wastes as
well as facility siting, construction, occupational training and safety,
disposal of non-medical wastes, underground storage tanks and ash emissions from
incinerators. Certain properties owned, developed or managed by the Company
contain, and others may contain or at one time may have contained, underground
storage tanks that are or were used to store waste oils, petroleum products or
other hazardous substances. Such underground storage tanks can be the source of
releases of hazardous or toxic materials. Operations of nuclear medicine
departments at some of such properties also involve the use and handling, and
subsequent disposal of, radioactive isotopes and similar materials, activities
which are closely regulated by the Nuclear Regulatory Commission and state
regulatory agencies. In addition, several of the properties were built during
the period asbestos was commonly used in building construction and other such
facilities may be acquired by the Company in the future. Certain of the
properties contain non-friable asbestos-containing materials, and other
facilities acquired in the future may contain friable and non-friable
asbestos-containing materials. The presence of such materials could result in
significant costs in the event that any friable asbestos-containing materials
requiring immediate removal and/or encapsulation are located in or on any of
such facilities or in the event of any future renovation activities.
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The Company has had environmental assessments conducted on
substantially all of the properties currently owned. The Company is not aware of
any environmental condition or liability that management believes would have a
material adverse effect on the Company's earnings, expenditures or continuing
operations. While it is the Company's policy to seek indemnification relating to
environmental liabilities or conditions, even where sale and purchase agreements
do contain such provisions there can be no assurances that the seller will be
able to fulfill its indemnification obligations. In addition, the terms of the
Company's leases or financial support agreements do not give the Company control
over the operational activities of its lessees or health care operators, nor
will the Company monitor the lessees or healthcare operators with respect to
environmental matters.
Insurance
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The Company maintains appropriate liability and casualty insurance on
its assets and operations. The Company has also obtained title insurance with
respect to each of the properties it owns in amounts equal to their respective
purchase prices, insuring that the Company holds title to each of the properties
free and clear of all liens and encumbrances except those approved by the
Company. Under their leases or financial support agreements, the healthcare
operators are required to maintain, at their expense, certain insurance
coverages relating to their operations at the leased facilities. In the opinion
of management of the Company, each of the properties owned by the Company is
adequately covered by hazard, liability and rent insurance.
Employees
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As of March 15, 1999, the Company employed 206 people. None of the
employees is a member of a labor union, and the Company considers its relations
with its employees to be excellent.
Federal Income Tax Information
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The Company is and intends to remain qualified as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the Company's
net income which is distributed as dividends to shareholders will be exempt from
federal taxation. Distributions to the Company's shareholders generally will be
includable in their income; however, dividends distributed which are in excess
of current and/or accumulated earnings and profits will be treated for tax
purposes as a return of capital to the extent of a shareholder's basis and will
reduce the basis of shareholders' shares.
Introduction
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The Company believes that it has qualified and intends to remain
qualified to be taxed as a REIT for federal income tax purposes under Sections
856 through 860 of the Code. The following discussion addresses the material tax
considerations relevant to the taxation of the Company and summarizes certain
federal income tax consequences that may be relevant to certain shareholders.
However, the actual tax consequences of holding particular securities issued by
the Company may vary in light of a prospective securities holder's particular
facts and circumstances. Certain holders, such as tax-exempt entities, insurance
companies and financial institutions, are generally subject to special rules. In
addition, the following discussion does not address issues under any foreign,
state or local tax laws. The tax treatment of a holder of any of the securities
issued by the Company will vary depending upon the terms of the specific
securities acquired by such holder, as well as his particular situation, and
this discussion does not attempt to address aspects of federal income taxation
relating to holders of particular securities of the Company. This summary is
qualified in its entirety by the applicable Code provisions, rules and
regulations promulgated thereunder, and administrative and judicial
interpretations thereof. The Code, rules, regulations, and administrative and
judicial interpretations are all subject to change (possibly on a retroactive
basis).
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The Company believes that it is organized and is operating in
conformity with the requirements for qualification and taxation as a REIT and
that its method of operation will enable it to continue to meet the requirements
for qualification and taxation as a REIT under the Code. The Company's
qualification and taxation as a REIT depend upon its ability to meet, through
actual annual operating results, the various income, asset, distribution, stock
ownership and other tests discussed below. Accordingly, the Company can not
guarantee that the actual results of operations for any one taxable year will
satisfy such requirements.
If the Company were to cease to qualify as a REIT, and the relief
provisions were found not to apply, the Company's income that it distributed to
shareholders would be subject to the "double taxation" on earnings (once at the
corporate level and again at the shareholder level) that generally results from
investment in a corporation. Failure to maintain qualification as a REIT would
force the Company to significantly reduce its distributions and possibly incur
substantial indebtedness or liquidate substantial investments in order to pay
the resulting corporate taxes. In addition, the Company, once having obtained
REIT status and having thereafter lost such status, would not be eligible to
re-elect REIT status for the four subsequent taxable years, unless its failure
to maintain its qualification was due to reasonable cause and not willful
neglect and certain other requirements were satisfied. In order to elect again
to be taxed as a REIT, just as with its original election, the Company would be
required to distribute all of its earnings and profits accumulated in any
non-REIT taxable year.
Taxation of the Company
As long as the Company remains qualified to be taxed as a REIT, it
generally will not be subject to federal income taxes on that portion of its
ordinary income or capital gain that is currently distributed to shareholders.
However, the Company will be subject to federal income tax as follows:
first, the Company will be taxed at regular corporate rates on any undistributed
"real estate investment trust taxable income," including undistributed net
capital gains. Second, under certain circumstances, the Company may be subject
to the "alternative minimum tax" on its items of tax preference, if any. Third,
if the Company has (i) net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business, or (ii) other nonqualifying income from foreclosure
property, it will be subject to tax on such income at the highest corporate
rate. Fourth, any net income that the Company has from prohibited transactions
(which are, in general, certain sales or other dispositions of property other
than foreclosure property held primarily for sale to customers in the ordinary
course of business) will be subject to a 100% tax. Fifth, if the Company should
fail to satisfy either the 75% or 95% gross income test (as discussed below),
and has nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the 75% or
95% gross income test. Sixth, if the Company fails to distribute during each
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from preceding periods, then the Company will be
subject to a four percent excise tax on the excess of such required distribution
over the amounts actually distributed. Seventh, to the extent that the Company
recognizes gain from the disposition of an asset with respect to which there
existed "built-in gain" upon its acquisition by the Company from a C corporation
in a carry-over basis transaction and such disposition occurs within a ten-year
recognition period beginning on the date on which it was acquired by the
Company, the Company will be subject to federal income tax at the highest
regular corporate rate on the amount of its "net recognized built-in gain."
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Requirements for Qualification as a REIT
To qualify as a REIT for a taxable year under the Code, the Company
must have no earnings and profits accumulated in any non-REIT year. The Company
also must elect or have in effect an election to be taxed as a REIT and must
meet other requirements, some of which are summarized below, including
percentage tests relating to the sources of its gross income, the nature of the
Company's assets and the distribution of its income to shareholders. Such
election, if properly made and assuming continuing compliance with the
qualification tests described herein, will continue in effect for subsequent
years.
Organizational Requirements and Share Ownership Tests
Section 856(a) of the Code defines a REIT as a corporation, trust or
association: (1) which is managed by one or more trustees or directors; (2) the
beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (3) which would be taxable,
but for Sections 856 through 860 of the Code, as a domestic corporation; (4)
which is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (5) the beneficial ownership of which is held by
100 or more persons, determined without reference to any rules of attribution
(the "share ownership test"); (6) that during the last half of each taxable year
not more than 50% in value of the outstanding stock of which is owned, directly
or indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) (the "five or fewer test"); and (7) which meets certain other
tests, described below, regarding the nature of its income and assets.
Section 856(b) of the Code provides that conditions (1) through (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of fewer than 12 months. The "five or fewer
test" and the share ownership test do not apply to the first taxable year for
which an election is made to be treated as a REIT.
The Company has issued sufficient shares to a sufficient number of
people to allow it to satisfy the share ownership test and the five or fewer
test. In addition, to assist in complying with the five or fewer test, the
Company's Articles of Incorporation contain provisions restricting share
transfers where the transferee (other than specified individuals involved in the
formation of the Company, members of their families and certain affiliates, and
certain other exceptions) would, after such transfer, own (a) more than 9.9%
either in number or value of the outstanding common stock of the Company or (b)
more than 9.9% either in number or value of the outstanding preferred stock of
the Company. Pension plans and certain other tax-exempt entities have different
restrictions on ownership. If, despite this prohibition, stock is acquired
increasing a transferee's ownership to over 9.9% in value of either the
outstanding common stock of the Company or preferred stock of the Company, the
stock in excess of this 9.9% in value is deemed to be held in trust for transfer
at a price which does not exceed what the purported transferee paid for the
stock and, while held in trust, the stock is not entitled to receive dividends
or to vote. In addition, under these circumstances, the Company also has the
right to redeem such stock.
For purposes of determining whether the "five or fewer test" (but not
the "share ownership test") is met, any stock held by a qualified trust
(generally, pension plans, profit-sharing plans and other employee retirement
trusts) is, generally, treated as held directly by the trust's beneficiaries in
proportion to their actuarial interests in the trust, and not as held by the
trust.
Income Tests
In order to maintain qualification as a REIT, three gross income
requirements must be satisfied annually. First, at least 75% of the Company's
gross income (excluding gross income from certain sales of property held
primarily for sale) must be derived directly or indirectly from investments
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relating to real property (including "rents from real property") or mortgages on
real property. When the Company receives new capital in exchange for its shares
(other than dividend reinvestment amounts) or in a public offering of debt
instruments with maturities of five years or longer, income attributable to the
temporary investment of such new capital, if received or accrued within one year
of the Company's receipt of the new capital, is qualifying income under the 75%
test. Second, at least 95% of the Company's gross income (excluding gross income
from certain sales of property held primarily for sale) must be derived from
such real property investments, dividends, interest, certain payments under
interest rate swap or cap agreements, and gain from the sale or other
disposition of stock, securities not held for sale in the ordinary course of
business or from any combination of the foregoing. Third, for taxable years
prior to 1998, short-term gain from the sale or other disposition of stock or
securities, including, without limitation, dispositions of interest rate swap or
cap agreements, and gain from certain prohibited transactions or from other
dispositions of real property and mortgages on real property held for less than
four years (apart from involuntary conversions and sales of foreclosure
property) must represent less than 30% of the Company's gross income. For
purposes of these rules, income derived from a "shared appreciation provision"
in a real estate backed mortgage is treated as gain recognized on the sale of
the property to which it relates.
The Company may temporarily invest its working capital in short-term
investments. Although the Company will use its best efforts to ensure that its
income generated by these investments will be of a type which satisfies the 75%
and 95% gross income tests, there can be no assurance in this regard (see the
discussion above of the "new capital" rule under the 75% gross income test).
Moreover, the Company may realize short-term capital gain upon sale or exchange
of such investments, and such short-term capital gain would have been subject to
the limitations imposed by the 30% gross income test for taxable years prior to
1998. The Company has analyzed its gross income through December 31, 1998, and
has determined that it has met and expects to meet in the future the 75% and 95%
gross income tests through the rental of the property it has and acquires, and
by monitoring the sale of assets has not violated the 30% gross income test.
In order to qualify as "rents from real property," the amount of rent
received must not be based on the income or profits of any person, but may be
based on a fixed percentage or percentages of receipts or sales. The Code also
provides that the rents will not qualify as "rents from real property," in
satisfying the gross income tests, if the REIT owns ten percent or more of the
tenant, whether directly or under certain attribution rules. The Company leases
and intends to lease property only under circumstances such that substantially
all, if not all, rents from such property qualify as "rents from real property."
Although it is possible that a tenant could sublease space to a sublessee in
which the Company is deemed to own directly or indirectly ten percent or more of
the tenant, the Company believes that as a result of the provisions of the
Company's Articles of Incorporation which limit ownership to 9.9%, such
occurrence would be unlikely. Application of the ten percent ownership rule is,
however, dependent upon complex attribution rules provided in the Code and
circumstances beyond the control of the Company. Ownership, directly or by
attribution, by an unaffiliated third party of more than ten percent of the
Company's stock and more than ten percent of the stock of any tenant or
subtenant would result in a violation of the rule.
In order to qualify as "interest on obligations secured by mortgages on
real property," the amount of interest received must not be based on the income
or profits of any person, but may be based on a fixed percentage or percentages
of receipts or sales.
In addition, the Company must not manage its properties or furnish or
render services to the tenants of its properties, except through an independent
contractor from whom the Company derives no income unless (i) the Company is
performing services which are usually or customarily furnished or rendered in
connection with the rental of space for occupancy only and the services are of
the sort which a tax-exempt organization could perform without being considered
in receipt of unrelated business taxable income or (ii) for taxable years
beginning after 1997, the income earned by the Company for other services
furnished or rendered by the Company to tenants of a property or for the
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management or operation of the property does not exceed a de minimis threshold
generally equal to 1% of the income from such property. The Company self-manages
some of its properties, but does not believe it provides services to tenants
which are outside the exception.
If rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Generally, this 15% test is applied
separately to each lease. The portion of rental income treated as attributable
to personal property is determined according to the ratio of the tax basis of
the personal property to the total tax basis of the property which is rented.
The determination of what fixtures and other property constitute personal
property for federal tax purposes is difficult and imprecise. Based upon
allocations of value as found in the purchase agreements and/or upon review by
employees of the Company, the Company currently does not have and does not
believe that it is likely in the future to have 15% by value of any of its
properties classified as personal property. If, however, rent payments do not
qualify, for reasons discussed above, as rents from real property for purposes
of Section 856 of the Code, it will be more difficult for the Company to meet
the 95% and 75% gross income tests and continue to qualify as a REIT.
The Company is and expects to continue performing third-party
management and development services. If the gross income to the Company from
this or any other activity producing disqualified income for purposes of the 95%
or 75% gross tests approaches a level which could potentially cause the Company
to fail to satisfy these tests, the Company intends to take such corrective
action as may be necessary to avoid failing to satisfy the 95% or 75% gross
income tests.
If the Company were to fail to satisfy one or both of the 75% or 95%
gross income tests for any taxable year, it may nevertheless qualify as a REIT
for such year if it is entitled to relief under certain provisions of the Code.
These relief provisions would generally be available if the Company's failure to
meet such test or tests was due to reasonable cause and not to willful neglect,
if the Company attaches a schedule of the sources of its income to its return,
and if any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to know whether the Company
would be entitled to the benefit of these relief provisions since the
application of the relief provisions is dependent on future facts and
circumstances. If these provisions were to apply, the Company would be subjected
to tax equal to 100% of the net income attributable to the greater of the amount
by which the Company failed either the 75% or the 95% gross income test.
Asset Tests
At the close of each quarter of its taxable year, the Company must also
satisfy three tests relating to the nature of its assets. First, at least 75% of
the value of the Company's total assets must consist of real estate assets
(including interests in real property and interests in mortgages on real
property as well as its allocable share of real estate assets held by joint
ventures or partnerships in which the Company participates), cash, cash items
and government securities. Second, not more than 25% of the Company's total
assets may be represented by securities other than those includable in the 75%
asset class. Finally, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by the Company may not exceed five
percent of the value of the Company's total assets, and the Company may not own
more than ten percent of any one issuer's outstanding voting securities. The
Company, however, may own 100% of the stock of a corporation if such stock is
held by the Company at all times during such subsidiary's existence. Such a
subsidiary is called a "qualified REIT subsidiary". Under that circumstance, the
qualified REIT subsidiary is ignored and its assets, income, gain, loss and
other attributes are treated as being owned or generated by the Company for
federal income tax purposes. The Company currently has 28 qualified REIT
subsidiaries which it employs in the conduct of its business.
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If the Company meets the 25% requirement at the close of any quarter,
it will not lose its status as a REIT because of a change in value of its assets
unless the discrepancy exists immediately after the acquisition of any security
or other property which is wholly or partly the result of an acquisition during
such quarter. Where a failure to satisfy the 25% asset test results from an
acquisition of securities or other property during a quarter, the failure can be
cured by disposition of sufficient nonqualifying assets within 30 days after the
close of such quarter. The Company maintains and intends to continue to maintain
adequate records of the value of its assets to maintain compliance with the 25%
asset test and to take such action as may be required to cure any failure to
satisfy the test within 30 days after the close of any quarter.
In order to qualify as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its shareholders in an amount
equal to or greater than the excess of (A) the sum of (i) 95% of the Company's
"real estate investment trust taxable income" (computed without regard to the
dividends paid deduction and the Company's net capital gain) and (ii) 95% of the
net income, if any, (after tax) from foreclosure property, over (B) the sum of
certain non-cash income (from certain imputed rental income and income from
transactions inadvertently failing to qualify as like-kind exchanges). These
requirements may be waived by the IRS if the REIT establishes that it failed to
meet them by reason of distributions previously made to meet the requirements of
the four percent excise tax described below. To the extent that the Company does
not distribute all of its net long-term capital gain and all of its "real estate
investment trust taxable income," it will be subject to tax thereon. In
addition, the Company will be subject to a four percent excise tax to the extent
it fails within a calendar year to make "required distributions" to its
shareholders of 85% of its ordinary income and 95% of its capital gain net
income plus the excess, if any, of the "grossed up required distribution" for
the preceding calendar year over the amount treated as distributed for such
preceding calendar year. For this purpose, the term "grossed up required
distribution" for any calendar year is the sum of the taxable income of the
Company for the taxable year (without regard to the deduction for dividends
paid) and all amounts from earlier years that are not treated as having been
distributed under the provision. Dividends declared in the last quarter of the
year and paid during the following January will be treated as having been paid
and received on December 31. The Company's distributions for 1998 were adequate
to satisfy its distribution requirement.
It is possible that the Company, from time to time, may have
insufficient cash or other liquid assets to meet the 95% distribution
requirement due to timing differences between the actual receipt of income and
the actual payment of deductible expenses or dividends on the one hand and the
inclusion of such income and deduction of such expenses or dividends in arriving
at "real estate investment trust taxable income" on the other hand. The problem
of not having adequate cash to make required distributions could also occur as a
result of the repayment in cash of principal amounts due on the Company's
outstanding debt, particularly in the case of "balloon" repayments or as a
result of capital losses on short-term investments of working capital.
Therefore, the Company might find it necessary to arrange for short-term, or
possibly long-term, borrowing or new equity financing. If the Company were
unable to arrange such borrowing or financing as might be necessary to provide
funds for required distributions, its REIT status could be jeopardized.
Under certain circumstances, the Company may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. The Company may be
able to avoid being taxed on amounts distributed as deficiency dividends;
however, the Company may in certain circumstances remain liable for the four
percent excise tax described above.
The Company is also required to request annually (within 30 days after
the close of its taxable year) from record holders of specified percentages of
its shares written information regarding the ownership of such shares. A list of
shareholders failing to fully comply with the demand for the written statements
is required to be maintained as part of the Company's records required under the
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Code. Rather than responding to the Company, the Code allows the shareholder to
submit such statement to the IRS with the shareholder's tax return.
Nonqualified REIT Subsidiary
The Company participated in the organization of certain corporations
affiliated with the Company which are not qualified REIT subsidiaries
("Specified Affiliates") to enhance its management flexibility. Current tax law
restricts the ability of REITs to engage in certain activities, such as certain
third party management activities, but these restrictions do not apply to the
activities of a company that is not a REIT, such as these Specified Affiliates,
whose income is subject to federal income tax.
In order to permit the Company to participate in the income of its
third party management business and maintain its status as a REIT, portions of
the Company's business will be conducted by the Specified Affiliates. The
Company owns 100% of the nonvoting preferred stock and approximately 1% of the
voting common stock, and senior executives of the Company own 99% of the voting
common stock of the Specified Affiliates. The nonvoting preferred stock of the
Specified Affiliates represents substantially all of the equity interest in the
Specified Affiliates, but does not enable the Company to elect directors of the
Specified Affiliates who are elected by the senior executives of the Company as
the holders of 99% of the voting common stock of the Specified Affiliates. The
voting common stock held by the senior executives of the Company in the
Specified Affiliates is subject to agreements that are designed to ensure that
such stock will be held by officers of the Company.
Federal Income Tax Treatment of Leases
The availability to the Company of, among other things, depreciation
deductions with respect to the facilities owned and leased by the Company
depends upon the treatment of the Company as the owner of the facilities and the
classification of the leases of the facilities as true leases, rather than as
sales or financing arrangements, for federal income tax purposes. The Company
has not requested nor has it received an opinion that it will be treated as the
owner of the portion of the facilities constituting real property and that the
leases will be treated as true leases of such real property for federal income
tax purposes. Based on the conclusions of the Company and its senior management
as to the values of its personalty, the Company has met and plans to meet in the
future its compliance with the 95% distribution requirement (and the required
distribution requirement) by making distributions on the assumption that it is
not entitled to depreciation deductions for that portion of the leased
facilities which it believes constitutes personal property, but to report the
amount of income taxable to its shareholders by taking into account such
depreciation. The value of real and personal property and whether certain
fixtures are real or personal property are factual evaluations that cannot be
determined with absolute certainty under current IRS regulations.
Other Issues
With respect to property acquired from and leased back to the same or
an affiliated party, the IRS could assert that the Company realized prepaid
rental income in the year of purchase to the extent that the value of the leased
property exceeds the purchase price paid by the Company for that property. In
litigated cases involving sale-leasebacks which have considered this issue,
courts have concluded that buyers have realized prepaid rent where both parties
acknowledged that the purported purchase price for the property was
substantially less than fair market value and the purported rents were
substantially less than the fair market rentals. Because of the lack of clear
precedent and the inherently factual nature of the inquiry, the Company cannot
give complete assurance that the IRS could not successfully assert the existence
of prepaid rental income in such circumstances. The value of property and the
fair market rent for properties involved in sale-leasebacks are inherently
factual matters and always subject to challenge.
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Additionally, it should be noted that Section 467 of the Code
(concerning leases with increasing rents) may apply to those leases of the
Company which provide for rents that increase from one period to the next.
Section 467 provides that in the case of a so-called "disqualified leaseback
agreement," rental income must be accrued at a constant rate. If such constant
rent accrual is required, the Company would recognize rental income in excess of
cash rents and as a result, may fail to have adequate funds available to meet
the 95% dividend distribution requirement. "Disqualified leaseback agreements"
include leaseback transactions where a principal purpose of providing increasing
rent under the agreement is the avoidance of federal income tax. Because Section
467 directs the Treasury to issue regulations providing that rents will not be
treated as increasing for tax avoidance purposes where the increases are based
upon a fixed percentage of lessee receipts, additional rent provisions of leases
containing such clauses should not result in these leases being disqualified
leaseback agreements. In addition, the legislative history of Section 467
indicates that the Treasury should issue regulations under which leases
providing for fluctuations in rents by no more than a reasonable percentage from
the average rent payable over the term of the lease will be deemed to not be
motivated by tax avoidance. This legislative history indicates that a standard
allowing a ten percent fluctuation in rents may be too restrictive for real
estate leases. It should be noted, however, that leases involved in
sale-leaseback transactions are subject to special scrutiny under this Section.
The Company, based on its evaluation of the value of the property and the terms
of the leases, does not believe it has or will have in the future rent subject
to the provisions of Section 467.
Subject to a safe harbor exception for annual sales of up to seven
properties (or properties with a basis of up to 10% of the REIT's assets) that
have been held for at least four years, gain from sales of property held for
sale to customers in the ordinary course of business is subject to a 100% tax.
The simultaneous exercise of options to acquire leased property that may be
granted to certain tenants or other events could result in sales of properties
by the Company that exceed this safe harbor. However, the Company believes that
in such event, it will not have held such properties for sale to customers in
the ordinary course of business.
Depreciation of Properties
For tax purposes, the Company's real property is being and will
continue to be depreciated over 31.5 or 39 years using the straight-line method
of depreciation and its personal property over various periods utilizing
accelerated and straight-line methods of depreciation.
Failure to Qualify as a REIT
If the Company were to fail to qualify for federal income tax purposes
as a REIT in any taxable year, and the relief provisions were found not to
apply, the Company would be subject to tax on its taxable income at regular
corporate rates (plus any applicable alternative minimum tax). Distributions to
shareholders in any year in which the Company failed to qualify would not be
deductible by the Company nor would they be required to be made. In such event,
to the extent of current and/or accumulated earnings and profits, all
distributions to shareholders would be taxable as ordinary income and, subject
to certain limitations in the Code, eligible for the 70% dividends received
deductions for corporate shareholders. Unless entitled to relief under specific
statutory provisions, the Company would also be disqualified from taxation as a
REIT for the following four taxable years. It is not possible to state whether
in all circumstances the Company would be entitled to statutory relief from such
disqualification. Failure to qualify for even one year could result in the
Company's incurring substantial indebtedness (to the extent borrowings were
feasible) or liquidating substantial investments in order to pay the resulting
taxes.
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Taxation of Tax-Exempt Shareholders
The IRS has issued a revenue ruling in which it held that amounts
distributed by a REIT to a tax-exempt employees' pension trust do not constitute
"unrelated business taxable income," even though the REIT may have financed
certain of its activities with acquisition indebtedness. Although revenue
rulings are interpretive in nature and are subject to revocation or modification
by the IRS, based upon the revenue ruling and the analysis therein,
distributions made by the Company to a U.S. shareholder that is a tax-exempt
entity (such as an individual retirement account ("IRA") or a 401(k) plan)
should not constitute unrelated business taxable income unless such tax-exempt
U.S. shareholder has financed the acquisition of its shares with "acquisition
indebtedness" within the meaning of the Code, or the shares are otherwise used
in an unrelated trade or business conducted by such U.S. shareholder.
Special rules apply to certain tax-exempt pension funds (including
401(k) plans but excluding IRAs or government pension plans) that own more than
10% (measured by value) of a "pension-held REIT" at any time during a taxable
year beginning after December 31, 1993. Such a pension fund may be required to
treat a certain percentage of all dividends received from the REIT during the
year as unrelated business taxable income. The percentage is equal to the ratio
of the REIT's gross income (less direct expenses related thereto) derived from
the conduct of unrelated trades or businesses determined as if the REIT were a
tax-exempt pension fund, to the REIT's gross income (less direct expenses
related thereto) from all sources. The special rules will not apply to require a
pension fund to recharacterize a portion of its dividends as unrelated business
taxable income unless the percentage computed is at least 5%.
A REIT will be treated as a "pension-held REIT" if the REIT is
predominantly held by tax-exempt pension funds and if the REIT would otherwise
fail to satisfy the "five or fewer test" discussed above, if the stock or
beneficial interests of the REIT held by such tax-exempt pension funds were not
treated as held directly by their respective beneficiaries. A REIT is
predominantly held by tax-exempt pension funds if at least one tax-exempt
pension fund holds more than 25% (measured by value) of the REIT's stock or
beneficial interests, or if one or more tax-exempt pension funds (each of which
owns more than 10% (measured by value) of the REIT's stock or beneficial
interests) own in the aggregate more than 50% (measured by value) of the REIT's
stock or beneficial interests. The Company believes that it will not be treated
as a pension-held REIT. However, because the shares of the Company will be
publicly traded, no assurance can be given that the Company is not or will not
become a pension-held REIT.
Taxation of Non-U.S. Shareholders
The rules governing United States federal income taxation of any person
other than (i) a citizen or resident of the United States, (ii) a corporation or
partnership created in the United States or under the laws of the United States
or of any state thereof, (iii) an estate whose income is includable in income
for U.S. federal income tax purposes regardless of its source or (iv) a trust if
a court within the United States is able to exercise primary supervision over
the administration of the trust and one or more United States fiduciaries have
the authority to control all substantial decisions of the trust ("Non-U.S.
Shareholders") are highly complex, and the following discussion is intended only
as a summary of such rules. Prospective Non-U.S. Shareholders should consult
with their own tax advisors to determine the impact of United States federal,
state, and local income tax laws on investment in stock of the Company,
including any reporting requirements.
In general, Non-U.S. Shareholders are subject to regular United States
income tax with respect to their investment in stock of the Company in the same
manner as a U.S. shareholder if such investment is "effectively connected" with
the Non-U.S. Shareholder's conduct of a trade or business in the United States.
A corporate Non-U.S. Shareholder that receives income with respect to its
investment in stock of the Company that is (or is treated as) effectively
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connected with the conduct of a trade or business in the United States also may
be subject to the 30% branch profits tax imposed by the Code, which is payable
in addition to regular United States corporate income tax. The following
discussion addresses only the United States taxation of Non-U.S. Shareholders
whose investment in stock of the Company is not effectively connected with the
conduct of a trade or business in the United States.
Ordinary Dividends
Distributions made by the Company that are not attributable to gain
from the sale or exchange by the Company of United States real property
interests and that are not designated by the Company as capital gain dividends
will be treated as ordinary income dividends to the extent made out of current
or accumulated earnings and profits of the Company. Generally, such ordinary
income dividends will be subject to United States withholding tax at the rate of
30% on the gross amount of the dividend paid unless reduced or eliminated by an
applicable United States income tax treaty. The Company expects to withhold
United States income tax at the rate of 30% on the gross amount of any such
dividends paid to a Non-U.S. Shareholder unless a lower treaty rate applies and
the Non-U.S. Shareholder has filed an IRS Form 1001 with the Company, certifying
the Non-U.S.
Shareholder's entitlement to treaty benefits.
Non-Dividend Distributions
Distributions made by the Company in excess of its current and
accumulated earnings and profits to a Non-U.S. Shareholder who holds 5% or less
of the stock of the Company (after application of certain ownership rules) will
not be subject to U.S. income or withholding tax. If it cannot be determined at
the time a distribution is made whether or not such distribution will be in
excess of the Company's current and accumulated earnings and profits, the
distribution will be subject to withholding at the rate applicable to a dividend
distribution. However, the Non-U.S. Shareholder may seek a refund from the IRS
of any amount withheld if it is subsequently determined that such distribution
was, in fact, in excess of the Company's then current and accumulated earnings
and profits.
Capital Gain Dividends
As long as the Company continues to qualify as a REIT, distributions
made by the Company that are attributable to gain from the sale or exchange by
the Company of any United States real property interests ("USRPI") will be taxed
to a Non-U.S. Shareholder under the Foreign Investment in Real Property Tax Act
of 1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S.
Shareholder as if such distributions were gains "effectively connected" with the
conduct of a trade or business in the United States. Accordingly, a Non-U.S.
Shareholder will be taxed on such distributions at the same capital gain rates
applicable to U.S. Shareholders (subject to any applicable alternative minimum
tax and a special alternative minimum tax in the case of non-resident alien
individuals). Distributions subject to FIRPTA also may be subject to the 30%
branch profits tax in the case of a corporate Non-U.S. Shareholder that is not
entitled to treaty relief or exemption. The Company will be required to withhold
tax from any distribution to a Non-U.S. Shareholder that could be designated by
the Company as a USRPI capital gain dividend in an amount equal to 35% of the
gross distribution. The amount of tax withheld is fully creditable against the
Non-U.S. Shareholder's FIRPTA tax liability, and if such amount exceeds the
Non-U.S. Shareholder's federal income tax liability for the applicable taxable
year, the Non-U.S. Shareholder may seek a refund of the excess from the IRS. In
addition, if the Company designates prior distributions as capital gain
dividends, subsequent distributions, up to the amount of such prior
distributions, will be treated as capital gain dividends for purposes of
withholding.
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Disposition of Stock of the Company
Gain recognized by a Non-U.S. Shareholder upon the sale or exchange of
stock of the Company generally will not be subject to United States taxation
unless such stock constitutes a USRPI within the meaning of FIRPTA. The stock of
the Company will not constitute a USRPI so long as the Company is a
"domestically controlled REIT." A "domestically controlled REIT" is a REIT in
which at all times during a specified testing period less than 50% in value of
its stock or beneficial interests are held directly or indirectly by Non-U.S.
Shareholders. The Company believes that it will be a "domestically controlled
REIT," and therefore that the sale of stock of the Company will not be subject
to taxation under FIRPTA. However, because the stock of the Company is publicly
traded, no assurance can be given that the Company is or will continue to be a
"domestically controlled REIT." Notwithstanding the foregoing, gain from the
sale or exchange of stock of the Company that is not otherwise subject to FIRPTA
will be taxable to a Non-U.S. Shareholder if the Non-U.S. Shareholder is a
nonresident alien individual who is present in the United States for 183 days or
more during the taxable year and has a "tax home" in the United States. In such
case, the nonresident alien individual will be subject to a 30% United States
withholding tax on the amount of such individual's gain.
If the Company did not constitute a "domestically controlled REIT,"
gain arising from the sale or exchange by a Non-U.S. Shareholder of stock of the
Company would be subject to United States taxation under FIRPTA as a sale of a
USRPI unless (i) the stock of the Company is "regularly traded" (as defined in
the applicable Treasury regulations) and (ii) the selling Non-U.S. Shareholder's
interest (after application of certain constructive ownership rules) in the
Company is 5% or less at all times during the five years preceding the sale or
exchange. If gain on the sale or exchange of the stock of the Company were
subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to
regular United States income tax with respect to such gain in the same manner as
a U.S. Shareholder (subject to any applicable alternative minimum tax, a special
alternative minimum tax in the case of nonresident alien individuals and the
possible application of the 30% branch profits tax in the case of foreign
corporations), and the purchaser of the stock of the Company (including the
Company) would be required to withhold and remit to the IRS 10% of the purchase
price. Additionally, in such case, distributions on the stock of the Company to
the extent they represent a return of capital or capital gain from the sale of
the stock of the Company, rather than dividends, would be subject to a 10%
withholding tax.
Capital gains not subject to FIRPTA will nonetheless be taxable in the
United States to a Non-U.S. Shareholder in two cases: (i) if the Non-U.S.
Shareholder's investment in the stock of the Company is effectively connected
with a U.S. trade or business conducted by such Non-U.S. Shareholder, the
Non-U.S. Shareholder will be subject to the same treatment as a U.S. shareholder
with respect to such gain, or (ii) if the Non-U.S. Shareholder is a nonresident
alien individual who was present in the United States for 183 days or more
during the taxable year and has a "tax home" in the United States, the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gain.
Information Reporting Requirements and Backup Withholding Tax
The Company will report to its U.S. shareholders and to the IRS the
amount of dividends paid during each calendar year and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
U.S. shareholder may be subject to backup withholding, at the rate of 31% on
dividends paid unless such U.S. shareholder (i) is a corporation or falls within
certain other exempt categories and, when required, can demonstrate this fact,
or (ii) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A U.S. shareholder who does not
provide the Company with his correct taxpayer identification number also may be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
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will be creditable against the U.S. shareholder's federal income tax liability.
In addition, the Company may be required to withhold a portion of any capital
gain distributions made to U.S. shareholders who fail to certify their
non-foreign status to the Company.
Additional issues may arise pertaining to information reporting and
backup withholding with respect to Non-U.S. Shareholders, and Non-U.S.
Shareholders should consult their tax advisors with respect to any such
information reporting and backup withholding requirements.
State and Local Taxes
The Company and its shareholders may be subject to state or local
taxation in various state or local jurisdictions, including those in which it or
they transact business or reside. The state and local tax treatment of the
Company and its shareholders may not conform to the federal income tax
consequences discussed above. Consequently, prospective holders should consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in the stock of the Company.
Tax Legislation Enacted in 1998--Significant REIT Provisions
The Internal Revenue Service Restructuring and Reform Act of 1998 and
the Tax and Trade Relief Extension Act of 1998 (the "1998 Tax Acts") included
various changes to the tax treatment of REITs. Set forth below is a summary of
these changes.
Modification of Distribution Rules. Effective for taxable years
beginning after August 5, 1997, any distribution from a REIT will be deemed to
first come from earnings and profits accumulated in a non-REIT year, if any.
This provision should assist REITs in meeting the requirement for qualification
as a REIT to have no earnings and profits accumulated in a non-REIT year. In the
case of the Company, this provision was effective for its taxable year beginning
January 1, 1998.
Freeze Grandfather Status of Stapled REITs. Effective for taxable years
ending after March 26, 1998, real property interests acquired after March 26,
1998 by certain "stapled REIT groups" are subjected to certain rules that
generally limit the benefits of the stapled REIT structure. Neither the Company
nor any of its subsidiaries or affiliates is a member of a stapled REIT group.
Treatment of Certain Deductible Liquidating Distributions of REITs.
Effective for distributions on or after May 22, 1998, certain otherwise tax-free
liquidating distributions paid by a REIT to an 80-percent corporate owner are
includible in the income of the recipient corporation. The Company has no such
80-percent corporate owner.
Real Estate Investment Trust Tax Proposals.
The Clinton Administration's Fiscal Year 2000 Budget proposal includes
three provisions of interest to REITs in general, two of which potentially
affect the Company. These provisions (i) modify the structure of businesses
which are indirectly conducted by the Company and could limit or negatively
affect the Company's future ability to engage indirectly in certain business
activities that cannot be conducted directly by the Company; (ii) modify
treatment of closely held REITs, unlike the Company; and (iii) repeal tax-free
conversion of large C corporations to S corporations, which would effectively
tax the built-in gains of C corporations prospectively electing tax-free
reorganizations, thus affecting an acquisition format employed by the Company in
the past. The President's Budget proposal includes numerous other revenue
provisions, none of which would materially impact the Company in the event of
its adoption. The last action on the President's Year 2000 Budget proposal was
the release by the Joint Committee on Taxation's "Description of Revenue
Provisions Contained in the President's Fiscal Year 2000 Budget Proposal" on
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February 22, 1999. Congress has yet to debate the broader implications of the
President's Year 2000 Budget proposals, so there is no way to predict the
outcome of these proposals or the eventual economic effect of these proposals on
the Company if these proposals are enacted.
Investors must recognize that the present federal income tax treatment
of the Company may be modified by future legislative, judicial or administrative
actions or decisions at any time, which may be retroactive in effect, and, as a
result, any such action or decision may affect investments and commitments
previously made. The rules dealing with federal income taxation are constantly
under review by persons involved in the legislative process and by the IRS in
the Treasury Department, resulting in statutory changes as well as promulgation
of new, or revisions to existing, regulations and revised interpretations of
established concepts. No prediction can be made as to the likelihood as to
passage of any new tax legislation or other provisions either directly or
indirectly affecting the Company or its shareholders.
ERISA Considerations
- --------------------
The following is a summary of material considerations arising under
ERISA and the prohibited transaction provisions of Section 4975 of the Code that
may be relevant to a holder of stock of the Company. This discussion does not
propose to deal with all aspects of ERISA or Section 4975 of the Code or, to the
extent not preempted, state law that may be relevant to particular employee
benefit plan shareholders (including plans subject to Title I of ERISA, other
employee benefit plans and IRAs subject to the prohibited transaction provisions
of Section 4975 of the Code, and governmental plans and church plans that are
exempt from ERISA and Section 4975 of the Code but that may be subject to state
law requirements) in light of their particular circumstances.
A fiduciary making the decision to invest in stock of the Company on
behalf of a prospective purchaser which is an ERISA plan, a tax-qualified
retirement plan, an IRA or other employee benefit plan is advised to consult its
own legal advisor regarding the specific considerations arising under ERISA,
Section 4975 of the Code, and (to the extent not preempted) state law with
respect to the purchase, ownership or sale of stock by such plan or IRA.
Employee Benefit Plans, Tax-qualified Retirement Plans and IRAs
Each fiduciary of an employee benefit plan subject to Title I of ERISA
(an "ERISA Plan") should carefully consider whether an investment in stock of
the Company is consistent with its fiduciary responsibilities under ERISA. In
particular, the fiduciary requirements of Part 4 of Title I of ERISA require (i)
an ERISA Plan's investments to be prudent and in the best interests of the ERISA
Plan, its participants and beneficiaries, (ii) an ERISA Plan's investments to be
diversified in order to reduce the risk of large losses, unless it is clearly
prudent not to do so, (iii) an ERISA Plan's investments to be authorized under
ERISA and the terms of the governing documents of the ERISA Plan and (iv) that
the fiduciary not cause the ERISA Plan to enter into transactions prohibited
under Section 406 of ERISA. In determining whether an investment in stock of the
Company is prudent for purposes of ERISA, the appropriate fiduciary of an ERISA
Plan should consider all of the facts and circumstances, including whether the
investment is reasonably designed, as a part of the ERISA Plan's portfolio for
which the fiduciary has investment responsibility, to meet the objectives of the
ERISA Plan, taking into consideration the risk of loss and opportunity for gain
(or other return) from the investment, the diversification, cash flow and
funding requirements of the ERISA Plan and the liquidity and current return of
the ERISA Plan's portfolio. A fiduciary should also take into account the nature
of the Company's business, the length of the Company's operating history and
other matters described below under "Cautionary Statements".
The fiduciary of an IRA or of an employee benefit plan not subject to
Title I of ERISA because it is a governmental or church plan or because it does
not cover common law employees (a "Non-ERISA Plan") should consider that such an
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IRA or Non-ERISA Plan may only make investments that are authorized by the
appropriate governing documents, not prohibited under Section 4975 of the Code
and permitted under applicable state law.
Status of the Company under ERISA
A prohibited transaction may occur if the assets of the Company are
deemed to be assets of the investing Plans and "parties in interest" or
"disqualified persons" as defined in ERISA and Section 4975 of the Code,
respectively deal with such assets. In certain circumstances where a Plan holds
an interest in an entity, the assets of the entity are deemed to be Plan assets
(the "look-through rule"). Under such circumstances, any person that exercises
authority or control with respect to the management or disposition of such
assets is a Plan fiduciary. Plan assets are not defined in ERISA or the Code,
but the United States Department of Labor issued regulations in 1987 (the
"Regulations") that outline the circumstances under which a Plan's interest in
an entity will be subject to the look-through rule.
The Regulations apply only to the purchase by a Plan of an "equity
interest" in an entity, such as common stock or common shares of beneficial
interest of a REIT. However, the Regulations provide an exception to the
look-through rule for equity interests that are "publicly-offered securities."
Under the Regulations, a "publicly-offered security" is a security that
is (i) freely transferable, (ii) part of a class of securities that is
widely-held and (iii) either (a) part of a class of securities that is
registered under section 12(b) or 12(g) of the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), or (b) sold to a Plan as part of an
offering of securities to the public pursuant to an effective registration
statement under the Securities Act and the class of securities of which such
security is a part is registered under the Exchange Act within 120 days (or such
longer period allowed by the Securities and Exchange Commission) after the end
of the fiscal year of the issuer during which the offering of such securities to
the public occurred. Whether a security is considered "freely transferable"
depends on the facts and circumstances of each case. Generally, if the security
is part of an offering in which the minimum investment is $10,000 or less, any
restriction on or prohibition against any transfer or assignment of such
security for the purposes of preventing a termination or reclassification of the
entity for federal or state tax purposes will not of itself prevent the security
from being considered freely transferable. A class of securities is considered
"widely-held" if it is a class of securities that is owned by 100 or more
investors independent of the issuer and of one another.
The Company believes that the stock of the Company will meet the
criteria of the publicly-offered securities exception to the look-through rule
in that the stock of the Company is freely transferable, the minimum investment
is less than $10,000 and the only restrictions upon its transfer are those
required under federal income tax laws to maintain the Company's status as a
REIT. Second, stock of the Company is held by 100 or more investors and at least
100 or more of these investors are independent of the Company and of one
another. Third, the stock of the Company has been and will be part of offerings
of securities to the public pursuant to an effective registration statement
under the Securities Act and will be registered under the Exchange Act within
120 days after the end of the fiscal year of the Company during which an
offering of such securities to the public occurs. Accordingly, the Company
believes that if a Plan purchases stock of the Company, the Company's assets
should not be deemed to be Plan assets and, therefore, that any person who
exercises authority or control with respect to the Company's assets should not
be treated as a Plan fiduciary for purposes of the prohibited transaction rules
of ERISA and Section 4975 of the Code.
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Cautionary Statements
From time to time the Company may make forward-looking statements that
reflect its current opinion about future events and financial performance.
Readers should understand that the following important factors, among others,
could affect the Company's actual results. These factors could cause actual
results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company. The Company has discussed many
of these factors in prior filings with the Securities and Exchange Commission.
General Growth Strategy
The Company follows a general growth strategy of providing integrated
real estate services to the healthcare industry, including the following:
Asset management and strategic planning for real estate;
Property administration, management and leasing services;
Build-to-suit development of healthcare properties;
The acquisition of existing healthcare properties; and
Equity co-investment in healthcare provider acquisition
transactions.
By providing these services, the Company believes it can differentiate
its market position, acquire needed capital, expand its asset base and increase
revenue. The Company believes, however, that there are various risks inherent in
this growth strategy. The following factors, among others, could affect the
Company's ability to grow, and investors should consider them carefully.
Market Competition
The Company competes for property management, development and new
purchases with, among others:
Investors;
Healthcare providers;
Other healthcare related real estate investment trusts;
Real estate partnerships; and
Financial institutions.
These participants in the healthcare real estate marketplace are
competing for attractive investments on an increasingly competitive basis,
resulting in significant investment pressure on the Company. Consequently, many
transactions undertaken by the Company's competitors do not meet the standards
that the Company requires of its investments in terms of:
The present and future internal rate of return;
Credit and financial support;
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Weighted average cost of capital; and
Real estate investment fundamentals.
The Company intends to adhere to its established standards and
anticipates that it will be able to maintain steady conservative growth through
the acquisition of quality real estate investments. However, increased
competition for such assets from other REITs and traditional and non-traditional
equity and debt capital sources may affect the growth and financial return of
the Company.
The Company's properties are also subject to competition from the
properties of other healthcare providers, some of which have greater capital
resources than the providers leasing the Company's facilities. All of the
Company's properties operate in a competitive environment and patients and
referral sources, including physicians, may change their preferences for a
healthcare facility from time to time.
Asset Growth
The Company presently has limited access to capital which will slow the
Company's growth. A REIT is required to make dividend distributions and retains
little capital for growth. As a result, a REIT is required to grow through the
steady investment of new capital in real estate assets. Since 1992, the REIT
industry has been in an expansion mode and the growth of market valuation of
REIT shares had provided REITs with increasing access to the capital markets. By
the end of 1998, however, market valuations of REIT shares (including the
Company's shares) had declined substantially with the result that the Company
presently has limited access to capital from the equity market. The Company has
already used all of its existing capital to acquire healthcare properties. It
does, however, retain a significant amount of its available debt commitments and
intends to undertake asset dispositions to release capital for additional
investments. However, the Company may not be able to obtain additional equity or
debt capital or dispose of assets at the time it requires additional capital.
Moreover, the Company may not be able to obtain capital on terms that will
permit it to acquire healthcare properties on a competitive basis.
The Company may not be able to obtain additional capital or dispose of
assets at the time it requires the funds to pay its debt obligations when due.
On October 15, 1998, at the same time as the Capstone merger, the Company repaid
the outstanding balances due under both Capstone's and its own unsecured credit
facilities and entered into a $265.0 million unsecured credit facility (the
"Unsecured Credit Facility") with ten commercial banks. At December 31, 1998,
the Company had available borrowing capacity of $94.0 million under the
Unsecured Credit Facility.
On October 15, 1998, at the time of the Capstone merger, the
Company entered into a $200.0 million term loan (the "Term Loan Facility")
with NationsBank, N. A. The Term Loan matures on April 16, 1999. The Company
intends to exercise the option to extend the maturity date for an additional
six month period in consideration of an extension payment of .30 of 1%.
Repayment of the Term Loan Facility may require proceeds from additional
equity offerings, disposition of assets, mortgaging its individual assets or
refinancing of the Term Loan Facility.
On or before September 1, 1999, the Company will be required to make an
$18.0 million principal payment on its 7.41% Senior Notes due September 1, 2002.
The Company may also be required to borrow money and mortgage its
properties to fund any shortfall of cash necessary to meet cash distribution
requirements necessary to maintain its REIT status.
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Failure of the Company to maintain or increase its dividend would
reduce the market price of the Company's stock which could make it difficult for
the Company to raise additional equity capital on favorable terms, if at all.
The Company has raised its quarterly dividend each consecutive quarter since the
Company's initial public offering. The ability to maintain or raise its dividend
is dependent, to a large part, on growth of funds from operations. This growth
in turn depends upon increased revenues from additional investments, rental
increases and income from administrative and management services. Also impacting
the Company's ability to continue to increase its dividends are the matters
described below.
The Company's current debt arrangements prohibit it from declaring or
paying dividends at any time it fails to make any payment of principal,
interest, fees or other amounts when due. These arrangements further prohibit
the Company from declaring or paying dividends (other than as the Company
determines are necessary to maintain its status as a REIT) if, at that time, any
other event of default exists. Repayment of any borrowings, as well as the
resulting interest expense and debt amortization, could negatively affect the
Company's cash available for distribution. If the Company defaults on any loan
secured by mortgages on any of its properties, the lenders may foreclose on such
property, and as a result, the Company would lose its investment.
The risks of development funding are greater than the risks associated
with the purchase and lease-back of operating properties because of the
potential for greater Company involvement in the development process due to
developer or contractor failure to perform under the terms of the agreement. The
Company has entered into funding arrangements with respect to 34 real estate
properties currently in progress. The Company believes that development funding
is an effective method to acquire new healthcare facilities that providers have
determined are vital to their business. Development funding arrangements require
the Company to provide the funding to enable healthcare operators to build
facilities on property owned or leased by the Company. Investors must understand
that the current portfolio of development funding may not be completed under the
terms of the agreements.
Transfers of operations of healthcare facilities are subject to
regulatory approvals not required for transfers of other types of commercial
operations and real estate. In addition, many of the properties are
special-purpose facilities that may not be easily adaptable to uses unrelated to
healthcare.
Revenue Growth
The Company's general growth strategy requires continuing growth in the
Company's funds from operations. The following factors, among others, can
negatively affect the Company's funds from operations.
Operators of senior living assets have come under increased financial
pressure which may affect their ability to meet their obligations to the
Company. While the Company had previously maintained approximately 20% of its
portfolio in senior living assets, senior living assets now comprise 32% of its
portfolio as a result of its acquisition of Capstone. The Company expects to
reduce this percentage through prepayments of mortgages and dispositions; and
the Company may dispose of a significant portion of these assets and employ the
proceeds for other Company purposes. The Company may not be able to consummate
such dispositions and consequently the Company may have a greater risk profile
relative to senior living assets. Due to increased competition in the senior
living assets sector, operators of senior living facilities have come under
increased financial pressure; additionally, the implementation of the
"prospective payment system" for Medicare reimbursements has added additional
pressure on the operators. To date, one operator in this sector has declared
bankruptcy, and the Company cannot be certain that additional operator failures
in this sector will not occur. Pressures on the overall senior living sector
will affect revenues and may affect the ability of the operators to fund their
obligations to the Company.
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The investment returns available from equity investments in real estate
depend largely on the amount of income earned and capital appreciation generated
by the related properties, as well as the expenses incurred. Real property
investments are generally subject to varying degrees of risk. To offset the
threat of insufficient revenue to meet operating expenses, debt service, capital
expenditures and dividend payments, the Company requires net master leases or
similar financial support with primary term periods for most of its investments.
Nevertheless, the Company's properties are subject to all of the normal risks
associated with real estate investments.
Healthcare provider operations can affect the lease revenues and values
of the Company's investments. The healthcare service industry continues to be a
profitable, growing segment of the economy, supported by fundamentals that
ensure continued growth. However, the industry is currently experiencing:
Substantial changes in the method of delivery of healthcare
services;
Rising competition among healthcare providers for patients;
Continuing pressure by private and governmental payors; and
Increased scrutiny by federal and state authorities.
The changes can affect the economic performance of some or all of the tenants
and sponsors who provide financial support to the Company's investments and, in
turn, the lease revenues and the value of the Company's property investments.
The Company's concentration on a few healthcare providers would magnify
the negative affect on the Company if a larger provider were to suffer financial
hardships. Currently 57.5% of the Company's real estate portfolio is leased to,
or supported by its five largest healthcare provider clients. To varying
degrees, these providers have experienced the pressures listed above. Negative
performance by one or more of these providers could have an adverse impact to
the support arrangements that the Company has with these providers and require
the Company to rely solely upon rental revenue from occupant tenants. If the
Company is required to rely solely upon tenant occupants with respect to one or
more properties, it will experience the typical risks associated with real
estate investments enjoying no supplemental credit support, including
competition for individual tenants and the renewal or roll-over of existing
leases.
If the inpatient occupancy rate at a hospital near a Company facility
deteriorated to a level at which operating cash flows would be insufficient to
cover the payments to the Company, the Company would have to rely upon the
general credit of the provider or the related guarantor, if any. Most of the
hospitals adjacent to or associated with the Company's current properties and
those to be acquired by the Company are substantially less than fully occupied
on an inpatient basis. Despite such occupancy rates, however, the operating cash
flow produced by such hospitals adequately covers related payments to the
Company.
If a provider lost its licensure or certification, the Company would
have to obtain another provider for the affected facility. Healthcare providers
are subject to federal and state laws and regulations which govern financial and
other arrangements between healthcare operators. The Company cannot be certain
that it could attract another healthcare provider on a timely basis or on
acceptable terms. Failure to do so would hurt the Company's revenues.
A failure of the Company to reinvest the proceeds from securities
offerings and property dispositions could have an adverse effect on the
Company's future revenues. From time to time, the Company will have cash
available from (1) the proceeds of sales of shares of its securities, and (2)
the sale of its properties, including non-elective dispositions, under the terms
of master leases or similar financial support arrangements. These arrangements
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require, among other items, a disposition of properties in the event of a
healthcare provider's default, and upon the healthcare provider's exercise of an
option to repurchase these properties. The Company must re-invest these
proceeds, on a timely basis, in another healthcare investment or in a qualified
short-term investment. While the Company has been able to do so in the past, the
Company may not be able to invest proceeds on a timely basis or on acceptable
terms in the future.
The purchase of one or more properties may not be completed or may be
delayed for various reasons. Acquisition delays will negatively impact revenues
and may have the potential to adversely effect the Company's ability to increase
its distributions to shareholders.
Termination of property management engagements can result in lost
income. The Company is engaged on its own behalf, and for the benefit of
third-party property owners, in the following activities:
Asset and property management;
Day-to-day property management;
Leasing of multi-tenanted healthcare properties; and
Supervision of the development of new healthcare properties.
The terms of these service engagements can vary in duration from month-to-month
to 15 years. Additionally, the Company regularly terminates engagements as a
result of completion of the engagement assignment or the sale of managed
properties by the Company or third-party owners. Termination of engagements
results in lost future income stream. In addition, unamortized capital costs
incurred in obtaining engagements must be charged against current revenues or
established reserves. The Company has experienced significant fluctuation in the
number of engagements in effect at any given time. This fluctuation generates
uncertainty as to the predictability of net revenues. The Company is also
subject to significant uncertainties because of the dynamic nature of the
healthcare service industry, and increased competition from other real estate
management companies entering the healthcare services industry. The Company may
not be able to continue to be able to market or cross-sell its property
management services successfully.
Failure to maintain its status as a REIT, even in one taxable year,
could cause the Company to reduce its dividends dramatically. The Company
intends to qualify at all times as a REIT under the Code. If in any taxable year
the Company does not qualify as a REIT, it would be taxed as a corporation. As a
result, the Company could not deduct its distributions to the shareholders in
computing its taxable income. Depending upon the circumstances, a REIT that
loses its qualification in one year may not be eligible to re-qualify during the
four succeeding years. Further, certain transactions or other events could lead
to the Company being taxed at rates ranging from four to 100 percent on certain
income or gains.
President Clinton's Budget proposals could affect the Company's
operations. The Clinton Administration's Fiscal Year 2000 Budget proposal
includes three provisions of interest to REITs in general, two of which
potentially affect the Company: (i) modification of the structure of businesses
which are indirectly conducted by the Company, which could limit or negatively
affect the Company's future ability to engage indirectly in certain business
activities that cannot be conducted directly by the Company; and (ii) repeal of
tax-free conversion of large C corporations to S corporations, which would
effectively tax the built-in gains of C corporations prospectively electing
tax-free reorganizations, thus affecting an acquisition format employed by the
Company in the past.
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Item 2. Properties
Executive Offices
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The Company's headquarters, located in offices at 3310 West End Avenue
in Nashville, Tennessee, are leased from an unrelated third party. The lease
agreement, covering approximately 20,569 square feet of rented space, expires on
October 31, 2003, with two five-year renewal options. Annual rental is
approximately $382,000.
Property Operations
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The following table sets forth information regarding the Company's
properties as of December 31, 1998.
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<TABLE>
<CAPTION>
Facility Facility Total Date
Facility Name Type (1) Operator Location Investment Encumbrances Acquired
<S> <C> <C> <C> <C> <C> <C>
Orange Grove Medical Clinic AHF Col/HCA Healthcare Corp. AZ $ 5,273,993 0 1993
Eaton Canyon Medical Building AHF Tenet Healthcare Corp. CA 4,792,781 0 1995
Fountain Valley - AHF 1 AHF Tenet Healthcare Corp. CA 5,556,385 0 1994
Fountain Valley - AHF 2 AHF Tenet Healthcare Corp. CA 5,128,834 0 1994
Fountain Valley - AHF 3 AHF Tenet Healthcare Corp. CA 9,002,040 0 1994
Fountain Valley - AHF 4 AHF Tenet Healthcare Corp. CA 9,065,344 0 1994
Fountain Valley - AHF 5 AHF Tenet Healthcare Corp. CA 15,434,588 0 1997
Valley Presbyterian (15211) AHF Valley Presbyterian Hosp. CA 7,538,204 0 1993
Valley Presbyterian (6840-50) AHF Valley Presbyterian Hosp. CA 5,327,777 0 1993
Deering Medical Plaza AHF Heathcare Realty Trust FL 5,129,587 0 1994
East Pointe Medical Plaza AHF Col/HCA Healthcare Corp. FL 4,981,848 0 1994
Gulf Coast Medical Centre AHF Heathcare Realty Trust FL 4,922,637 0 1994
Southwest Medical Centre Plaza AHF Heathcare Realty Trust FL 8,236,213 0 1994
Southwest Medical Centre Plaza II AHF Col/HCA Healthcare Corp. FL 1,620,558 0 1995
Coral Gables Medical Plaza AHF Tenet Healthcare Corp. FL 11,215,274 0 1994
Palm Beach Medical Group Building AHF Phycor Inc. FL 4,015,316 0 1996
Palms of Pasadena Medical Plaza AHF Tenet Healthcare Corp. FL 5,563,620 0 1994
Candler Parking Garage AHF Candler Health Systems GA 4,201,212 0 1994
Candler Professional Office Bldg (1) AHF Candler Health Systems GA 7,193,045 1,000,000 1994
Candler Regional Heart Center AHF Candler Health Systems GA 9,348,242 0 1995
North Fulton Medical Arts Plaza AHF Heathcare Realty Trust GA 6,286,802 0 1993
Northwest Medical Center AHF Heathcare Realty Trust GA 10,710,322 0 1994
Overland Park Regional Medical Ctr AHF Col/HCA Healthcare Corp. KS 10,463,707 0 1995
Hendersonville Medical Office Building AHF Col/HCA Healthcare Corp. TN 3,138,889 0 1994
Bayshore Doctors Center AHF Col/HCA Healthcare Corp. TX 1,905,817 0 1993
Judson Medical Building AHF Methodist TX 779,908 0 1996
Oregon Medical Building AHF Col/HCA Healthcare Corp. TX 18,485,079 0 1993
Rosewood Professional Building AHF Col/HCA Healthcare Corp. TX 5,252,820 0 1994
Spring Branch Professional Building AHF Col/HCA Healthcare Corp. TX 14,301,748 0 1993
Toepperwein Medical Center AHF Methodist TX 3,057,056 0 1996
Lake Pointe Medical Plaza AHF Tenet Healthcare Corp. TX 1,737,128 0 1993
Southwest General Birthing Center AHF Tenet Healthcare Corp. TX 3,236,289 0 1993
Trinity Valley Birthing Center AHF Tenet Healthcare Corp. TX 3,671,601 0 1994
Chippenham Medical Offices AHF Col/HCA Healthcare Corp. VA 3,771,668 0 1994
Chippenham Medical Offices AHF Col/HCA Healthcare Corp. VA 4,593,463 0 1994
Johnston-Willis Medical Offices AHF Col/HCA Healthcare Corp. VA 8,773,577 0 1994
Johnston-Willis Medical Offices AHF Col/HCA Healthcare Corp. VA 5,855,716 0 1996
Lewis Gale-Clinic, Keagy, Braeburn, Fl AHF Phycor Inc. VA 27,607,442 0 1996
Lewis Gale - Medical Foundation AHF Phycor Inc. VA 1,433,579 0 1996
Trinity West Medical Plaza AHF Tenet Heathcare/HRT, Inc. TX 5,935,565 0 1997
Rothsville Medical Center Complex AHF Ephrata Community Hosp. PA 4,185,189 0 1998
American Sports Medicine Institute AHF Healthsouth AL 4,477,033 0 1998
Beaumont Regional Prof Tower AHF Col/HCA Healthcare Corp. TX 10,720,697 0 1998
Bellaire Medical Plaza AHF Col/HCA Healthcare Corp. TX 9,317,196 0 1998
Birmingham Medical Building I AHF Healthsouth AL 6,576,052 0 1998
Birmingham Medical Building II AHF Healthsouth AL 13,431,121 0 1998
Burbank Mulliken Medical Plaza(3) AHF MedPartners CA 6,681,150 0 1998
Cool Springs Medical Center AHF Cool Springs TN 10,198,967 4,531,786 1998
Daniel Medical Center AHF Winter Park FL 7,610,508 0 1998
Desert Springs Medical Plaza AHF Quorum NV 6,559,142 0 1998
Goodyear Clinic AHF Quorum AL 2,242,890 0 1998
Hamiter Building AHF Quorum AL 6,116,092 0 1998
Larkin Medical Building Annex AHF Healthsouth FL 3,148,220 0 1998
One-7000 Larkin Building AHF Healthsouth FL 18,542,361 0 1998
Gadsden Medical Building II AHF Quorum AL 8,108,661 0 1998
Midway Medical Plaza AHF Tenet Healthcare Corp. CA 27,015,735 0 1998
Richmond Medical Bldg I AHF Healthsouth VA 13,995,570 0 1998
Sarasota Medical Center AHF Col/HCA Healthcare Corp. FL 18,987,150 8,770,158 1998
Southwest General Medical Bldg AHF New Medical Prop. Invest. TX 3,224,271 0 1998
-31-
<PAGE>
Sunrise Mountainview Medical Center AHF Col/HCA Healthcare Corp. NV 40,299,044 22,830,034 1998
The Grand Court of Abilene ALF Grand Court TX 10,033,174 0 1998
Outlook Pointe/Creekview(ALCO IV)(3) ALF Balanced Care PA 6,562,185 0 1998
Augusta Gardens ALF Matrix GA 5,948,471 0 1998
Bloomsburg Manor Pers Care Ret Ctr ALF Balanced Care PA 4,109,215 0 1998
Joe Clark Residential Care Home ALF Balanced Care MO 1,525,522 0 1998
Outlook Pointe at Danville(ALCOIII) ALF Balanced Care VA 5,919,470 0 1998
The Grand Court of El Paso ALF Grand Court TX 10,414,123 0 1998
Outlook Pointe at Greensboro(3) ALF Balanced Care NC 3,711,839 0 1998
Outlook Pointe at Harrisburg ALF Balanced Care PA 4,535,119 0 1998
Outlook Pointe at Harrisonburg(ALCOI) ALF Balanced Care VA 5,218,118 0 1998
Kingsley Place of Henderson ALF Senior Lifestyles TX 5,831,076 0 1998
Summervillerville at Hillsborough(3) ALF Summerville NJ 6,268,372 0 1998
Jaylene Manor Nursing Home ALF Senior Lifestyles FL 1,760,492 0 1998
Jenni-Lynn ALF Senior Lifestyles SC 2,998,788 0 1998
Kingston Manor Pers Care & Retir Ctr ALF Balanced Care PA 4,092,720 0 1998
Balanced Care at Lamar ALF Balanced Care MO 1,525,522 0 1998
Kingsley Place of McKinney ALF Senior Lifestyles TX 6,898,713 0 1998
Kingsley Place Med Center of Oakwell ALF Senior Lifestyles TX 7,510,987 0 1998
Mid Valley Manor Pers Care Retire Ctr ALF Balanced Care PA 3,878,305 0 1998
The Terraces at Balanced Care, NV I ALF Balanced Care MO 1,525,522 0 1998
The Terraces at Balanced Care,NV II ALF Balanced Care MO 1,525,522 0 1998
Kingsley Place of Oakwell ALF Senior Lifestyles TX 7,970,947 0 1998
Summervillerville at Ocoee(3) ALF Summerville FL 3,028,408 0 1998
Old Forge Manor Pers care & Retir Ctr ALF Balanced Care PA 2,693,139 0 1998
Outlook Pointe at Ravenna ALF Balanced Care OH 4,329,238 0 1998
River Landings Medical Centre ALF Col/HCA Healthcare Corp. FL 1,526,957 0 1998
Outlook Pointe at Roanoke(ALCOII) ALF Balanced Care VA 5,565,246 0 1998
The Grand Court of San Angelo ALF Grand Court TX 10,940,052 0 1998
Summervillerville at Stafford(3) ALF Summerville NJ 7,258,624 0 1998
Summervillerville at Torrington(3) ALF Summerville CT 9,296,809 0 1998
West View Manor Personal Care ALF Balanced Care PA 2,800,352 0 1998
The Grand Court of Wichita Falls ALF Grand Court TX 11,553,754 0 1998
Zephyrhills Medical Clinic ALF Col/HCA Healthcare Corp. FL 1,390,385 0 1998
Port Orange(3) ALF Summerville FL 3,178,197 0 1998
Bakersfield Surgery Center ASC Healthsouth CA 1,046,229 0 1993
Valley View Surgery Center ASC Healthsouth NV 3,800,571 0 1994
Physicians Daysurgery Center ASC Col/HCA Healthcare Corp. TX 2,039,563 0 1993
Bonita Bay Medical Centre ASC Col/HCA Healthcare Corp. FL 10,655,720 4,716,724 1998
Cape Coral Medical Plaza ASC Col/HCA Healthcare Corp. FL 5,523,307 3,316,446 1998
North Shore Surgical Center ASC Healthsouth IL 1,385,364 0 1998
Northlake Surgical Center ASC Col/HCA Healthcare Corp. GA 1,487,552 0 1998
South County Medical Ctr I ASC Healthsouth MO 11,420,902 0 1998
West County Surgery Center ASC Healthsouth MO 4,092,582 0 1998
St. Andrews(2) CAC Col/HCA Healthcare Corp. FL 11,528,045 0 1996
Five Points Medical Building CAC Tenet Healthcare Corp. FL 10,955,235 0 1995
Huebner Medical Center CAC Huebner TX 12,049,818 0 1993
Huebner Medical Center II CAC Huebner TX 9,666,769 0 1994
Cedar Park Ctr Hlthcare(Navarre)(3) CAC Arcon FL 4,631,479 0 1998
Arcon-Defuniak CAC Arcon FL 6,255,220 0 1998
Crystal Beach Center for Healthcare CAC Arcon FL 5,645,166 0 1998
Hazelwood(3) CAC Healthsouth MO 7,000,358 0 1998
Arcon Mesquite Healthcare CAC Arcon NV 6,155,138 0 1998
-32-
<PAGE>
Scottsdale(3) CAC Healthsouth AZ 6,705,071 0 1998
Arcon Soddy Daisy Ctr for Hlthcare CAC Arcon TN 4,555,865 0 1998
Suburban Heights Medical Center CAC MedPartners IL 11,133,061 0 1998
Kerlan Jobe CAC Kerlan Jobe Orthopae Clinic CA 21,852,586 0 1998
Little Rock Rehab Center CAC Healthsouth AR 2,882,403 0 1998
Virginia Beach Rehabilitation Center CAC Healthsouth VA 2,043,725 0 1998
Coral Gables Rehabilitation Center CAC Healthsouth FL 3,218,014 0 1998
HS Rehab Hosp of Montgomery IRF Healthsouth AL 17,388,466 0 1998
HS Rehab Hosp of Nittany Valley IRF Healthsouth PA 19,247,609 0 1998
HS Rehab hosp of Tallahassee IRF Healthsouth FL 11,482,882 0 1998
HS Rehab Hosp of York IRF Healthsouth PA 19,247,609 0 1998
HS Rehab Hosp-Gr Pittsb(Allegheny) IRF Healthsouth PA 17,499,957 0 1998
HS Rehab Hosp of Altoona IRF Healthsouth PA 19,521,299 0 1998
Great Lakes Rehab Hospital IRF Healthsouth PA 20,498,812 0 1998
HS Rehab Hosp of Mechanicsburg IRF Healthsouth PA 14,120,747 0 1998
Richmond Medical Bldg II IRF Healthsouth VA 2,938,560 0 1998
Southeast Texas Rehab Hospital IRF Healthsouth TX 12,673,171 0 1998
Bradley Medical Building MOB Bradley Mem Hosp TN 8,729,905 0 1997
Rowlett Medical Plaza MOB Tenet Healthcare Corp. TX 1,976,372 0 1994
New River Valley Med. Arts Building MOB Col/HCA Healthcare Corp. VA 926,023 0 1993
Valley Medical Center MOB Col/HCA Healthcare Corp. VA 1,015,117 0 1993
Lewis Gale-Business & Child Care Ctr MOB Phycor Inc. VA 6,766,956 0 1996
Lewis Gale - Valley View MOB Phycor Inc. VA 5,121,498 0 1996
Clinica Latina PC Tenet Healthcare Corp. CA 724,470 0 1995
Southwest Florida Orthopedic Center PC Col/HCA Healthcare Corp. FL 3,604,186 0 1994
Medical & Surgical Institute of Ft. Laud PC Tenet Healthcare Corp. FL 5,213,956 0 1994
Doctors' Clinic PC Phycor Inc. FL 10,305,181 0 1993
Woodstock Clinic PC Tenet Healthcare Corp. GA 2,673,880 0 1994
Durham Medical Center PC Durham TX 8,591,752 0 1993
Valley Diag Med and Surgical Ctr PC Phycor Inc. TX 4,458,322 0 1993
Lewis Gale - Bent Mountain Rd Clinic PC Phycor Inc. VA 350,203 0 1996
Lewis Gale - Bohnsack Clinic PC Phycor Inc. VA 674,806 0 1996
Lewis Gale - Craig County Clinic PC Phycor Inc. VA 182,269 0 1996
Lewis Gale - Family Practice Center PC Phycor Inc. VA 1,151,983 0 1996
Lewis Gale - Fincastle Clinic PC Phycor Inc. VA 337,915 0 1996
Lewis Gale - Spartan Drive PC Phycor Inc. VA 901,107 0 1996
Vanderbilt-MetroCenter Healthcare PC Vanderbilt Univ. Med. Ctr. TN 1,889,836 0 1998
Vanderbilt-Hickory Hollow Healthcare PC Vanderbilt Univ. Med. Ctr. TN 2,057,416 0 1998
Vanderbilt-Rivergate Healthcare PC Vanderbilt Univ. Med. Ctr. TN 1,981,966 0 1998
Vanderbilt-Cool Springs Healthcare PC Vanderbilt Univ. Med. Ctr. TN 2,186,828 0 1998
Agawam Health Center PC MedPartners MA 2,515,941 0 1998
Baintree Health Care Center PC MedPartners MA 7,491,318 0 1998
Brookstone Office Building PC MedPartners FL 6,618,440 0 1998
Chicopee Health Care Center PC MedPartners MA 9,036,049 0 1998
Clayton Big Bend Medical Center PC SSM Health Systems, Inc. MO 5,203,944 0 1998
Columbus OB/GYN Clinic PC MedPartners GA 2,575,508 0 1998
Framingham Health Care Center PC MedPartners MA 3,889,036 0 1998
Greenwood Medical Building PC MedPartners TN 2,506,600 0 1998
HS Imaging Center at Highlands PC Healthsouth AL 2,589,996 0 1998
Indialantic Medical Building PC MedPartners FL 2,157,879 0 1998
Kelsey-Seybold Clinic West PC MedPartners TX 16,144,736 0 1998
McCollough Clinic PC MedPartners AL 8,210,985 0 1998
-33-
<PAGE>
Melbourne Internal Medicine Clinic PC MedPartners FL 3,820,375 0 1998
Melbourne Medical Building PC MedPartners FL 13,255,550 0 1998
Methuen Health Care Center PC MedPartners MA 7,274,682 0 1998
Par Place Medical Ctr PC MedPartners FL 8,175,460 0 1998
South County Medical Ctr II PC Healthsouth MO 4,069,228 0 1998
West Palm Beach Medical Bldg PC MedPartners FL 840,269 0 1998
Life Care Center of Globe SNF Life Care Ctrs of America AZ 2,873,661 0 1997
Fountain Valley - Living Care Center SNF Tenet Healthcare Corp. CA 12,687,699 0 1994
Life Care Center of Aurora SNF Life Care Ctrs of America CO 6,230,515 0 1994
Life Care Center of Greeley SNF Life Care Ctrs of America CO 12,417,625 0 1997
Life Care Center of Centerville SNF Life Care Ctrs of America TN 5,046,153 0 1997
Life Care Center of Lynchburg SNF Life Care Ctrs of America TN 3,289,203 0 1997
Life Care Center of Westminster SNF Life Care Ctrs of America CO 7,759,595 0 1996
Life Care Center of Orange Park SNF Life Care Ctrs of America FL 10,205,696 0 1995
New Harmonie Healthcare Center SNF Centennial Heathcare IN 3,640,140 0 1993
Life Care Center of Wichita SNF Life Care Ctrs of America KS 7,592,661 0 1996
Fenton Extended Care Center SNF Centennial Heathcare MI 3,540,494 0 1993
Meadows Nursing Center SNF Centennial Heathcare MI 3,284,185 0 1993
Ovid Convalescent Manor SNF Centennial Heathcare MI 3,143,156 0 1993
Wayne Convalescent Center SNF Centennial Heathcare MI 1,049,352 0 1993
Westgate Manor Nursing Home SNF Centennial Heathcare MI 1,697,049 0 1993
Life Care Center of Forth Worth SNF Life Care Ctrs of America TX 9,445,015 0 1995
Life Care Center of Houston SNF Life Care Ctrs of America TX 10,020,503 0 1995
Life Care Center of Columbia SNF Life Care Ctrs of America TN 0 0 1997
Blakely-Pine Health Care Center SNF Balanced Care PA 2,931,114 0 1998
Adams Christian Convalescent Ctr(4) SNF Quality Link VA 6,938,969 16,516,611 1998
The Village Nursing Ctr (Ft Union)(4) SNF Quality Link VA 3,201,294 0 1998
The Laurels of Forest Glen(4) SNF Quality Link VA 6,163,582 0 1998
The Meadows of Goochland(4) SNF Quality Link VA 4,724,495 0 1998
Kingston Health Care Center SNF Balanced Care PA 5,001,045 0 1998
The Brian Ctr Health & Rehab (4) SNF Quality Link VA 5,284,301 0 1998
Mountain View Nursing Home SNF Integrated Health PA 12,643,993 0 1998
Twin Oaks Convalescent Home(4) SNF Quality Link VA 3,451,885 0 1998
IHS of Northern Virginia(Alexandria) SNF Integrated Health VA 12,878,424 0 1998
Gravois Nursing Center SNF Integrated Health MO 10,997,354 0 1998
Midtown Medical Center OTH Midtown AL 8,757,955 0 1993
Puckett Laboratory OTH Pathology Laboratories MS 4,285,485 0 1993
Desert Vista Hospital OTH Ramsay AZ - 0 1998
Mission Vista Hospital OTH Ramsay TX 6,276,614 0 1998
Havenwyck Hospital OTH Ramsay MI 14,443,406 0 1998
Tucson MOB(3) OTH MedCath AZ 2,517,732 0 1998
--------- -
Total Real Estate 1,384,275,234 61,681,759
------------- ----------
Corporate Property 3,279,517 0
Total Property $1,387,554,751 $61,681,759
============== ===========
-34-
<PAGE>
</TABLE>
(1) This encumbrance is to protect the lessee's interest in their security
deposit.
(2) Consists of three buildings, with one building being an MOB that is in
construction as of 12/31/98.
(3) Development at 12/31/98.
(4) All 6 of the properties are encumbered by one mortgage with a 12/31/98
balance of $16,516,610.
<TABLE>
<CAPTION>
(5) Facility Types:
<S> <C> <C>
AHF Ancillary Hospital Facilities
ALF Assisted Living Facilities
ASC Ambulatory Surgery Centers
CAC Comprehensive Ambulatory Care Centers
IRF Inpatient Rehabilitation Facilities
MOB Medical Office Buildings
PC Physician Clinics
SNF Skilled Nursing Facilities
OTH Other
</TABLE>
-35-
<PAGE>
Item 3. Legal Proceedings
- -------
The Company is not aware of any material legal action pending or
threatened against it.
Item 4. Submission of Matters to a Vote of Securityholders
- -------
On October 15, 1998, the holders of the Company's Common Stock met at a
special meeting and approved the issuance of shares of Common Stock and
Preferred Stock in connection with the merger with Capstone Capital Corporation
described above by the following vote:
<TABLE>
<CAPTION>
Votes Cast Votes Cast Against Abstentions/
in Favor or Withheld Broker Non-votes
<S> <C> <C> <C>
13,310,774 200,879 185,547
</TABLE>
No other matter was submitted to a vote of shareholders during the
fourth quarter of 1998.
-36-
<PAGE>
Part II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder
- ------ Matters
Information relating to the Company's Common Stock, set forth on page
36 of the Company's 1998 Annual Report to Shareholders under the caption
"Common Stock," is incorporated herein by reference.
The Company made no private sales of equity securities during 1998.
Item 6. Selected Financial Data
- ------
The Company's selected financial data, set forth on page 9 of its
1998 Annual Report to Shareholders under the caption "Selected Financial
Information," is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
- ------ and Results of Operations
The Company's information relating to management's discussion and
analysis of financial condition, set forth on pages 10 through 17 of the
Company's 1998 Annual Report to Shareholders under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations," is
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- -------
See "Market Risk" in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," set forth at pages 16 through 17 of
the Company's 1998 Annual Report to Shareholders.
Item 8. Financial Statements and Supplementary Data
- ------
The Company's financial statements and the related notes, together with
the report of Ernst & Young LLP thereon, set forth at pages 18 through 34
of the Company's 1998 Annual Report to Shareholders, are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
- ------ and Financial Disclosure
None.
-37-
<PAGE>
Part III
--------
Item 10. Directors and Executive Officers of the Registrant
- -------
Directors
Information with respect to directors, set forth on pages one through
three of the Company's Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 11, 1999 under the caption "Election of
Directors," is incorporated herein by reference.
<TABLE>
<CAPTION>
Executive Officers
The executive officers of the Company are:
Name Age Position
<S> <C> <C>
David R. Emery........................ 54 Chairman of the Board, Chief Executive Officer &
President
Timothy G. Wallace.................... 40 Executive Vice President & Chief Financial Officer
Roger O. West......................... 54 Executive Vice President & General Counsel
</TABLE>
Mr. Emery formed the Company and has held his current positions since
May 1992. Prior to 1992, Mr. Emery was engaged in the development and management
of commercial real estate in Nashville, Tennessee. Mr. Emery has been active in
the real estate industry for 29 years.
Mr. Wallace has held executive positions with the Company since January
1993. Prior to joining the Company, he was a Senior Manager with responsibility
for healthcare and real estate in the Nashville, Tennessee office of Ernst &
Young LLP from June 1989 to January 1993.
Mr. West has held executive positions with the Company since May 1994.
Prior to joining the Company, he was a senior partner in the law firm of Geary,
Porter and West, P.C. in Dallas, Texas from July 1992 to May 1994. Mr. West
has extensive experience in the areas of corporate, tax and real estate law.
Item 11. Executive Compensation
- -------
Information relating to executive compensation, set forth on pages five
through eight of the Company's Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 11, 1999 under the caption "Executive
Compensation," is incorporated herein by reference. The Comparative Performance
Graph and the Compensation Committee Report on Executive Compensation also
included in the Proxy Statement are expressly not incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------
Information relating to the security ownership of management and
certain beneficial owners, set forth on pages four through five of the Company's
Proxy Statement relating to the Annual Meeting of Shareholders to be held on May
11, 1999 under the caption "Security Ownership of Certain Beneficial Owners and
Management," is incorporated herein by reference.
-38-
<PAGE>
Item 13. Certain Relationships and Related Transactions
- -------
Information relating to certain relationships and related transactions,
set forth on page 13 of the Company's Proxy Statement relating to the Annual
Meeting of Shareholders to be held on May 11, 1999 under the caption "Certain
Relationships and Related Transactions," is incorporated herein by reference.
-39-
<PAGE>
Part IV
<TABLE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------
<S> <C> <C>
(a) Index to Pro Forma and Historical Financial Statements,
Financial Statement Schedules and Exhibits
(1) Financial Statements:
--------------------
The following financial statements of Healthcare
Realty Trust Incorporated are incorporated by reference in
Item 8 from the 1998 Annual Report to Shareholders:
Audited Consolidated Financial Statements
- -----------------------------------------
- Independent Auditors' Report.
- Consolidated Balance Sheets - December 31, 1998 and 1997.
- Consolidated Statements of Income for the years ended
December 31, 1998, December 31, 1997 and December 31, 1996.
- Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, December 31, 1997 and December 31,
1996.
- Consolidated Statements of Cash Flows for the years ended
December 31, 1998, December 31, 1997 and December 31, 1996.
- Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules:
-----------------------------
Schedule III -- Real Estate and Accumulated Depreciation at
December 31, 1998.................S-1
Schedule IV - Mortgage Loans on Real Estate at December 31, 1998
All other schedules are omitted because they are not
applicable or not required or because the information is
included in the consolidated financial statements or notes
thereto.
(3) Exhibits:
Exhibit
Number Description of Exhibits
- ------- -----------------------
3.1 -- Second Articles of Amendment and Restatement of the Registrant.(1)
3.2 -- Second Amended and Restated Bylaws of the Registrant.(2)
4 -- Specimen stock certificate.(1)
10.1 -- 1993 Employees Stock Incentive Plan of Healthcare Realty Trust Incorporated.(1)
10.2 -- 1995 Restricted Stock Plan for Non-Employee Directors of Healthcare Realty Trust
Incorporated.(4)
10.3 -- Executive Retirement Plan, as amended. (5)
10.4 -- Retirement Plan for Outside Directors.(1)
10.5 -- Deferred Compensation Plan.(1)
10.6 -- Dividend Reinvestment Plan.(2)
10.7 -- Amended and Restated Employment Agreement by and between David R. Emery and Healthcare Realty
Trust Incorporated. (5)
10.8 -- Amended and Restated Employment Agreement by and between Roger O. West and Healthcare Realty
Trust Incorporated. (5)
10.9 -- Amended and Restated Employment Agreement by and between Timothy G. Wallace and Healthcare
Realty Trust Incorporated. (5)
-40-
<PAGE>
10.10. -- Revolving Credit Agreement, dated as of October 15, 1998, among Healthcare Realty Trust
Incorporated, NationsBank, N.A., First Union National Bank, Societe Generale, and Bank Austria
Creditanstalt Corporate Finance, Inc. (filed herewith)
10.11 -- Term Credit Agreement, dated as of October 15, 1998, among Healthcare Realty Trust
Incorporated, Capstone Capital Corporation, NationsBank, N.A., and the other lending banks
(filed herewith)
10.12 -- Form of Note Purchase Agreement, dated as of September 1, 1995, pertaining to $90,000,000
aggregate principal amount of 7.41% Senior Notes due September 1, 2002.(3)
11 -- Statement re computation of per share earnings (contained in Note 10 to the Notes to the
Consolidated Financial Statement in the Annual Report to Shareholders for the year ended
December 31, 1998 filed herewith as Exhibit 13).
13 -- Annual Report to Shareholders for the year ended December 31, 1998 (filed herewith).
21 -- Subsidiaries of the Registrant (filed herewith).
23 -- Consent of Ernst & Young LLP, independent auditors (filed herewith).
- ---------------
(1) Filed as an exhibit to the Company's Registration Statement on Form
S-11 (Registration No. 33-60506) previously filed pursuant to the
Securities Act of 1933 and hereby incorporated by reference.
(2) Filed as an exhibit to the Company's Registration Statement on Form
S-11 (Registration No. 33-72860) previously filed pursuant to the
Securities Act of 1933 and hereby incorporated by reference.
(3) Filed as an exhibit to the Company's 10-Q for the quarter ended September 30, 1995 and hereby
incorporated by reference.
(4) Filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1995 and hereby
incorporated by reference.
(5) Filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1996 and hereby
incorporated by reference.
</TABLE>
-41-
<PAGE>
Executive Compensation Plans and Arrangements
The following is a list of all executive compensation plans and
arrangements filed as exhibits to this Annual Report on Form 10-K:
1. 1993 Employees Stock Incentive Plan of Healthcare Realty
Trust Incorporated (filed as Exhibit 10.1)
2. 1995 Restricted Stock Plan for Non-Employee Directors of
Healthcare Realty Trust Incorporated (filed as Exhibit 10.2)
3. Executive Retirement Plan, as amended (filed as Exhibit 10.3)
4. Retirement Plan for Outside Directors (filed as Exhibit 10.4)
5. Deferred Compensation Plan (filed as Exhibit 10.5)
6. Amended and Restated Employment Agreement by and between
David R. Emery and Healthcare Realty Trust Incorporated (filed
as Exhibit 10.7)
7. Amended and Restated Employment Agreement by and between
Roger O. West and Healthcare Realty Trust Incorporated (filed
as Exhibit 10.8)
8. Amended and Restated Employment Agreement by and between
Timothy G. Wallace and Healthcare Realty Trust Incorporated
(filed as Exhibit 10.9)
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the last quarter of
1998.
Date of Report Items Reported
-------------- --------------
October 30, 1998 2, 7
December 9, 1998 (8-K/A) 7
Said reports included the financial statements and pro forma financial
statements required by Item 2 for the Capstone merger.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report. See Item 14(a)(3).
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this report. See Item 14(a)(2).
-42-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Nashville, State of Tennessee, on March 26, 1999.
HEALTHCARE REALTY TRUST INCORPORATED
By: /s/ David R. Emery
--------------------------------------------
David R. Emery
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Company
and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David R. Emery Chairman, President and March 26, 1999
- ------------------------------------------- Chief Executive Officer (Principal
David R. Emery Executive Officer)
/s/ Timothy G. Wallace Executive Vice President March 26, 1999
- ------------------------------------------- and Chief Financial Officer
Timothy G. Wallace (Principal Financial Officer)
/s/ Fredrick M. Langreck Senior Vice President March 26, 1999
- ------------------------------------------- and Treasurer
Fredrick M. Langreck
/s/ Scott W. Holmes Senior Vice President - March 26, 1999
- ------------------------------------------- Financial Reporting
Scott W. Holmes
/s/ Errol L. Biggs, Ph.D. Director March 26, 1999
- -------------------------------------------
Errol L. Biggs, Ph.D.
/s/ Thompson S. Dent Director March 26, 1999
- -------------------------------------------
Thompson S. Dent
-43-
<PAGE>
/s/ Charles Raymond Fernandez, M.D. Director March 26, 1999
- -------------------------------------------
Charles Raymond Fernandez, M.D.
/s/ Batey B. Gresham, Jr. Director March 26, 1999
- -------------------------------------------
Batey B. Gresham, Jr.
/s/ Marliese E. Mooney Director March 26, 1999
- -------------------------------------------
Marliese E. Mooney
/s/ Edwin B. Morris, III Director March 26, 1999
- -------------------------------------------
Edwin B. Morris, III
/s/ John Knox Singleton Director March 26, 1999
- -------------------------------------------
John Knox Singleton
</TABLE>
-44-
<PAGE>
Schedule III - Real Estate and Accumulated Depreciation
As of December 31, 1998
<TABLE>
<CAPTION>
----------------Land---------------- ----Buildings, Improvements and CIP----
Costs Costs
Capitalized Capitalized
Facility Initial Subsequent Initial Subsequent
to to
Facility Type/Name Operator Location Investment Acquisition Total Investment Acquisition Total
- ------------------ -------- -------- ---------- ----------- ----- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ancillary Hospital
Facilities
Orange Grove Medical Col/HCA AZ 308,070 0 308,070 4,965,923 0 4,965,923
Clinic Healthcare
Eaton Canyon Medical Tenet CA 1,337,483 0 1,337,483 3,122,980 332,318 3,455,297
Building Healthcare
Fountain Valley - Tenet CA 2,218,847 0 2,218,847 3,319,804 17,734 3,337,538
AHF 1 Healthcare
Fountain Valley - Tenet CA 2,059,953 0 2,059,953 3,068,881 0 3,068,881
AHF 2 Healthcare
Fountain Valley - Tenet CA 3,149,515 0 3,149,515 5,666,654 185,871 5,852,525
AHF 3 Healthcare
Fountain Valley - Tenet CA 3,160,865 0 3,160,865 5,859,967 44,513 5,904,479
AHF 4 Healthcare
Fountain Valley - Tenet CA 0 0 0 15,342,398 92,190 15,434,588
AHF 5 Healthcare
Valley Presbyterian Valley CA 1,720,127 0 1,720,127 5,797,840 0 5,797,840
(15211) Presbyterian
Hosp.
Valley Presbyterian Valley CA 1,522,222 0 1,522,222 3,787,288 0 3,787,288
(6840-50) Presbyterian
Hosp.
Deering Medical Plaza Heathcare FL 0 0 0 5,072,041 57,546 5,129,587
Realty Trust
East Pointe Medical Col/HCA FL 45,216 0 45,216 4,936,632 0 4,936,632
Plaza Healthcare
Gulf Coast Medical Heathcare FL 0 0 0 4,843,314 79,323 4,922,637
Centre Realty Trust
Southwest Medical Heathcare FL 0 0 0 8,042,864 193,349 8,236,213
Centre Plaza Realty Trust
Southwest Medical Col/HCA FL 0 0 0 1,620,558 0 1,620,558
Centre Plaza II Healthcare
Coral Gables Medical Tenet FL 532,112 0 532,112 10,677,707 5,454 10,683,162
Plaza Healthcare
Palm Beach Medical Phycor Inc. FL 0 0 0 3,830,316 185,000 4,015,316
Group Building
Palms of Pasadena Tenet FL 0 4,470 4,470 4,245,652 1,199,218 5,444,869
Medical Plaza Healthcare
Candler Parking Candler GA 0 0 0 4,201,212 0 4,201,212
Garage Health Systems
Candler Prof Office Candler GA 0 0 0 7,177,853 15,193 7,193,045
Building (2) Health Systems
Candler Regional Candler GA 0 0 0 9,269,058 79,184 9,348,242
Heart Center Health Systems
North Fulton Medical Heathcare GA 696,248 0 696,248 4,814,870 737,275 5,552,145
Arts Plaza Realty Trust
-S1-
<PAGE>
Northwest Medical Heathcare GA 1,268,962 0 1,268,962 8,492,284 937,206 9,429,490
Center Realty Trust
Overland Park Reg Col/HCA KS 0 0 0 10,334,541 120,386 10,454,928
Medical Center Healthcare
Hendersonville Col/HCA TN 395,056 0 395,056 2,643,834 100,000 2,743,834
Medical Office Bldg Healthcare
Bayshore Doctors Col/HCA TX 125,471 0 125,471 1,767,800 0 1,767,800
Center Healthcare
Judson Medical Methodist TX 159,384 0 159,384 598,293 22,230 620,523
Building
Oregon Medical Col/HCA TX 999,193 0 999,193 17,445,918 0 17,445,918
Building Healthcare
Rosewood Col/HCA TX 682,867 0 682,867 4,569,953 0 4,569,953
Professional Building Healthcare
Spring Branch Col/HCA TX 3,833,077 0 3,833,077 10,295,139 0 10,295,139
Professional Building Healthcare
Toepperwein Medical Methodist TX 497,982 0 497,982 2,040,742 518,331 2,559,073
Center
Lake Pointe Medical Tenet TX 217,941 0 217,941 1,507,164 0 1,507,164
Plaza Healthcare
Southwest General Tenet TX 124,000 0 124,000 3,112,289 0 3,112,289
Birthing Center Healthcare
Trinity Valley Tenet TX 73,147 0 73,147 3,598,453 0 3,598,453
Birthing Center Healthcare
Chippenham Medical Col/HCA VA 0 0 0 3,771,668 0 3,771,668
Offices Healthcare
Chippenham Medical Col/HCA VA 874,497 0 874,497 3,718,966 0 3,718,966
Offices Healthcare
Johnston-Willis Col/HCA VA 1,912,645 0 1,912,645 6,860,932 0 6,860,932
Medical Offices Healthcare
Johnston-Willis Col/HCA VA 0 0 0 4,729,002 1,126,714 5,855,716
Medical Offices Healthcare
Lewis Gale-Clinic, Phycor Inc. VA 1,455,813 3136 1,458,949 26,061,170 0 26,061,170
Keagy, Braeburn
Lewis Gale - Medical Phycor Inc. VA 38,604 0 38,604 1,394,974 0 1,394,974
Foundation
Trinity West Medical Tenet TX 0 387,607 387,607 4,707,307 840,651 5,526,591
Plaza Heathcare/HRT
Rothsville Medical Ephrata PA 238,500 0 238,500 3,946,689 0 3,946,689
Center Complex Community
Hosp.
-S2-
<PAGE>
American Sports Healthsouth AL 1,138,560 129,712 1,268,272 3,208,761 0 3,208,761
Medicine Institute
Beaumont Regional Col/HCA TX 0 0 0 10,711,597 9,100 10,720,697
Prof Tower Healthcare
Bellaire Medical Col/HCA TX 2,370,993 0 2,370,993 6,946,203 0 6,946,203
Plaza Healthcare
Birmingham Medical Healthsouth AL 970,948 107,063 1,078,011 5,498,041 0 5,498,041
Building I
Birmingham Medical Healthsouth AL 2,583,131 143,999 2,727,130 10,703,991 0 10,703,991
Building II
Burbank Mulliken MedPartners CA 0 0 0 6,681,150 0 6,681,150
Medical Plaza(3)
Cool Springs Medical Cool Springs TN 1,652,013 0 1,652,013 8,546,954 0 8,546,954
Center
Daniel Medical Center Winter Park FL 1,988,552 0 1,988,552 5,621,956 0 5,621,956
Desert Springs Quorum NV 2,028,176 157,340 2,185,516 4,373,626 0 4,373,626
Medical Plaza
Goodyear Clinic Quorum AL 104,667 28,261 132,928 2,109,962 0 2,109,962
Hamiter Building Quorum AL 114,436 62,799 177,235 5,938,857 0 5,938,857
Larkin Medical Healthsouth FL 2,098,275 105,264 2,203,539 944,681 0 944,681
Building Annex
One-7000 Larkin Healthsouth FL 1,021,104 47,716 1,068,820 17,473,541 0 17,473,541
Building
Gadsden Medical Quorum AL 57,218 79,546 136,764 7,971,897 0 7,971,897
Building II
Midway Medical Plaza Tenet CA 5,364,049 26,951 5,391,000 21,624,735 0 21,624,735
Healthcare
Richmond Medical Healthsouth VA 7,155,635 278,085 7,433,720 6,561,850 0 6,561,850
Bldg I
Sarasota Medical Col/HCA FL 0 0 0 18,987,150 0 18,987,150
Center Healthcare
Southwest General New Medical TX 0 0 0 3,224,271 0 3,224,271
Medical Bldg Prop.
Investors
Sunrise Mountainview Col/HCA NV 0 0 0 39,767,625 531,419 40,299,044
Med Ctr Healthcare - - - ---------- ------- ----------
Ancillary Hospital
Facilities 58,295,554 1,561,949 59,857,503 428,157,778 7,430,205 435,566,613
Assisted Living
Facilities
The Grand Court of Grand Court TX 0 0 0 10,033,174 0 10,033,174
Abilene
Outlook Pointe at Balanced Care PA 0 0 0 6,562,185 0 6,562,185
Creekview
Augusta Gardens Matrix GA 0 0 0 5,948,471 0 5,948,471
Bloomsburg Manor Balanced Care PA 98,065 0 98,065 4,011,150 0 4,011,150
Pers Care Ctr
Joe Clark Balanced Care MO 12,868 0 12,868 1,512,654 0 1,512,654
Residential Care Home
Outlook Pointe at Balanced Care VA 374,762 0 374,762 5,544,708 0 5,544,708
Danville(ALCOIII)
The Grand Court of Grand Court TX 0 0 0 10,414,123 0 10,414,123
El Paso
Outlook Pointe at Balanced Care NC 0 0 0 3,711,839 0 3,711,839
Greensboro(3)
-S3-
<PAGE>
Outlook Pointe at Balanced Care PA 466,315 0 466,315 4,068,804 0 4,068,804
Harrisburg
Outlook Pointe at Balanced Care VA 233,656 0 233,656 4,984,462 0 4,984,462
Harrisonburg
Kingsley Place of Senior TX 0 0 0 5,831,076 0 5,831,076
Henderson Lifestyles
Summervillerville at Summerville NJ 0 0 0 6,268,372 0 6,268,372
Hillsborough(3)
Jaylene Manor Senior FL 280,506 0 280,506 1,479,986 0 1,479,986
Nursing Home Lifestyles
Jenni-Lynn Senior SC 105,840 0 105,840 2,892,948 0 2,892,948
Lifestyles
Kingston Manor Pers Balanced Care PA 287,456 0 287,456 3,805,264 0 3,805,264
Care & Retir Ctr
Balanced Care at Balanced Care MO 53,472 0 53,472 1,472,050 0 1,472,050
Lamar
Kingsley Place of Senior TX 0 0 0 6,898,713 0 6,898,713
McKinney Lifestyles
Kingsley Place Med Senior TX 0 0 0 7,510,987 0 7,510,987
Ctr of Oakwell Lifestyles
Mid Valley Manor Balanced Care PA 66,445 0 66,445 3,811,860 0 3,811,860
Pers Care Ctr
Terraces at Balanced Balanced Care MO 85,784 0 85,784 1,439,738 0 1,439,738
Care, NV I
Terraces at Balanced Balanced Care MO 53,173 0 53,173 1,472,349 0 1,472,349
Care,NV II
Kingsley Place of Senior TX 0 0 0 7,970,947 0 7,970,947
Oakwell Lifestyles
Summervillerville at Summerville FL 0 0 0 3,028,408 0 3,028,408
Ocoee(3)
Old Forge Manor Pers Balanced Care PA 48,302 0 48,302 2,644,837 0 2,644,837
Care Ctr
Outlook Pointe at Balanced Care OH 173,270 0 173,270 4,155,968 0 4,155,968
Ravenna
River Landings Col/HCA FL 0 0 0 1,526,957 0 1,526,957
Medical Centre Healthcare
Outlook Pointe at Balanced Care VA 279,195 0 279,195 5,286,051 0 5,286,051
Roanoke(ALCOII)
The Grand Court of Grand Court TX 0 0 0 10,940,052 0 10,940,052
San Angelo
Summervillerville at Summerville NJ 0 0 0 7,258,624 0 7,258,624
Stafford(3)
Summervillerville at Summerville CT 0 0 0 9,296,809 0 9,296,809
Torrington(3)
West View Manor Balanced Care PA 50,658 0 50,658 2,749,694 0 2,749,694
Personal Care
The Grand Court of Grand Court TX 0 0 0 10,727,263 826,491 11,553,754
Wichita Falls
Zephyrhills Medical Col/HCA FL 0 0 0 1,390,385 0 1,390,385
Clinic Healthcare
Port Orange(3) Summerville FL 0 0 0 3,178,197 0 3,178,197
- - - --------- - ---------
Assisted Living
Facilities 2,669,767 0 2,669,767 169,829,105 826,491 170,655,596
Ambulatory Surgery
Centers
Bakersfield Surgery Healthsouth CA 209,246 0 209,246 828,613 0 828,613
Center
-S4-
<PAGE>
Valley View Surgery Healthsouth NV 940,000 0 940,000 2,860,571 0 2,860,571
Center
Physicians Col/HCA TX 509,891 0 509,891 1,514,376 0 1,514,376
Daysurgery Center Healthcare
Bonita Bay Medical Col/HCA FL 0 0 0 10,655,720 0 10,655,720
Centre Healthcare
Cape Coral Medical Col/HCA FL 0 0 0 5,523,307 0 5,523,307
Plaza Healthcare
North Shore Surgical Healthsouth IL 213,021 57,249 270,270 1,115,094 0 1,115,094
Center
Northlake Surgical Col/HCA GA 0 62,042 62,042 1,425,510 0 1,425,510
Center Healthcare
South County Medical Healthsouth MO 1,597,873 550,595 2,148,468 9,272,434 0 9,272,434
Ctr I
West County Surgery Healthsouth MO 809,526 0 809,526 3,283,056 0 3,283,056
Center ------- - ------- --------- - ---------
Ambulatory Surgery
Centers 4,279,557 669,886 4,949,443 36,478,681 0 36,478,681
Comprehensive
Ambulatory Care
Centers
St. Andrews(3),(5) Col/HCA FL 1,032,261 0 1,032,261 10,495,785 0 10,495,785
Healthcare
Corp.
Five Points Medical Tenet FL 3,103,275 0 3,103,275 7,688,079 163,881 7,851,960
Building Healthcare
Corp.
Huebner Medical Huebner TX 601,475 0 601,475 11,169,134 209,802 11,378,935
Center
Huebner Medical Huebner TX 1,041,298 0 1,041,298 8,518,528 106,943 8,625,471
Center II
Cedar Park Ctr for Arcon FL 0 0 0 4,631,479 0 4,631,479
Hlthcare(Navarre)(3)
Arcon-Defuniak Arcon FL 0 0 0 6,255,220 0 6,255,220
Crystal Beach Center Arcon FL 852,131 0 852,131 4,793,035 0 4,793,035
for Healthcare
Hazelwood(3) Healthsouth MO 0 0 0 7,000,358 0 7,000,358
Arcon Mesquite Arcon NV 0 0 0 6,155,138 0 6,155,138
Healthcare
Scottsdale(3) Healthsouth AZ 0 0 0 6,705,071 0 6,705,071
Arcon Soddy Daisy Arcon TN 0 0 0 4,555,865 0 4,555,865
Ctr for Hlthcare
Suburban Heights MedPartners IL 197,772 0 197,772 10,935,289 0 10,935,289
Medical Center
Kerlan Jobe Kerlan Jobe CA 2,571,192 0 2,571,192 19,281,394 0 19,281,394
Orthopaedic
Clinic
Little Rock Rehab Healthsouth AR 461,482 163,009 624,491 2,257,912 0 2,257,912
Center
Virginia Beach Healthsouth VA 0 62,992 62,992 1,980,733 0 1,980,733
Rehabilitation Center
Coral Gables Healthsouth FL 804,158 74,370 878,528 2,339,486 0 2,339,486
Rehabilitation Center ------- ------ ------- --------- - ---------
Comprehensive
Ambulatory Care
Centers 10,665,044 300,371 10,965,415 114,762,506 480,626 115,243,131
-S5-
<PAGE>
Inpatient
Rehabilitation
Facilities
HS Rehab Hosp of Healthsouth AL 0 0 0 17,388,466 0 17,388,466
Montgomery
HS Rehab Hosp of Healthsouth PA 1,191,530 0 1,191,530 18,056,079 0 18,056,079
Nittany Valley
HS Rehab hosp of Healthsouth FL 0 0 0 11,482,882 0 11,482,882
Tallahassee
HS Rehab Hosp of York Healthsouth PA 1,213,750 0 1,213,750 18,033,859 0 18,033,859
HS Rehab Healthsouth PA 0 0 0 17,499,957 0 17,499,957
Hosp-Greater
Pittsb(Allegheny)
HS Rehab Hosp of Healthsouth PA 1,305,036 0 1,305,036 18,216,263 0 18,216,263
Altoona
Great Lakes Rehab Healthsouth PA 0 0 0 20,498,812 0 20,498,812
Hospital
HS Rehab Hosp of Healthsouth PA 964,372 0 964,372 13,156,375 0 13,156,375
Mechanicsburg
Richmond Medical Healthsouth VA 315,450 48,330 363,780 2,574,780 0 2,574,780
Bldg II
Southeast Texas Healthsouth TX 1,095,455 0 1,095,455 11,577,716 0 11,577,716
Rehab Hospital --------- - --------- ---------- - ----------
Inpatient
Rehabilitation
Facilities 6,085,593 48,330 6,133,923 148,485,189 0 148,485,189
Medical Office
Buildings
Bradley Medical Bradley Mem TN 3,212,188 0 3,212,188 5,517,717 0 5,517,717
Building Hosp
Rowlett Medical Plaza Tenet TX 166,123 0 166,123 1,810,249 0 1,810,249
Healthcare
New River Valley Col/HCA VA 43,126 0 43,126 839,285 0 839,285
Med. Arts Building Healthcare
Valley Medical Center Col/HCA VA 64,347 0 64,347 867,590 0 867,590
Healthcare
Lewis Gale - Phycor Inc. VA 1,066,739 0 1,066,739 5,665,960 31,837 5,697,797
Business & Child
Care Cente
Lewis Gale - Valley Phycor Inc. VA 752,629 0 752,629 4,367,295 1,575 4,368,870
View ------- - ------- --------- ----- ---------
Medical Office
Buildings 5,305,152 0 5,305,152 19,068,096 33,412 19,101,508
Physician Clinics
Clinica Latina Tenet CA 392,785 0 392,785 331,685 0 331,685
Healthcare
Southwest Florida Col/HCA FL 468,544 0 468,544 3,135,642 0 3,135,642
Orthopedic Center Healthcare
Medical & Surgical Tenet FL 906,829 0 906,829 3,589,796 717,332 4,307,127
Institute of Ft. Healthcare
Lauderdale Corp.
Doctors' Clinic Phycor Inc. FL 2,183,572 0 2,183,572 8,070,829 0 8,070,829
Woodstock Clinic Tenet GA 586,435 0 586,435 2,087,444 0 2,087,444
Healthcare
-S6-
<PAGE>
Durham Medical Center Durham TX 992,738 2,318 995,056 6,865,237 290,550 7,155,787
Valley Diagnostic Phycor Inc. TX 661,287 0 661,287 3,776,918 0 3,776,918
Medical and Surgical
Center
Lewis Gale - Bent Phycor Inc. VA 92,159 0 92,159 258,044 0 258,044
Mountain Road Clinic
Lewis Gale - Phycor Inc. VA 150,526 0 150,526 524,280 0 524,280
Bohnsack Clinic
Lewis Gale - Craig Phycor Inc. VA 33,280 0 33,280 148,990 0 148,990
County Clinic
Lewis Gale - Family Phycor Inc. VA 182,522 0 182,522 969,461 0 969,461
Practice Center
Lewis Gale - Phycor Inc. VA 78,437 0 78,437 259,478 0 259,478
Fincastle Clinic
Lewis Gale - Spartan Phycor Inc. VA 83,967 0 83,967 817,140 0 817,140
Drive
Vanderbilt-MetroCenterVanderbilt TN 460,988 0 460,988 1,409,173 19,674 1,428,848
Healthcare Univ. Med.
Center
Vanderbilt-Hickory Vanderbilt TN 468,627 0 468,627 1,540,396 48,393 1,588,790
Hollow Healthcare Univ. Med.
Center
Vanderbilt-Rivergate Vanderbilt TN 596,917 0 596,917 1,311,313 73,735 1,385,049
Healthcare Univ. Med.
Center
Vanderbilt-Cool Vanderbilt TN 773,898 0 773,898 1,394,700 18,230 1,412,930
Springs Healthcare Univ. Med.
Center
Agawam Health Center MedPartners MA 37,620 0 37,620 2,478,321 0 2,478,321
Baintree Health Care MedPartners MA 1,127,108 0 1,127,108 6,364,210 0 6,364,210
Center
Brookstone Office MedPartners FL 945,166 0 945,166 5,673,274 0 5,673,274
Building
Chicopee Health Care MedPartners MA 1,443,659 0 1,443,659 7,592,390 0 7,592,390
Center
Clayton Big Bend SSM Health MO 1,010,838 0 1,010,838 4,193,106 0 4,193,106
Medical Center Systems, Inc.
Columbus OB/GYN MedPartners GA 414,216 0 414,216 2,161,292 0 2,161,292
Clinic
Framingham Health MedPartners MA 1,126,164 0 1,126,164 2,762,872 0 2,762,872
Care Center
Greenwood Medical MedPartners TN 490,588 139,140 629,728 1,876,872 0 1,876,872
Building
HS Imaging Center at Healthsouth AL 624,786 0 624,786 1,965,210 0 1,965,210
Highlands
Indialantic Medical MedPartners FL 840,617 0 840,617 1,317,262 0 1,317,262
Building
Kelsey-Seybold MedPartners TX 4,893,804 0 4,893,804 11,250,932 0 11,250,932
Clinic West
McCollough Clinic MedPartners AL 1,633,607 123,882 1,757,489 6,453,496 0 6,453,496
Melbourne Internal MedPartners FL 1,028,155 0 1,028,155 2,792,220 0 2,792,220
Medicine Clinic
Melbourne Medical MedPartners FL 4,624,421 0 4,624,421 8,631,129 0 8,631,129
Building
Methuen Health Care MedPartners MA 469,142 0 469,142 6,805,540 0 6,805,540
Center
Par Place Medical Ctr MedPartners FL 931,064 0 931,064 7,244,396 0 7,244,396
South County Medical Healthsouth MO 0 0 0 4,069,228 0 4,069,228
Ctr II
West Palm Beach MedPartners FL 130,007 38,323 168,330 671,939 0 671,939
------- ------ ------- ------- - -------
Medical Bldg
Physician
Clinics 30,884,473 303,663 31,188,136 120,794,215 1,167,914 121,962,131
-S7-
<PAGE>
Skilled Nursing
Facilities
Life Care Center of Life Care AZ 266,596 0 266,596 2,521,319 85,746 2,607,065
Globe Centers of
America
Fountain Valley - Tenet CA 1,361,952 0 1,361,952 11,325,746 0 11,325,746
Living Care Center Healthcare
Life Care Center of Life Care CO 1,651,477 0 1,651,477 4,579,039 0 4,579,039
Aurora Centers of
America
Life Care Center of Life Care CO 901,650 0 901,650 11,411,187 104,788 11,515,975
Greeley Centers of
America
Life Care Center of Life Care TN 82,945 0 82,945 4,963,209 0 4,963,209
Centerville Centers of
America
Life Care Center of Life Care TN 145,402 0 145,402 3,143,801 0 3,143,801
Lynchburg Centers of
America
Life Care Center of Life Care CO 332,149 0 332,149 7,389,813 37,633 7,427,446
Westminster Centers of
America
Life Care Center of Life Care FL 1,349,775 0 1,349,775 8,855,920 0 8,855,920
Orange Park Centers of
America
New Harmonie Centennial IN 96,059 0 96,059 3,511,749 0 3,511,749
Healthcare Center Heathcare
Life Care Center of Life Care KS 1,013,423 0 1,013,423 6,477,785 101,453 6,579,238
Wichita Centers of
America
Fenton Extended Care Centennial MI 40,463 0 40,463 3,467,687 0 3,467,687
Center Heathcare
Meadows Nursing Centennial MI 6,984 0 6,984 3,241,786 0 3,241,786
Center Heathcare
Ovid Convalescent Centennial MI 62,326 0 62,326 1,187,348 1,844,691 3,032,039
Manor Heathcare
Wayne Convalescent Centennial MI 52,468 0 52,468 963,336 0 963,336
Center Heathcare
Westgate Manor Centennial MI 30,855 0 30,855 1,633,306 0 1,633,306
Nursing Home Heathcare
Life Care Center of Life Care TX 605,036 0 605,036 8,772,078 67,901 8,839,979
Forth Worth Centers of
America
Life Care Center of Life Care TX 1,190,364 0 1,190,364 8,738,144 91,995 8,830,139
Houston Centers of
America
Life Care Center of Life Care TN 0 0 0 0 0 0
Columbia Centers of
America
Blakely-Pine Health Balanced Care PA 27,096 0 27,096 2,904,018 0 2,904,018
Care Center
Avis B. Adams Quality Link VA 260,970 0 260,970 6,677,999 0 6,677,999
Christian
Convalescent Ctr(4)
The Village Nursing Quality Link VA 82,080 0 82,080 3,119,214 0 3,119,214
Center(Fort Union)(4)
The Laurels of Quality Link VA 416,697 0 416,697 5,746,885 0 5,746,885
Forest Glen(4)
-S8-
<PAGE>
The Meadows of Quality Link VA 93,948 0 93,948 4,630,547 0 4,630,547
Goochland(4)
Kingston Health Care Balanced Care PA 146,023 0 146,023 4,855,022 0 4,855,022
Center
The Brian Ctr Health Quality Link VA 134,549 0 134,549 5,149,752 0 5,149,752
&
Rehab/Lawrencevil(4)
Mountain View Integrated PA 266,462 38,742 305,204 12,338,789 0 12,338,789
Nursing Home Health
Twin Oaks Quality Link VA 486,123 0 486,123 2,965,762 0 2,965,762
Convalescent Home(4)
IHS of Northern Integrated VA 396,021 0 396,021 12,482,403 0 12,482,403
Virginia(Alexandria) Health
Gravois Nursing Integrated MO 1,826,963 232,076 2,059,039 8,938,315 0 8,938,315
Center Health --------- ------- --------- --------- - ---------
Skilled Nursing
Facilities 13,326,856 270,818 13,597,674 161,991,959 2,334,207 164,326,166
Other
Midtown Medical Midtown AL 180,633 0 180,633 8,569,294 0 8,569,294
Center
Puckett Laboratory Pathology MS 537,660 0 537,660 3,718,165 0 3,718,165
Laboratories
Desert Vista Hospital Ramsay AZ 0 0 0 0 0 0
Mission Vista Ramsay TX 379,470 159,861 539,331 5,737,284 0 5,737,284
Hospital
Havenwyck Hospital Ramsay MI 4,692,274 0 4,692,274 9,751,133 0 9,751,133
Tucson MOB(3) MedCath AZ 0 0 0 2,517,733 0 2,517,733
- - - --------- - ---------
Other 5,790,037 159,861 5,949,898 30,293,609 0 30,293,609
Total Real Estate 137,302,033 3,314,878 140,616,911 1,229,861,138 12,272,855 1,242,112,624
----------- --------- ----------- ------------- ---------- -------------
Corporate Property 0 0 0 0 0 0
Total Property 137,302,033 3,314,878 140,616,911 1,229,861,138 12,272,855 1,242,112,624
=========== ========= =========== ============= ========== =============
</TABLE>
-S9-
<PAGE>
<TABLE>
<CAPTION>
(1), (6)
Personal (6),(7) Accum. Date Date
Facility Type / Name Property Total Assets Depreciation Encumbrances Acquired Const.
- -------------------- -------- ------------ ------------ ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Ancillary Hospital Facilities
Orange Grove Medical 0 5,273,993 873,695 0 1993 1988
Clinic
Eaton Canyon Medical 0 4,792,781 310,022 0 1995 1984
Building
Fountain Valley - AHF 1 0 5,556,385 364,056 0 1994 1973
Fountain Valley - AHF 2 0 5,128,834 336,214 0 1994 1975
Fountain Valley - AHF 3 0 9,002,040 622,328 0 1994 1981
Fountain Valley - AHF 4 0 9,065,344 643,078 0 1994 1984
Fountain Valley - AHF 5 0 15,434,588 582,309 0 1997 1997
Valley Presbyterian 20,237 7,538,204 1,035,962 0 1993 1981
(15211)
Valley Presbyterian 18,267 5,327,777 680,682 0 1993 1961,1968
(6840-50) 1984-85
Deering Medical Plaza 0 5,129,587 579,806 0 1994 1994
East Pointe Medical 0 4,981,848 522,168 0 1994 1994
Plaza
Gulf Coast Medical 0 4,922,637 500,607 0 1994 1994
Centre
Southwest Medical 0 8,236,213 867,882 0 1994 1994
Centre Plaza
Southwest Medical 0 1,620,558 157,554 0 1995 1977
Centre Plaza II
Coral Gables Medical 0 11,215,274 1,289,224 0 1994 1991
Plaza
Palm Beach Medical 0 4,015,316 224,398 0 1996 1994
Group Building
Palms of Pasadena 114,280 5,563,620 557,656 0 1994 1994
Medical Plaza
Candler Parking Garage 0 4,201,212 352,718 0 1994 1995
Candler Prof Office 0 7,193,045 821,399 1,000,000 1994 1981
Building (2)
Candler Regional Heart 0 9,348,242 740,712 0 1995 1995
Center
North Fulton Medical 38,409 6,286,802 685,095 0 1993 1983
Arts Plaza
Northwest Medical 11,870 10,710,322 1,075,876 0 1994 1975
Center
Overland Park Reg 8,779 10,463,707 538,077 0 1995 1996
Medical Center
Hendersonville Medical 0 3,138,889 322,185 0 1994 1991
Office Bldg
Bayshore Doctors Center 12,547 1,905,817 320,882 0 1993 1989
Judson Medical Building 0 779,908 31,773 0 1996 1990
Oregon Medical Building 39,968 18,485,079 3,100,807 0 1993 1992
Rosewood Professional 0 5,252,820 541,969 0 1994 1982
Building
Spring Branch 173,532 14,301,748 1,947,643 0 1993 1985
Professional Building
Toepperwein Medical 0 3,057,056 122,983 0 1996 1990
Center
-S10-
<PAGE>
Lake Pointe Medical 12,023 1,737,128 204,282 0 1993 1988
Plaza
Southwest General 0 3,236,289 342,485 0 1993 1994
Birthing Center
Trinity Valley 0 3,671,601 307,154 0 1994 1995
Birthing Center
Chippenham Medical 0 3,771,668 764,916 0 1994 1972-80
Offices
Chippenham Medical 0 4,593,463 91,385 0 1994 1994
Offices
Johnston-Willis 0 8,773,577 1,356,815 0 1994 1980
Medical Offices 1987-88
Johnston-Willis 0 5,855,716 84,966 0 1996 1993-1994
Medical Offices
Lewis Gale-Clinic, 87,323 27,607,442 1,463,692 0 1996 1984
Keagy, Braeburn
Lewis Gale - Medical 0 1,433,579 77,499 0 1996 1981
Foundation
Trinity West Medical 21,367 5,935,565 397,073 0 1997 1998
Plaza
Rothsville Medical 0 4,185,189 16,844 0 1998 1982
Center Complex
American Sports 0 4,477,033 14,894 0 1998 1992-1993
Medicine Institute
Beaumont Regional Prof 0 10,720,697 45,776 0 1998 1995
Tower
Bellaire Medical Plaza 0 9,317,196 29,685 0 1998 1995
Birmingham Medical 0 6,576,052 24,471 0 1998 1981
Building I
Birmingham Medical 0 13,431,121 47,054 0 1998 1991
Building II
Burbank Mulliken 0 6,681,150 0 0 1998 under
Medical Plaza(3) construction
Cool Springs Medical 0 10,198,967 36,525 4,531,786 1998 1992
Center
Daniel Medical Center 0 7,610,508 24,025 0 1998 1994
Desert Springs Medical 0 6,559,142 20,122 0 1998 1974
Plaza
Goodyear Clinic 0 2,242,890 9,274 0 1998 1977
Hamiter Building 0 6,116,092 25,951 0 1998 1979
Larkin Medical 0 3,148,220 4,996 0 1998 1970;1980
Building Annex
One-7000 Larkin 0 18,542,361 75,108 0 1998 1973
Building 1989-1990
Gadsden Medical 0 8,108,661 34,792 0 1998 1993
Building II
Midway Medical Plaza 0 27,015,735 92,656 0 1998 1984-5
Richmond Medical Bldg I 0 13,995,570 31,015 0 1998 1977
Sarasota Medical Center 0 18,987,150 81,142 8,770,158 1998 1995
Southwest General 0 3,224,271 13,779 0 1998 1983
Medical Bldg
Sunrise Mountainview 0 40,299,044 171,083 22,830,034 1998 1996
Med Ctr - ---------- ------- ----------
Ancillary Hospital
Facilities 558,601 495,982,719 26,639,220 37,131,979
Assisted Living Facilities
The Grand Court of 0 10,033,174 42,877 0 1998 1998
Abilene
-S11-
<PAGE>
Outlook Pointe at 0 6,562,185 0 0 1998 under
Creekview construction
Augusta Gardens 0 5,948,471 25,421 0 1998 1997
Bloomsburg Manor Pers 0 4,109,215 17,142 0 1998 1996
Care Ctr
Joe Clark Residential 0 1,525,522 6,464 0 1998 1996
Care Home
Outlook Pointe at 0 5,919,470 23,049 0 1998 1998
Danville(ALCOIII)
The Grand Court of El 0 10,414,123 44,505 0 1998 1997
Paso
Outlook Pointe at 0 3,711,839 0 0 1998 under
Greensboro(3) construction
Outlook Pointe at 0 4,535,119 17,388 0 1998 1998
Harrisburg
Outlook Pointe at 0 5,218,118 21,301 0 1998 1998
Harrisonburg
Kingsley Place of 0 5,831,076 24,919 0 1998 1997
Henderson
Summervillerville at 0 6,268,372 0 0 1998 under
Hillsborough(3) construction
Jaylene Manor Nursing 0 1,760,492 6,325 0 1998 1976
Home
Jenni-Lynn 0 2,998,788 12,363 0 1998 1993;1995
Kingston Manor Pers 0 4,092,720 16,262 0 1998 1992;1994
Care & Retir Ctr
Balanced Care at Lamar 0 1,525,522 6,291 0 1998 1996
Kingsley Place of 0 6,898,713 29,482 0 1998 1997
McKinney
Kingsley Place Med Ctr 0 7,510,987 32,098 0 1998 1997
of Oakwell
Mid Valley Manor Pers 0 3,878,305 16,290 0 1998 1989;1993
Care Ctr
Terraces at Balanced 0 1,525,522 6,153 0 1998 1993;1994
Care, NV I
Terraces at Balanced 0 1,525,522 6,292 0 1998 1995
Care,NV II
Kingsley Place of 0 7,970,947 34,064 0 1998 1997
Oakwell
Summervillerville at 0 3,028,408 0 0 1998 under
Ocoee(3) construction
Old Forge Manor Pers 0 2,693,139 11,303 0 1998 1990
Care Ctr
Outlook Pointe at 0 4,329,238 17,761 0 1998 1998
Ravenna
River Landings Medical 0 1,526,957 6,525 0 1998 1998
Centre
Outlook Pointe at 0 5,565,246 22,590 0 1998 1998
Roanoke(ALCOII)
The Grand Court of San 0 10,940,052 46,752 0 1998 1997
Angelo
Summervillerville at 0 7,258,624 0 0 1998 under
Stafford(3) construction
Summervillerville at 0 9,296,809 0 0 1998 under
Torrington(3) construction
West View Manor 0 2,800,352 11,751 0 1998 1993
Personal Care
The Grand Court of 0 11,553,754 45,843 0 1998 1997
Wichita Falls
Zephyrhills Medical 0 1,390,385 5,942 0 1998 1998
Clinic
-S12-
<PAGE>
Port Orange(3) 0 3,178,197 0 0 1998 under
- --------- - - construction
Assisted Living
Facilities 0 173,325,363 557,153 0
Ambulatory Surgery Centers
Bakersfield Surgery 8,370 1,046,229 152,361 0 1993 1985
Center
Valley View Surgery 0 3,800,571 327,004 0 1994 1994
Center
Physicians Daysurgery 15,297 2,039,563 278,456 0 1993 1985
Center
Bonita Bay Medical 0 10,655,720 45,537 4,716,724 1998 1995
Centre
Cape Coral Medical 0 5,523,307 23,604 3,316,446 1998 1995
Plaza
North Shore Surgical 0 1,385,364 5,296 0 1998 1960's;1988
Center
Northlake Surgical 0 1,487,552 6,660 0 1998 1993
Center
South County Medical 0 11,420,902 44,763 0 1998 1993
Ctr I
West County Surgery 0 4,092,582 14,030 0 1998 1988
Center - --------- ------ -
Ambulatory Surgery
Centers 23,667 41,451,790 897,711 8,033,170
Comprehensive Ambulatory
Care Centers
St. Andrews(3),(5) 0 11,528,045 298,874 0 1996 under
construction
Five Points Medical 0 10,955,235 407,311 0 1995 1996
Building
Huebner Medical Center 69,408 12,049,818 2,027,168 0 1993 1991
Huebner Medical Center 0 9,666,769 733,761 0 1994 1995
II
Cedar Park Ctr for 0 4,631,479 0 0 1998 under
Hlthcare(Navarre)(3) construction
Arcon-Defuniak 0 6,255,220 26,732 0 1998 1997
Crystal Beach Center 0 5,645,166 20,483 0 1998 1996
for Healthcare
Hazelwood(3) 0 7,000,358 0 0 1998 under
construction
Arcon Mesquite 0 6,155,138 26,304 0 1998 1997
Healthcare
Scottsdale(3) 0 6,705,071 0 0 1998 under
construction
Arcon Soddy Daisy Ctr 0 4,555,865 19,470 0 1998 1997
for Hlthcare
Suburban Heights 0 11,133,061 46,732 0 1998 1973
Medical Center 1984;1989
Kerlan Jobe 0 21,852,586 82,399 0 1998 1997
Little Rock Rehab 0 2,882,403 11,133 0 1998 1991
Center
Virginia Beach 0 2,043,725 9,040 0 1998 1993
Rehabilitation Center
Coral Gables 0 3,218,014 10,675 0 1998 1960;1986
Rehabilitation Center - --------- ------ -
Comprehensive Ambulatory
Care 69,408 126,277,953 3,720,082 0
Inpatient Rehabilitation
Facilities
HS Rehab Hosp of 0 17,388,466 108,294 0 1998 1987
Montgomery
-S13-
<PAGE>
HS Rehab Hosp of 0 19,247,609 112,234 0 1998 1983
Nittany Valley
HS Rehab hosp of 0 11,482,882 71,514 0 1998 1986
Tallahassee
HS Rehab Hosp of York 0 19,247,609 112,092 0 1998 1983
HS Rehab Hosp-Greater 0 17,499,957 74,786 0 1998 1987
Pittsb(Allegheny)
HS Rehab Hosp of 0 19,521,299 77,847 0 1998 1986
Altoona
Great Lakes Rehab 0 20,498,812 87,602 0 1998 1986
Hospital
HS Rehab Hosp of 0 14,120,747 56,224 0 1998 1987
Mechanicsburg
Richmond Medical Bldg 0 2,938,560 11,079 0 1998 1992
II
Southeast Texas Rehab 0 12,673,171 49,477 0 1998 1991
Hospital - ---------- ------ -
Inpatient Rehabilitation
Facilities 0 154,619,112 761,149 0
Medical Office Buildings
Bradley Medical 0 8,729,905 58,254 0 1997 1998
Building
Rowlett Medical Plaza 0 1,976,372 201,933 0 1994 1994
New River Valley Med. 43,611 926,023 181,931 0 1993 1988
Arts Building
Valley Medical Center 83,179 1,015,117 218,002 0 1993 1989
Lewis Gale - Business 2420 6,766,956 316,500 0 1996 1995
& Child Care Cente
Lewis Gale - Valley 0 5,121,498 242,698 0 1996 1990
View - --------- ------- -
Medical Office Buildings 129,210 24,535,871 1,219,318 0
Physician Clinics
Clinica Latina 0 724,470 30,830 0 1995 1991
Southwest Florida 0 3,604,186 371,869 0 1994 1984
Orthopedic Center
Medical & Surgical 0 5,213,956 479,091 0 1994 1991
Institute of Ft.
Lauderdale
Doctors' Clinic 50,781 10,305,181 1,459,868 0 1993 1969;1973
Woodstock Clinic 0 2,673,880 256,472 0 1994 1991
Durham Medical Center 440,909 8,591,752 1,203,724 0 1993 1993
Valley Diagnostic 20,117 4,458,322 680,311 0 1993 1982
Medical and Surgical C
Lewis Gale - Bent 0 350,203 14,336 0 1996 1984
Mountain Road Clinic
Lewis Gale - Bohnsack 0 674,806 29,127 0 1996 1995
Clinic
Lewis Gale - Craig 0 182,269 8,277 0 1996 1973
County Clinic
Lewis Gale - Family 0 1,151,983 53,859 0 1996 1905
Practice Center
Lewis Gale - Fincastle 0 337,915 14,415 0 1996 1986
Clinic
Lewis Gale - Spartan 0 901,107 45,397 0 1996 1992
Drive
-S14-
<PAGE>
Vanderbilt-MetroCenter 0 1,889,836 29,291 0 1998 1992
Healthcare
Vanderbilt-Hickory 0 2,057,416 32,162 0 1998 1982
Hollow Healthcare
Vanderbilt-Rivergate 0 1,981,966 27,593 0 1998 1982
Healthcare
Vanderbilt-Cool 0 2,186,828 28,849 0 1998 1995
Springs Healthcare
Agawam Health Center 0 2,515,941 10,591 0 1998 1987
Baintree Health Care 0 7,491,318 27,197 0 1998 1982
Center
Brookstone Office 0 6,618,440 24,245 0 1998 1991
Building
Chicopee Health Care 0 9,036,049 32,446 0 1998 1968
Center
Clayton Big Bend 0 5,203,944 17,919 0 1998 1996
Medical Center
Columbus OB/GYN Clinic 0 2,575,508 9,236 0 1998 1991
Framingham Health Care 0 3,889,036 11,807 0 1998 1963
Center
Greenwood Medical 0 2,506,600 9,289 0 1998 1955
Building
HS Imaging Center at 0 2,589,996 8,398 0 1998 1997
Highlands
Indialantic Medical 0 2,157,879 5,629 0 1998 1978
Building
Kelsey-Seybold Clinic 0 16,144,736 48,081 0 1998 1997
West
McCollough Clinic 0 8,210,985 28,703 0 1998 1991
Melbourne Internal 0 3,820,375 11,933 0 1998 1978
Medicine Clinic
Melbourne Medical 0 13,255,550 36,885 0 1998 1990
Building
Methuen Health Care 0 7,274,682 29,084 0 1998 1985
Center
Par Place Medical Ctr 0 8,175,460 30,959 0 1998 1986
South County Medical 0 4,069,228 17,390 0 1998 1994
Ctr II
West Palm Beach 0 840,269 3,224 0 1998 1973
Medical Bldg - ------- ----- -
Physician Clinics 511,807 153,662,072 5,128,487 0
Skilled Nursing Facilities
Life Care Center of 0 2,873,661 121,822 0 1997 1972
Globe
Fountain Valley - 0 12,687,699 1,270,568 0 1994 1989
Living Care Center
Life Care Center of 0 6,230,515 513,695 0 1994 1994
Aurora
Life Care Center of 0 12,417,625 232,868 0 1997 1998
Greeley
Life Care Center of 0 5,046,153 201,498 0 1997 1981
Centerville
Life Care Center of 0 3,289,203 127,633 0 1997 1991
Lynchburg
Life Care Center of 0 7,759,595 312,014 0 1996 1998
Westminster
Life Care Center of 0 10,205,696 538,414 0 1995 1996
Orange Park
-S15-
<PAGE>
New Harmonie 32,332 3,640,140 643,256 0 1993 1987
Healthcare Center
Life Care Center of 0 7,592,661 339,337 0 1996 1997
Wichita
Fenton Extended Care 32,345 3,540,494 635,522 0 1993 1968
Center
Meadows Nursing Center 35,415 3,284,185 598,182 0 1993 1971;1977
Ovid Convalescent Manor 48,791 3,143,156 357,266 0 1993 1968
Wayne Convalescent 33,548 1,049,352 195,849 0 1993 1967
Center
Westgate Manor Nursing 32,887 1,697,049 313,202 0 1993 1964;1974
Home
Life Care Center of 0 9,445,015 478,465 0 1995 1996
Forth Worth
Life Care Center of 0 10,020,503 408,629 0 1995 1997
Houston
Life Care Center of 0 0 0 0 1997 1998
Columbia
Blakely-Pine Health 0 2,931,114 12,410 0 1998 1992
Care Center
Avis B. Adams 0 6,938,969 28,538 16,516,610 1998 1971/77
Christian Convalescent
Ctr(4)
The Village Nursing 0 3,201,294 13,330 0 1998 1991
Center(Fort Union)(4)
The Laurels of Forest 0 6,163,582 24,559 0 1998 1991
Glen(4)
The Meadows of 0 4,724,495 19,789 0 1998 1991
Goochland(4)
Kingston Health Care 0 5,001,045 20,748 0 1998 1995
Center
The Brian Ctr Health & 0 5,284,301 22,007 0 1998 1989
Rehab/Lawrencevil(4)
Mountain View Nursing 0 12,643,993 53,076 0 1998 1976
Home
Twin Oaks Convalescent 0 3,451,885 12,674 0 1998 1966
Home(4)
IHS of Northern 0 12,878,424 53,344 0 1998 late 1950's;
Virginia(Alexandria) 1970's
Gravois Nursing Center 0 10,997,354 40,273 0 1998 1966;1975
- ---------- ------ -
Skilled Nursing
Facilities 215,318 178,139,158 7,588,968 16,516,610
Other
Midtown Medical Center 8,028 8,757,955 1,519,578 0 1993 1906;1986
Puckett Laboratory 29,660 4,285,486 518,635 0 1993 1986;1991
Desert Vista Hospital 0 0 0 0 1998 1987
Mission Vista Hospital 0 6,276,615 26,015 0 1998 1983
Havenwyck Hospital 0 14,443,407 41,672 0 1998 1983
Tucson MOB(3) 0 2,517,733 0 0 1998 under
construction
- --------- - -
Other 37,688 36,281,196 2,105,900 0
Total Real Estate 1,545,699 1,384,275,234 48,617,989 61,681,759
--------- ------------- ---------- ----------
Corporate Property 3,279,517 3,279,517 1,498,164 0
Total Property 4,825,216 1,387,554,751 50,116,153 61,681,759
========= ============= ========== ==========
</TABLE>
-S16-
<PAGE>
(1) Depreciation is provided on buildings and improvements over 31.5 to 39.0
years and personal property over 3.0 to 7.0 years.
(2) This encumbrance is to protect the lessee's interest in their security
deposit.
(3) Development at 12/31/98.
(4) All 6 of the properties are encumbered by one mortgage with a 12/31/98
balance of $16,516,610.
(5) St. Andrews consists of three buildings, with one building being an MOB that
is in construction as of 12/31/98.
(6) Total assets at December 31, 1998 have an estimated aggregate total cost of
$1,061,900,408 for Federal Income
Tax purposes.
(7) Reconciliation of Total Property and Accumulated Depreciation for the
twelve months ended Dec.31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Year to Date Ending 12/31/98 Year to Date Ending 12/31/97 Year to Date Ending 12/31/96
---------------------------- ---------------------------- ----------------------------
Total Accumulated Total Accumulated Total Accumulated
Property Depreciation Property Depreciation Property Depreciation
-------- ------------ -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance $505,698,610 $34,718,380 $439,177,928 $ 23,143,511 $ 332,972,982 $ 14,492,646
Retirements/dispositions:
Real Estate (11,410,200) (423,339) (71,148) (32,343) (5,033) (755)
Corporate Property 0 0 0 0 0 0
Additions during the period:
Acquisitions/Improvements 847,262,872 15,507,502 59,822,598 11,035,703 107,249,244 8,304,776
Corporate Property 119,604 313,612 1,467,143 571,509 351,617 346,844
Construction in Progress 45,883,866 0 5,302,089 0 (1,390,882) 0
---------- - --------- - ---------- -
Ending Balance $1,387,554,751 $50,116,154 $505,698,610 $ 34,718,380 $ 439,177,928 $ 23,143,511
============== =========== ============ ============ ============= ============
</TABLE>
-S17-
<PAGE>
Schedule IV - Mortgage Loans on Real Estate
As of December 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Interest Periodic Balloon
Facility Rate Payment Payment
Encumbered Property Name Type State at 12/31/98 Maturity Date Terms at Maturity
(If pplicable)
<S> <C> <C> <C> <C> <C> <C>
Construction Loans:
Bay Area Medical Plaza AHF FL 8.75% 10 yrs after cnvrsn or 25th yr-lendor (2) (7)
may demand pmt
Blue Oaks Assisted Living Facility ALF CA 10.00% 5 yrs after conv. Or June 2003 (2) (7)
Columbia Cottage of Mountain Brook ALF PA 9.25% 4/30/04 (2) (7)
Country Cottage Alabama ALF AL 9.25% 4/10/04 (2) (7)
Country Cottage Mississippi ALF MS 9.25% 4/10/04 (2) (7)
Country Cottage Tennessee ALF TN 9.25% 4/10/04 (2) (7)
Urbana Assisted Living Facility ALF IL 8.25% 60 mnths (5 yrs) from the 1st day of (2) (7)
the Term Period
Sierra Hills Assisted ALF WY 8.25% 60 mnths (5 yrs) from the 1st day of (2) (7)
Living(Cheyenne) the Term Period
Biloxi Assisted Living Facility ALF MS 10.00% Earlier of 11/1/00 (cnvrsn date) or (2) (7)
tenant lease dates
Greenville ALF MS 9.75% 10 yrs if Borrower does not select (2) (7)
Term Period (10, 7. or 5)
Wellington Place at Kennesaw ALF GA 9.75% 10 yrs if Borrower does not select (2) (7)
Term Period (10, 7. or 5)
Sterling House at Ames ALF IA 10.25% 12/1/03 (2) (7)
Sterling House at Cedar Falls ALF IA 10.25% 12/1/03 (2) (7)
Sierra Vista ALF AZ 10.04% 5/15/06 (2) (7)
Healthcare Prop-XX(Muscle Shoals) ALF AL 9.75% 9/30/04 (2) (7)
Healthcare Prop-XVIII(Newport) ALF TN 9.75% 9/30/04 (2) (7)
ILC/Medistar Galleria ALF TX 8.75% 8/11/08 (2) (7)
Park Place of Gainesville SNF FL 8.62% 11/30/08 (2) (7)
Roberts Health SNF AL 10.75% 8/31/09 (2) (7)
Rivers Bend Retirement Community SNF KY 10.00% 2/28/99, unless extended to 2/19/2000 (2) (7)
(Lake Clough)
Life Care Center of Charleston SNF SC 9.50% 84 mnths (7 yrs) from the 1st day of (2) (7)
the Term Period
Prestige Green Valley ALF AZ 10.04% 12/31/06 (2) (7)
Permanent Loans:
Hearthstone Nashville ALF TN 12.00% 12/31/03 (3)
731
-S18-
<PAGE>
Augusta Nursing & Rehabilitation ALF VA 9.46% 10/31/08 (1)
Center (Staunton) 1,943
Hearthstone Albuquerque ALF NM 12.00% 11/30/03 (3)
731
Chapman General Hospital ACH CA 11.75% 8/10/09 (1)
6,988
El Paso AHF TX 10.50% 2/1/01 (4)
2,400
Capri Retirement Villa ALF CA 11.17% 5/1/02 (1)
4,150
Imperial Oasis / Brawley ALF CA 11.04% 5/1/07 (1)
2,659
Oak Park Manor / Claremont ALF CA 10.98% 5/7/01 (1) (8)
Chico Assisted Living ALF CA 8.11% 11/1/05 (1) (9)
Prestige Assisted Living at ALF CA 9.20% 10/31/03 (1) (9)
Oroville
Park Place of Carrollwood ALF FL 9.49% 1/1/08 (1) (8)
Carillon at Asheboro ALF NC 9.45% 3/1/03 (1) (9)
Carillon at Harrisburg ALF NC 9.36% 3/1/03 (1) (9)
Columbia Cottage of Collegeville ALF PA 12.00% 6/30/03 (1) (9)
Columbia Cottage of Florence ALF AL 12.00% 3/25/02 (1) (8)
Columbia Cottage of Wyomissing ALF PA 12.00% 6/30/03 (1) (8)
Wexford House Denver Assisted Liv. ALF NC 10.00% 9/17/08 (1) (8)
Lancaster Village ALF OR 9.73% 2/13/08 (1)
2,551
Ivy Hall (Atlanta) ALF GA 12.00% 6/30/08 (1) (8)
Walden House Assisted Living ALF NC 10.30% 10/3/07 (1) (8)
Facility
Eastside Gardens of Snellville ALF GA 12.00% 9/20/01 (1) (8)
Northlake Gardens Assisted Care ALF GA 12.00% 9/20/01 (1) (8)
Facility
Sterling House at Burlington ALF IA 9.86% 12/1/03 (1) 1,043
Sterling House at Clinton ALF IA 9.86% 12/1/03 (1) 1,019
-S19-
<PAGE>
Sterling House at Fort Dodge ALF IA 9.86% 12/1/03 (1) 1,043
Sterling House at Grand Island ALF NE 9.86% 12/1/03 (1) 1,035
Sterling House at Marshalltown ALF IA 9.86% 12/1/03 (1) 1,096
Sterling House at Muscatine ALF IA 9.86% 12/1/03 (1) 1,074
Cardinal Retirement Village of ALF OH 12.50% 9/2/02 (1) 1,544
Cuyahoga Falls
Autumn Wind Residence Assisted ALF ID 10.03% 10/1/02 (1) 4,700
Living Facility
Grand Park Assisted Living ALF MT 9.37% 4/1/03 (1) 1,968
Community
Living Court Assisted Living of ALF WA 10.02% 9/3/02 (1) 1,714
Enumclaw
Tucson Heart Hospital SH AZ 9.04% 8/31/05 (1) 16,278
Diana Lynn Lodge SNF CA 10.00% 5/1/07 (1) 4,911
Diana Lynn Lodge West L.A. SNF CA 10.30% 5/1/07 (1) 307
Pavillion II
Carlyle House SNF MA 11.15% 5/31/02 (1) (8)
Colonial Village Nursing Home SNF OK 9.25% 12/24/02 (1) 525
Temple Manor Nursing Home SNF OK 9.25% 12/24/02 (1) 643
Tuttle Care Center SNF OK 9.25% 12/24/02 (1) 482
Western Hills Health Care Center SNF OK 9.25% 12/24/02 (1) 2,165
Willow Park Health Care Center SNF OK 9.25% 12/24/02 (1) 2,002
Woodland Care Center SNF OK 9.25% 12/24/02 (1) 476
Charter House (Farmington and SNF MI 10.82% 2/15/07 (1) 8,532
Novi)
Cogburn-Midtown (Ideal) SNF MI 12.10% 8/31/09 (1) (8)
-S20-
<PAGE>
Cogburn Nursing Health Center SNF AL 12.09% 8/31/09 (1) (8)
Tri-State Manor SNF TN 12.48% 1/31/02 (1) (8)
Canton Harbor Nursing & SNF MD 10.00% 2/15/02 (1) 8,497
Rehabilitation Center
Cedar Knoll Care Center Grasslake SNF MI 11.25% 5/25/02 (1) (8)
HP/Florida I Nursing Home SNF FL 12.00% 2/4/02 (1) (8)
Johnson Health Care Center SNF TN 10.26% 5/25/07 (1) (9)
Carrington Nursing Home SNF VA 10.11% 6/25/02 (1) (9)
Old Court Nursing Home SNF MD 10.00% 5/5/03 (3) 5,985
Cuyahoga Falls Country Place SNF OH 12.50% 9/2/02 (1) 579
Tri-County Convalescent Home SNF TN 11.36% 11/25/01 (1) (8)
Life Care Columbia SNF TN 10.09% 8/14/13;10/27/13 (4) 12,380
------
Total Mortgage Notes Receivable $ 102,151
=========
</TABLE>
-S21-
<PAGE>
<TABLE>
<CAPTION>
Schedule IV - Mortgage Loans on Real Estate
As of December 31, 1998
(dollars in thousands)
(5), (12)
Carrying Amount
Original Face of Mortgage Note
Encumbered Property Name Value of Note as of 12/31/98 Prepayment Penalties/Fees
<S> <C> <C> <C>
Construction Loans:
Bay Area Medical Plaza $ 9,100 $ 8,555 No PPMT until 5th anniversary, then 5% penalty,
scales down 1% per year
Blue Oaks Assisted Living Facility 7,100 6,877 None.
Columbia Cottage of Mountain Brook 3,120 699 (10)
Country Cottage Alabama 1,230 970 (10)
Country Cottage Mississippi 1,350 768 (10)
Country Cottage Tennessee 1,195 868 (10)
Urbana Assisted Living Facility 7,620 6,983 None
Sierra Hills Assisted Living(Cheyenne) 6,285 5,866 None
Biloxi Assisted Living Facility 6,020 4,756 None
Greenville 2,995 2,302 (10)
Wellington Place at Kennesaw 3,570 2,979 (10)
Sterling House at Ames 2,215 1,225 (10)
Sterling House at Cedar Falls 2,220 1,148 (10)
Sierra Vista 4,665 2,023 (10)
Healthcare Prop-XX(Muscle Shoals) 3,665 1,006 (10)
Healthcare Prop-XVIII(Newport) 3,335 571 (10)
ILC/Medistar Galleria 12,133 10,221 Cannot prepay before 8/02 with 3% penalty
Healthsouth Ambulatory Care Building
Park Place of Gainesville 6,300 6,251 (10)
Roberts Health 4,000 1,796 Cannot prepay before 8/99, then 1% premium
Rivers Bend Retirement Community
(Lake Clough) 2,250 2,318 None.
Life Care Center of Charleston 3,068 3,131 (10)
Prestige Green Valley 4,720 380 (10)
-S22-
<PAGE>
Permanent Loans:
Hearthstone Nashville 750 750 Exit fee to allow 22% Internal Rate of Return
Augusta Nursing & Rehabilitation Ctr 2,300 2,363 (10)
Hearthstone Albuquerque 750 765 Exit fee to allow 22% Internal Rate of Return
Chapman General Hospital 8,000 8,061 Cannot prepay before 12/01; 3% premium til 8/02
then scales down 1% per year.
El Paso 2,400 2,473 5% Prepayment Premium
Capri Retirement Villa 4,300 4,374 (10)
Imperial Oasis / Brawley 3,400 3,051 (11)
Oak Park Manor / Claremont 2,188 2,220 (11)
Chico Assisted Living 5,300 2,727 (10)
Prestige Assisted Living at Oroville 4,800 2,466 (10)
Park Place of Carrollwood 5,735 5,869 (10)
Carillon at Asheboro 1,250 1,281 (10)
Carillon at Harrisburg 1,250 1,282 (10)
Columbia Cottage of Collegeville 512 526 Penalty: 1st & 2nd yr premium of 4%, scales dow
1% each year thereafter
Columbia Cottage of Florence 350 359 (10)
Columbia Cottage of Wyomissing 488 501 (10)
Wexford House Denver Assisted Liv. 1,700 1,749 (10)
Lancaster Village 2,950 3,014 Cannot prepay before 2/03, then 5% penalty which
scales down 1% per year
Ivy Hall (Atlanta) 1,125 1,157 (10)
Walden House Assisted Living Facility 1,700 1,734 (10)
Eastside Gardens of Snellville 704 719 Penalty: year 1 - 4%, scales down 1% each year
Northlake Gardens Assisted Care Facility 864 840 Penalty: year 1 - 6%, scales down 1% each year
Sterling House at Burlington 2,160 1,109 (10)
Sterling House at Clinton 2,110 1,083 (10)
Sterling House at Fort Dodge 2,140 1,098 (10)
Sterling House at Grand Island 2,125 1,091 (10)
Sterling House at Marshalltown 2,250 1,155 (10)
Sterling House at Muscatine 2,205 1,132 (10)
Cardinal Retirement Village of
Cuyahoga Falls 1,600 1,636 Min. of $250k ppmt with exit fee
Autumn Wind Residence Assisted
Living Facility 4,970 5,063 (10)
Grand Park Assisted Living Community 2,080 2,129 (10)
Living Court Assisted Living of Enumclaw 1,800 1,833 (10)
Tucson Heart Hospital 17,800 18,294 Cannot prepay until 4th year, then 3% penalty
scaling down 1% each year
-S23-
<PAGE>
Diana Lynn Lodge 5,830 5,914 (11)
Diana Lynn Lodge West L.A. Pavillion II 350 356 (11)
Carlyle House 2,249 2,290 (10)
Colonial Village Nursing Home 542 553 (10)
Temple Manor Nursing Home 664 678 (10)
Tuttle Care Center 498 508 (10)
Western Hills Health Care Center 2,236 2,283 (10)
Willow Park Health Care Center 2,068 2,111 (10)
Woodland Care Center 492 502 (10)
Charter House (Farmington and Novi) 9,600 9,729 (10)
Cogburn-Midtown (Ideal) 4,890 4,994 No prepayment before 8/99; then 1% fee
Cogburn Nursing Health Center 4,000 4,035 No prepayment before 8/99; then 1% fee
Tri-State Manor 1,000 1,017 (10)
Canton Harbor Nursing & Rehabilitation Ctr 8,800 9,046 (10)
Cedar Knoll Care Center Grasslake 1,625 1,653 (10) and a 7% exit fee
HP/Florida I Nursing Home 609 624 Penalty: year 1 - 4%, scales down 1% each year;
7% exit fee
Johnson Health Care Center 2,150 2,185 (10)
Carrington Nursing Home 2,250 2,286 (10) and a 3.5% exit fee
Old Court Nursing Home 6,200 6,388 (11)
Cuyahoga Falls Country Place 600 613 Min. of $250k ppmt with exit fee
Tri-County Convalescent Home 2,250 2,264 (10) and a 7% exit fee
Life Care Columbia 12,380 12,916 (6)
------ ------
Total Mortgage Notes Receivable $ 263,495 $ 228,542
========= =========
</TABLE>
(1) Paid in monthly installments of Principal and Interest. Principal payable
in full at maturity date. Amortized over 300 months.
(2) Interest only while in development. Then identical to (1).
(3) Interest only for 12 months. Then identical to (1).
(4) Interest only until maturity. Then Principal payable in full.
(5) The aggregate cost for Federal income tax purposes is estimated at $222.6
million at 12/31/98.
-S24-
<PAGE>
(6) No Prepayment Fee after 85th month. Prior to 85th month, a fee equal to
"Loss of Yield" (minimum of 2%) multiplied by the loan balance. Loss of
Yield is difference between 10.09% on this note and comparable term US
Treasury Rate.
(7) Amount can not be calculated at this time because the property is under
construction and the total loan amount is currently unknown.
(8) Amount can not be calculated at this time because the interest rate
increases based on CPI which is unknown at this time.
(9) Amount can not be calculated at this time because the interest rate varies
and is calculated by a participating bank.
(10)Yield Maintenance Amount is defined generally to be an amount equal to:
= % of Principal Amount Being Prepaid x [(Present value of the Principal
and Interest payments remaining to maturity at a discount rate) - (Principal
amount outstanding at time of prepayment)].
(11)Prepayment before a certain date requires a replacement loan of a comparable
amount and a 1% penalty, otherwise the Yield Maintenance Amount would
apply (see Note 10).
(12)Reconciliation of mortgage notes receivable for the years ended
December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997
---- ----
<S><C> <C> <C>
Balance at beginning of period $ 4,708 $ -
Additions during period:
New or assumed mortgages 211,970 -
Capitalization of non cash interest 626 -
Construction fundings 19,864 4,488
Other 121 220
--- ---
232,581 4,708
Deductions:
Collections of principal (164) -
Cost of mortgages sold (8,388) -
Amortization of premium (195) -
---- -
(8,747) -
------ -
Balance at close of period $ 228,542 $ 4,708
======= =====
</TABLE>
-S25-
REVOLVING CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "Credit Agreement"), dated as of October 15,
1998, is by and among HEALTHCARE REALTY TRUST INCORPORATED, a Maryland
corporation, the banks listed on the signature pages hereof, and NATIONSBANK,
N.A., as administrative agent for such banks and FIRST UNION NATIONAL BANK,
SOCIETE GENERALE and BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC. as
co-agents.
The parties hereto agree as follows:
ARTICLE I
DEFINITION
SECTION 1.01 Definitions. The following terms, as used herein, have the
following meanings:
"Adjusted Eurodollar Rate" means, for the Interest Period for
each Eurodollar Loan comprising part of the same borrowing (including
conversions, extensions and renewals), a per annum interest rate
determined pursuant to the following formula:
Adjusted Eurodollar Rate = Interbank Offered Rate
-------------------------------
1 - Eurodollar Reserve Percentage
"Administrative Questionnaire" means, with respect to each
Bank, an administrative questionnaire in the form prepared by the Agent
and submitted to the Agent duly completed by such Bank.
"Affiliate" means, with respect to any designated Person, (a)
any officers or directors of such Person or (b) any other Person (other
than a Subsidiary of such designated Person) that has a relationship
with the designated Person whereby either of such Persons directly or
indirectly controls or is controlled by or is under common control with
the other of such Persons. The term "control" means the possession,
directly or indirectly, of the power, whether or not exercised to
direct or cause the direction of the management or policies of any
Person, whether through ownership of voting securities, by contract or
otherwise.
"Agent" means NationsBank, in its capacity as administrative
agent for the Banks hereunder, and its successors in such capacity.
<PAGE>
"Agent's Fee Letter" means that letter agreement dated as of
August 31, 1998 among NationsBank, N.A., NationsBanc Montgomery
Securities LLC and the Borrower, as amended, modified, supplemented or
replaced from time to time.
"Aggregate Revolving Committed Amount" means the aggregate
amount of Revolving Commitments in effect, being initially TWO HUNDRED
SIXTY-FIVE MILLION DOLLARS ($265,000,000).
"Applicable Lending Office" means, with respect to any Bank,
(a) in the case of its Base Rate Loans, its Domestic Lending Office and
(b) in the case of its Eurodollar Loans, its Eurodollar Lending Office.
"Applicable Percentage" means for any day, the rate per annum
set forth below opposite the applicable rating for the Borrower's
senior unsecured (non-credit enhanced) long term debt then in effect,
it being understood that the Applicable Percentage for (i) Base Rate
Loans shall be the percentage set forth under the column "Base Rate
Margin", (ii) Eurodollar Loans shall be the percentage set forth under
the column "Eurodollar Margin and Letter of Credit Fee", (iii) the
Letter of Credit Fee shall be the percentage set forth under the column
"Eurodollar Margin and Letter of Credit Fee", and (iv) the Unused Fee
shall be the percentage set forth under the column "Unused Fee":
IF THERE IS NO RATING BY S&P OR MOODY'S:
---------------------------------------
<TABLE>
<CAPTION>
Duff & Phelps Eurodollar Margin
Pricing and Fitch and Letter of Base Rate
Level Ratings Credit Fee Margin Unused Fee
----- ------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
I A- or above 0.750% 0% 0.1875%
II BBB+ 0.875% 0% 0.200%
III BBB 1.00% 0% 0.200%
IV BBB- 1.125% 0% 0.225%
V below BBB- 1.375% 0.25% 0.250%
or unrated
</TABLE>
The foregoing pricing matrix shall apply only if the
Borrower's senior unsecured (non-credit enhanced) long term debt is not
rated by either S&P or Moody's. If a such a rating is provided by
either or both of S&P or Moody's, the pricing matrix which follows
shall apply.
-2-
<PAGE>
<TABLE>
<CAPTION>
IF A RATING IS PROVIDED BY EITHER OR BOTH OF S&P OR MOODY'S:
-----------------------------------------------------------
S&P,
Duff & Phelps Eurodollar Margin
Pricing and Fitch Moody's and Letter of Base Rate
Level Ratings Rating Credit Fee Margin Unused Fee
----- ------- ------ ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
I A- or above A3 or above 0.675% 0% 0.1875%
II BBB+ Baa1 0.800% 0% 0.200%
III BBB Baa2 0.925% 0% 0.200%
IV BBB- Baa3 1.05% 0% 0.225%
V below BBB- below Baa3 1.30% 0.25% 0.250%
</TABLE>
The numerical classification set forth under the column
"Pricing Level" shall be established based on the ratings by S&P,
Moody's, Duff & Phelps and Fitch (collectively, the "Rating Services")
for the Borrower's senior unsecured (non-credit enhanced) long term
debt.
Where such a rating is provided by Duff & Phelps and/or Fitch,
but not S&P or Moody's, the pricing shall be determined by reference to
the first pricing matrix shown above as hereafter provided. Where such
a rating is provided only by Duff & Phelps or Fitch, but not both, the
pricing shall be determined by reference to the ratings so provided.
Where such a rating is provided by Duff & Phelps and Fitch, the pricing
shall be determined by reference to the lower of the two ratings if
they are not more than one Pricing Level apart, or by an average of the
applicable Pricing Levels (and applicable margins and fee percentages)
if they are more than one Pricing Level apart.
Where such a rating is provided by either or both of S&P or
Moody's, the pricing shall be determined by reference to the second
pricing matrix shown above as hereafter provided. Where such a rating
is provided only by S&P or Moody's, but not any other Ratings Service,
the pricing shall be determined by reference to such rating. Where such
a rating is provided by more than one such Ratings Service, pricing
shall be determined by reference to the lower of the two highest
ratings available, provided that at least one of the two such highest
ratings is S&P or Moody's (and the other is the highest of the other
ratings services), where the two such highest ratings are not more than
one Pricing Level apart, or by an average of the applicable Pricing
Levels (and applicable margins and fee percentages) if they are more
than one Pricing Level apart.
The Applicable Percentage shall be determined and adjusted on
the date five (5) Business Days after each change in debt rating.
Adjustments in the Applicable Percentage shall be effective as to all
Loans and Letters of Credit, existing and prospective, from the date of
adjustment. The Agent shall promptly notify the Lenders of changes in
the Applicable Percentage. Adjustments in the Applicable Percentage
shall be effective as to existing Extensions of Credit as well as new
Extensions of Credit made thereafter.
-3-
<PAGE>
"Asset Sale" means any sale, lease or other disposition
(including any such transaction effected by way of merger, amalgamation
or consolidation) by the Borrower or any of its Subsidiaries or
Specified Affiliates subsequent to the date hereof of any asset
(including stock), including without limitation any sale-leaseback
transaction, whether or not involving a Capital Lease, but excluding
(a) any sale, lease or other disposition of real property in the
ordinary course of business of the Borrower or any of its Subsidiaries
or Specified Affiliates, (b) any sale, lease or other disposition of
raw materials, supplies or other nonfixed assets in the ordinary course
of business, (c) any sale, lease or other disposition of surplus,
obsolete or worn out machinery, equipment, molds or other manufacturing
equipment in the ordinary course of business to the extent that the
aggregate book value of all of such assets sold, leased or otherwise
disposed of in a fiscal year does not exceed $1,000,000 (on a
non-cumulative basis), (d) any sale, lease or other disposition to the
Borrower or any Wholly-Owned Consolidated Subsidiary or Specified
Affiliate of the Borrower, (e) any sale or other disposition in the
ordinary course of business of readily marketable securities, (f) any
disposition of cash not prohibited hereunder, (g) any Securities
Transaction to the extent approved by the Majority Banks under the Term
Loan Agreement, and (h) the issuance of any shares of stock in any
Specified Affiliate to any officer, director or employee of the
Borrower.
"Assignee" shall have the meaning given to such term in
Section 9.06(c).
"Bank" means each bank listed on the signature pages hereof,
each Assignee which becomes a Bank pursuant to Section 9.06(c),
and their respective successors.
"Base Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest whole multiple of 1/100 of 1%)
equal to the greater of (a) the Federal Funds Rate in effect on such
day plus 1/2 of 1% or (b) the Prime Rate in effect on such day. If for
any reason the Agent shall have determined (which determination shall
be conclusive absent manifest error) that it is unable after due
inquiry to ascertain the Federal Funds Rate for any reason, including
the inability or failure of the Agent to obtain sufficient quotations
in accordance with the terms hereof, the Base Rate shall be determined
without regard to clause (a) of the first sentence of this
definition until the circumstances giving rise to such inability no
longer exist. Any change in the Base Rate due to a change in the Prime
Rate or the Federal Funds Rate shall be effective on the effective
date of such change in the Prime Rate or the Federal Funds Rate,
respectively.
"Base Rate Borrowing" means a Borrowing consisting of Base
Rate Loans.
"Base Rate Loan" means a Loan hereunder which bears interest
at the Base Rate plus the Applicable Percentage pursuant to the
applicable Notice of Borrowing or Notice of Interest Rate Election or
the provisions of Article VIII.
"Benefit Arrangement" ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed
to by any member of the ERISA Group.
-4-
<PAGE>
"Borrower" means Healthcare Realty Trust Incorporated, a
corporation organized and existing under the laws of the State
of Maryland, and its successors.
"Borrowing" means a Revolving Loan borrowing or Swingline Loan
hereunder, including extensions and conversions.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in Charlotte, North Carolina or
New York, New York are authorized or required by law to close.
"Buy-Sell Agreement" means a written agreement between the
Borrower or any Subsidiary,as purchaser, and one or more third parties,
as seller, obligating the Borrower or such Subsidiary, upon payment
of a definitely determinable price, to acquire the real property and
improvements described therein without contingency, except that the
improvements are constructed in accordance with the conditions set
forth in the particular Buy-Sell Agreement.
"Capital Lease" means a lease that would be capitalized on a
balance sheet of the lessee prepared in accordance with generally
accepted accounting principles.
"Capital Lease Indebtedness" means indebtedness incurred
pursuant to a Capital Lease.
"CCT" means HR Acquisition I Corporation, a Maryland
corporation and successor by merger to Capstone Capital Corporation,
a Maryland corporation.
"Change of Control" means the occurrence of any of the
following events: (i) any Person or two or more Persons acting in
concert shall have acquired beneficial ownership, directly or
indirectly, of, or shall have acquired by contract or otherwise, or
shall have entered into a contract or arrangement that, upon
consummation, will result in its or their acquisition of or control
over, voting stock of the Borrower (or other securities convertible
into such voting stock) representing 35% or more of the combined voting
power of all voting stock of the Borrower, or (ii) during any period of
up to 24 consecutive months, commencing after the Closing Date,
individuals who at the beginning of such 24 month period were directors
of the Borrower (together with any new director whose election by the
Borrower's Board of Directors or whose nomination for election by the
Borrower's shareholders was approved by a vote of at least two-thirds
of the directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the directors of the Borrower then in office. As used
herein, "beneficial ownership" shall have the meaning provided in Rule
13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
-5-
<PAGE>
"Closing Date" means the date on which the conditions set
forth in Article III to the making of the initial Extension of Credit
hereunder shall have been fulfilled and on which such initial Extension
of Credit shall have been made.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.
"Commitments" means, collectively, the Revolving Commitment,
the LOC Commitment and the Swingline Commitment.
"Commitment Period" means the period from and including the
Closing Date to but not including the earlier of (i) the Termination
Date, or (ii) the date on which the Commitments terminate in accordance
with the provisions of this Credit Agreement.
"Consolidated EBIT" means, for any period, the sum of (a) the
consolidated net income of the Borrower and its Consolidated
Subsidiaries for such period plus (b) to the extent deducted in
determining such consolidated net income, Consolidated Interest
Expense, plus (c) the amount of any consolidated income taxes (or minus
the amount of any consolidated tax benefits) of the Borrower and its
Consolidated Subsidiaries for such period.
"Consolidated Funded Indebtedness" means, without duplication,
all obligations, liabilities and indebtedness of the Borrower and its
Subsidiaries of the types described in subsections (a) through (f),
inclusive, (i) and (j) of the definition of Debt.
"Consolidated Interest Expense" means, for any period, the
cash interest expense and letter of credit fee expense of the Borrower
and its Consolidated Subsidiaries determined on a consolidated basis
for such period.
"Consolidated Mortgage Debt" means the aggregate principal
amount of all Debt of the Borrower and its Subsidiaries secured by a
Lien on any real property owned or leased by them.
"Consolidated Senior Debt" means all Consolidated Funded
Indebtedness other than any amount thereof the repayment of which has
been subordinated to the repayment of any other Consolidated Funded
Indebtedness.
"Consolidated Senior Secured Debt" means at any date the sum
(without duplication) of (i) Consolidated Mortgage Debt plus (ii)
Consolidated Subsidiary Debt plus (iii) all preferred stock of
Subsidiaries not owned by the Borrower and/or one or more of its
wholly-owned Subsidiaries, valued at the higher of voluntary or
involuntary liquidation preference thereof.
"Consolidated Subsidiary" means at any date any Subsidiary or
other entity the accounts of which would be consolidated with those of
the Borrower in its consolidated financial statements if such
-6-
<PAGE>
statements were prepared as of such date. For purposes of this Credit
Agreement, Specified Affiliates of the Borrower shall be classified as
Consolidated Subsidiaries.
"Consolidated Subsidiary Debt" means all Debt of Subsidiaries
of the Borrower (exclusive of Debt owed to the Borrower), determined in
accordance with generally accepted accounting principals on a
consolidated basis.
"Consolidated Tangible Net Worth" means, at any time,
consolidated stockholders' equity of the Borrower and its Consolidated
Subsidiaries determined as of such time in accordance with generally
accepted accounting principles applied on a consistent basis, with no
upward adjustments due to a revaluation of assets (other than in
respect of assets purchased or acquired in connection with the
acquisition of CCT on or about the Closing Date), minus all Intangible
Assets.
"Consolidated Total Capital" means, at any time, the sum of
(a) Consolidated Tangible Net Worth plus (b) Consolidated Funded
Indebtedness.
"Consolidated Unencumbered Realty" means for the Borrower and
its Subsidiaries, the book value of all realty (prior to deduction of
accumulated depreciation) minus outstanding Consolidated Senior Secured
Debt minus the book value of all properties (prior to deduction of
accumulated depreciation) as to which associated leases or mortgage
indebtedness relating thereto is past due or otherwise in default more
than 30 days.
"Consolidated Unsecured Debt" means all unsecured Debt of the
Borrower and its Subsidiaries.
"Constitutional Documents" in relation to any corporate Person
means the Certificate of Incorporation and By-Laws or other
constitutional documents of such corporate Person.
"Credit Agreement" shall have the meaning given to such term
in the introductory paragraph hereof.
"Debt" of any Person means at any date, without duplication,
(a) all obligations of such Person for borrowed money, (b) all
obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments, (c) all unconditional obligations of such
Person to pay (as opposed to a contingent or conditional obligation of
such Person to pay) the deferred purchase price of property or
services, except security deposits, sums retained to secure
performance, reserves for capital improvements, trade accounts payable
and accrued expenses arising in the ordinary course of business, (d)
all Capitalized Lease Indebtedness, (e) all Debt of others secured by a
Lien on any asset of such Person, whether or not such Debt is assumed
by such Person (to the extent of the lesser of the amount of such Debt
and the book value of any assets subject to such Lien), (f) the maximum
-7-
<PAGE>
amount of all letters of credit issued or acceptance facilities
established for the account of such Person and, without duplication,
all drafts drawn thereunder (other than letters of credit and
acceptance facilities supporting other Debt of such Person), (g)
obligations under Interest Rate Protection Agreements, (h) all
indebtedness relating to or arising from any Securities Transactions,
(i) all instruments, obligations or undertakings treated as
indebtedness in accordance with generally accepted accounting
principles, or otherwise treated as indebtedness by S&P, Moody's or any
other Ratings Service (whether or not treated as indebtedness for
purposes of generally accepted accounting principles) and (j) all Debt
of others Guaranteed by such Person (to the extent of the lesser of the
amount of such Debt Guaranteed or the amount of such Guarantee);
provided, however, Debt shall not include obligations under Buy-Sell
Agreements.
"Default" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or
both would, unless cured or waived, become an Event of Default.
"Defaulting Bank" means, at any time, any Bank that, at such
time, (i) has failed to make an Extension of Credit required pursuant
to the terms of this Credit Agreement, (ii) has failed to pay to the
Agent or any Bank an amount owed by such Bank pursuant to the terms of
the Credit Agreement or any other of the Credit Documents, or (iii) has
been deemed insolvent or has become subject to a bankruptcy or
insolvency proceeding or to a receiver, trustee or similar proceeding.
"Dollars" and "$" means lawful money of the United States of
America.
"Dollar Amount" means, in relation to any Debt denominated in
Dollars, the amount of such Debt.
"Domestic Lending Office" means, as to each Bank, its office
located at its address set forth in its Administrative Questionnaire
(or identified in its Administrative Questionnaire as its Domestic
Lending Office) or such other office as such Bank may hereafter
designate as its Domestic Lending office by notice to the Borrower and
the Agent.
"Duff & Phelps" means Duff & Phelps Credit Rating Co., Inc.,
or any successor or assignee of the business of such company in the
business of rating securities.
"Environmental Laws" means any and all federal, state, local
and foreign statutes, laws, regulations, ordinances, rules, judgments,
orders, decrees, permits, grants, licenses, agreements or other
governmental restrictions including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act,
the Superfund Amendments and Reauthorization Act, the Resource
Conservation and Recovery Act, the Toxic Substances Control Act, the
Clean Air Act and the Clean Water Act relating to the environment or to
emissions, discharges or releases of pollutants, contaminants,
petroleum or petroleum products, chemicals or industrial, toxic or
-8-
<PAGE>
hazardous substances or wastes into the environment (including, without
limitation, ambient air, surface water, ground water or land) or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, petroleum or petroleum products, chemicals or industrial,
toxic or hazardous substances or wastes or the clean-up or other
remediation thereof.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, or any successor statute.
"ERISA Group" means the Borrower and all members of a
controlled group of corporations and all trades or businesses (whether
or not incorporated) under common control which, together with the
Borrower, are treated as a single employer under Section 414 of the
Code.
"Eurodollar Borrowing" means any Borrowing consisting of
Eurodollar Loans.
"Eurodollar Business Day" means any Business Day on which the
Agent and the Eurodollar Reference Bank are open for international
business (including dealings in Dollar deposits) in London.
"Eurodollar Lending Office" means, as to each Bank, its
office, branch or affiliate located at its address set forth in its
Administrative Questionnaire (or identified in its Administrative
Questionnaire as its Eurodollar Lending Office) or such other office,
branch or affiliate of such Bank as it may hereafter designate as its
Eurodollar Lending Office by notice to the Agent.
"Eurodollar Loan" means a Loan which bears interest at the
Adjusted Eurodollar Rate plus the Applicable Percentage pursuant to the
applicable Notice of Borrowing or Notice of Interest Rate Election.
"Eurodollar Reserve Percentage" means for any day, that
percentage (expressed as a decimal) which is in effect from time to
time under Regulation D of the Board of Governors of the Federal
Reserve System (or any successor), as such regulation may be amended
from time to time or any successor regulation, as the maximum reserve
requirement (including, without limitation, any basic, supplemental,
emergency, special, or marginal reserves) applicable with respect to
Eurocurrency liabilities as that term is defined in Regulation D (or
against any other category of liabilities that includes deposits by
reference to which the interest rate of Eurodollar Loans is
determined), whether or not Lender has any Eurocurrency liabilities
subject to such reserve requirement at that time. Eurodollar Loans
shall be deemed to constitute Eurocurrency liabilities and as such
shall be deemed subject to reserve requirements without benefits of
credits for proration, exceptions or offsets that may be available from
time to time to a Bank. The Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the
Eurodollar Reserve Percentage.
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"Event of Acceleration" means any of the events or conditions
set forth in Sections 6.01(g) or (h) with respect to the Borrower.
"Event of Default" has the meaning set forth in Section 6.01.
"Existing Letters of Credit" means those Letters of Credit
outstanding on the Closing Date and identified on Schedule 2.06(b)-1.
"Extension of Credit" means, as to any Bank, the making
(including extensions and conversions) of, or participation in, a Loan
by such Bank or the issuance or extension of, or participation in, a
Letter of Credit.
"Federal Funds Rate" means, for any day, the rate of interest
per annum (rounded upwards, if necessary, to the nearest whole multiple
of 1/100 of 1%) equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the
Federal Reserve Bank of New York on the Business Day next succeeding
such day, provided that (A) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions
on the next preceding Business Day and (B) if no such rate is so
published on such next preceding Business Day, the Federal Funds Rate
for such day shall be the average rate quoted to the Agent on such day
on such transactions as determined by the Agent.
"Financing Documents" means the Credit Agreement, the Notes,
the LOC Documents and the Subsidiaries Guarantees, in each case as
amended and in effect from time to time.
"Fitch" means Fitch IBCA, Inc., or any successor or assignee
of the business of such company in the business of rating securities.
"Foreign Government" means any government other than that of
the United States of America or any political subdivision thereof.
"Foreign Person" means (a) any Foreign Government, (b) any
agency of a Foreign Government, (c) any form of business enterprise
organized under the laws of any country other than the United States of
America or its possessions or any political subdivision thereof or (d)
any form of business enterprise owned or controlled by any of the
Persons described in clauses (a), (b) or (c) of this definition.
"Funds From Operations" means the Borrower's net income
(loss), excluding gains (losses) from restructuring of indebtedness and
sales of property, plus depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures as
hereafter provided. Notwithstanding contrary treatment under generally
accepted accounting principles, for purposes hereof, "Funds From
Operations" shall include, and be adjusted to take into account, the
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Borrower's interests in unconsolidated partnerships and joint ventures,
on the same basis as consolidated partnerships and subsidiaries, as
provided in the "white paper" issued in March 1995 by the National
Association of Real Estate Investment Trusts, a copy of which is
attached hereto as Schedule 5.17.
"Government" means the federal government of the United States
of America or any agency thereof.
"Governmental Authority" means any federal, state. local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Group" or "Group of Loans" means at any time a group of Loans
consisting of (a) all Base Rate Loans at such time or (b) all
Eurodollar Loans having the same Interest Period at such time; provided
that, if a Loan of any particular Bank is converted to or made as a
Base Rate Loan pursuant to Sections 8.02 or 8.04, such Loan shall be
included in the same Group or Groups of Loans from time to time as if
it had not been so converted or made as a Base Rate Loan.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt
or other obligation of any other Person and, without limiting the
generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of such Person (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt or
other obligation (whether by virtue of partnership arrangements, by
agreement to keep-well, to purchase assets, goods, securities or
services, to take-or-pay, or to maintain financial statement conditions
or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the
payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part); provided that the term Guarantee shall
not include endorsement for collection or deposit in the ordinary
course of business.
"Guarantor" means any guarantor under a Subsidiaries Guarantee
"Hazardous Substance" means any toxic or hazardous substance,
including petroleum and its derivatives presently regulated under the
Environmental Laws.
"Intangible Assets" shall mean, as of the date of any
determination thereof, the total amount of all assets of the Borrower
and its Subsidiaries consisting of goodwill patents, trade names,
trademarks, copyrights, franchises, experimental expense, organization
expense, unamortized debt discount and expense, deferred assets (other
than prepaid insurance and prepaid taxes), the excess of cost of shares
acquired over book value of related assets and such other assets as are
properly classified as "intangible assets" in accordance with generally
accepted accounting principles.
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"Interbank Offered Rate" means, for the Interest Period for
each Eurodollar Loan comprising part of the same borrowing (including
conversions, extensions and renewals), a per annum interest rate
(rounded upwards, if necessary, to the nearest whole multiple of 1/100
of 1%) equal to the rate of interest, determined by the Agent on the
basis of the offered rates for deposits in dollars for a period of time
corresponding to such Interest Period (and commencing on the first day
of such Interest Period), appearing on Telerate Page 3750 (or, if, for
any reason, Telerate Page 3750 is not available, the Reuters Screen
LIBO Page) as of approximately 11:00 A.M. (London time) two (2)
Business Days before the first day of such Interest Period. As used
herein, "Telerate Page 3750" means the display designated as page 3750
by Dow Jones Markets, Inc. (or such other page as may replace such page
on that service for the purpose of displaying the British Bankers
Association London interbank offered rates) and "Reuters Screen LIBO
Page" means the display designated as page "LIBO" on the Reuters
Monitor Money Rates Service (or such other page as may replace the LIBO
page on that service for the purpose of displaying London interbank
offered rates of major banks).
"Interest Period" means, with respect to each Eurodollar Loan,
a period commencing on the date of Borrowing specified in the
applicable Notice of Borrowing or on the date specified in the
applicable Notice of Interest Rate Election and ending, one, two,
three, six or twelve months thereafter, as the Borrower may elect in
the applicable Notice; provided that:
(i) any Interest Period which would otherwise
end on a day which is not a Eurodollar Business Day shall be
extended to the next succeeding Eurodollar Business Day unless
such Eurodollar Business Day falls in another calendar month,
in which case such Interest Period shall end on the next
preceding Eurodollar Business Day;
(ii) any Interest Period which begins on the
last Eurodollar Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end
on the last Eurodollar Business Day of a calendar month; and
(iii) no Interest Period shall extend beyond
the Termination Date.
"Interest Rate Protection Agreement" means interest rate swap
agreement or interest rate future, option, cap, collar or other hedging
arrangements.
"Investment" means any investment in any Person, whether by
means of share purchase, capital contribution (including, without
limitation, subordinated debt), loan, time deposit, warrant, option or
otherwise.
"Investment Policy" means the Borrower's investment policy
currently in effect as of the date hereof and as previously disclosed
in writing to the Banks, and as amended from time to time by Borrower
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with the approval of Majority Banks, which approval shall not be
unreasonably delayed, it being agreed and understood that in the event
Agent does not notify in writing within ten (10) days following the
date of Agent's receipt of Borrower's request for approval of an
amendment to the Investment Policy that the Majority Banks have
disapproved the requested amendment, the Majority Banks shall be deemed
to have approved the amended investment Policy.
"Issuing Bank" means NationsBank.
"Issuing Bank Fees" shall have the meaning assigned to such
term in Section 2.15(c)(ii).
"Letter of Credit" means the Existing Letters of Credit and
any letter of credit issued by the Issuing Bank for the account of the
Borrower in accordance with the terms of Section 2.01(b).
"Letter of Credit Fee" shall have the meaning given such term
in Section 2.15(c)(i).
"Liens" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect
of such asset. For the purposes of this Credit Agreement, the Borrower
or any Subsidiary of the Borrower shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest
of a vendor or lessor under any conditional sales agreement, capital
lease or other title retention agreement relating to such asset.
"Loan" or "Loans" means the Revolving Loans and/or Swingline
Loans or a Eurodollar Loan and/or Base Rate Loan, as appropriate.
"LOC Commitment" means the commitment of the Issuing Bank to
issue, and to honor payment obligations under, Letters of Credit
hereunder and with respect to each Bank, the commitment of each Bank to
purchase participation interests in the Letters of Credit up to such
Bank's LOC Committed Amount as specified in Schedule 2.1(a), as such
amount may be reduced from time to time in accordance with the
provisions hereof.
"LOC Committed Amount" means, collectively, the aggregate
amount of all of the LOC Commitments of the Banks to issue and
participate in Letters of Credit as referenced in Section 2.01(b) and,
individually, the amount of each Bank's LOC Commitment as specified in
Schedule 2.1(a).
"LOC Documents" means, with respect to any Letter of Credit,
such Letter of Credit, any amendments thereto, any documents delivered
in connection therewith, any application therefor, and any agreements,
instruments, guarantees or other documents (whether general in
application or applicable only to such Letter of Credit) governing or
providing for (i) the rights and obligations of the parties concerned
or at risk or (ii) any collateral security for such obligations.
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"LOC Obligations" means, at any time, the sum of (i) the
maximum amount which is, or at any time thereafter may become,
available to be drawn under Letters of Credit then outstanding,
assuming compliance with all requirements for drawings referred to in
such Letters of Credit plus (ii) the aggregate amount of all drawings
under Letters of Credit honored by the Issuing Bank but not theretofore
reimbursed.
"Long-Term Debt" shall mean, at any time, any senior unsecured
debt obligations outstanding at such time with a maturity more than one
(1) year after the date of any determination hereunder.
"Majority Banks" means, at any time, Banks having more than
sixty-six and two-thirds percent (66-2/3%) of the Revolving
Commitments, or if the Revolving Commitments have been terminated,
Banks having more than sixty-six and two-thirds percent (66-2/3%) of
the aggregate principal amount of the Obligations outstanding (taking
into account in each case Participation Interests or the obligation to
participate therein); provided that the Commitments of, and the
outstanding principal amount of Obligations (taking into account in
each case Participation Interests or the obligation to participate
therein) owing to, a Defaulting Bank shall be excluded for purposes
hereof in making a determination of Majority Banks.
"Margin Stock" has the meaning assigned to such term in
Regulation U (to the extent applicable).
"Material Adverse Effect" means a material adverse effect on
(i) the condition (financial or otherwise), operations, business,
assets, liabilities or prospects of the Borrower and its Subsidiaries
taken as a whole, (ii) the ability of the Borrower and the other
Obligors, taken as a whole, to perform any material obligation under
the Financing Documents, or (iii) the rights and remedies of the Agent
and the Banks under the Financing Documents.
"Material Plan" means a Plan or Plans having aggregate
Unfunded Liabilities in excess of $1,000,000.
"Material Subsidiary" means the Subsidiaries identified as
such Schedule 4.07 attached hereto and any Subsidiary which subsequent
to the Closing Date owns assets (including stock) having an aggregate
market value in excess of $2,500,000.
"Moody's" means Moody's Investors Service, Inc., or any
successor or assignee of the business of such company in the business
of rating securities.
"Multiemployer Plan" means at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA to which
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any member of the ERISA Group is then making or accruing an obligation
to make contributions or has within the preceding five (5) plan years
made contributions, including for these purposes any Person which
ceased to be a member of the ERISA Group during such five (5) year
period.
"NationsBank" means NationsBank, N.A., a national banking
association, and its successors.
"Net Sale Proceeds" means, with respect to any Asset Sale, (a)
the cash proceeds received by the Borrower or any of its Subsidiaries,
minus (b) the sum of (i) fees and expenses incurred by the Borrower or
such Subsidiary in connection with such Asset Sale, (ii) cash or
incremental taxes payable by the Borrower or such Subsidiary as a
result of and in connection with such Asset Sale, (iii) any Debt
secured by a Lien on any assets subject to such Asset Sale and required
or permitted to be repaid in connection with such Asset Sale, (iv) any
portion of such proceeds payable to any holder (other than the Borrower
or any of its Subsidiaries or any of its Affiliates) of any direct or
indirect minority interest in such assets, and (v) any portion of such
net proceeds required by the Code to be paid to shareholders to
maintain the Borrower's REIT status.
"NMS" means NationsBanc Montgomery Securities LLC, and its
successors and assigns.
"Note" or "Notes" means any of the Revolving Notes.
"Notice of Borrowing" has the meaning given to such term in
Section 2.02(a).
"Notice of Interest Rate Election" has the meaning given to
such term in Section 2.10(a).
"Obligations" means, collectively, the Revolving Loans,
Swingline Loans and LOC Obligations.
"Obligor" means the Borrower and any of the Guarantors, and
their respective successors.
"Parent" means, with respect to any Bank, any Person as to
which such Bank is a Subsidiary.
"Participant" means a bank or other institution which assumes,
in accordance with Section 9.06(b), a participating interest with
respect to the Loans, the Notes and this Credit Agreement.
"Participation Interest" means the purchase by a Bank of a
participation in LOC Obligations as provided in Section 2.06(b), in
Swingline Loans as provided in Section 2.07(b), and in Revolving Loans
as provided in Section 9.04.
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"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, a
limited liability company, an association, a trust or any other entity
or organization, including a government or political subdivision or an
agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan as
defined in Subsection 3(2) of ERISA (other than a Multiemployer Plan)
which is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code and either (a) is maintained,
or contributed to, by any member of the ERISA Group for employees of
any member of the ERISA Group or (b) has at any time within the
preceding five (5) years been maintained or contributed to, by any
Person which was at such time a member of the ERISA Group for employees
of any Person which was at such time a member of the ERISA Group.
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by NationsBank as its prime rate in effect
at its principal office in Charlotte, North Carolina, with each change
in the Prime Rate being effective on the date such change is publicly
announced as effective (it being understood and agreed that the Prime
Rate is a reference rate used by NationsBank in determining interest
rates on certain loans and is not intended to be the lowest rate of
interest charged on any extension of credit by NationsBank to any
debtor).
"Quarterly Period" means a three month period ending on the
last Business Day of each March, June, September and December.
"Quoted Rate" means, with respect to a Quoted Rate Swingline
Loan, the fixed or floating percentage rate per annum, if any, offered
by the Swingline Bank and accepted by the Borrower in accordance with
the provisions hereof.
"Quoted Rate Swingline Loan" means a Swingline Loan bearing
interest at the Quoted Rate.
"Ratings Services" shall have the meaning provided in the
definition of "Applicable Percentage".
"REIT" means a real estate investment trust as defined in
Sections 856-860 of the Internal Revenue Code of 1986, as amended and
any successor provision.
"Regulation T" means Regulation T of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
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"Regulation X" means Regulation X of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Release" has the meaning given to such term in Section
4.06(a) hereof.
"Revolving Commitment" means, with respect to each Bank, the
commitment of such Bank to make Revolving Loans in an aggregate
principal amount at any time outstanding of up to such Bank's Revolving
Committed Amount.
"Revolving Commitment Percentage" means, for each Bank, a
fraction (expressed as a decimal) the numerator of which is the
Revolving Committed Amount of such Bank at such time and the
denominator of which is the Aggregate Revolving Committed Amount at
such time. The initial Revolving Commitment Percentages are set out on
Schedule 2.1.
"Revolving Committed Amount" means, collectively, the
aggregate amount of all of the Revolving Commitments and, individually,
the amount of each Bank's Revolving Commitment as specified in Schedule
2.1, as such amounts may be reduced from time to time in accordance
with the provisions hereof.
"Revolving Banks" means Banks holding Revolving Commitments,
as identified on Schedule 2.1 and their successors and assigns.
"Revolving Loans" shall have the meaning assigned to such term
in Section 2.1(a).
"Revolving Note" or "Revolving Notes" means the promissory
notes of the Borrower in favor of each of the Revolving Banks
evidencing the Revolving Loans and Swingline Loans in substantially the
form attached as Schedule 2.03(a), individually or collectively, as
appropriate, as such promissory notes may be amended, modified,
supplemented, extended, renewed or replaced from time to time.
"Securities Transaction" means any purchase or other
acquisition (including any such transaction effected by way of
partnership formation, upreit, merger, amalgamation or consolidation)
by the Borrower or any of its Subsidiaries subsequent to the date
hereof of any real estate asset or any entity which has as its
principal assets, real estate, through which Borrower or any of its
Subsidiaries issue consideration comprised principally of its
respective stock or securities, including, without limitation, common
stock, preferred stock, bonds, and hybrid securities.
"S&P" means Standard & Poor's Ratings Group, a division of
McGraw Hill, Inc., or any successor or assignee of the business of such
division in the business of rating securities.
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"Solvent" means, with respect to any person on a particular
date, that on such date (a) the fair value of the property of such
Person is greater than the total amount of liabilities, including,
without limitation, contingent liabilities, of such Person, (b) the
present fair saleable value of the assets of such Person is not less
than the amount that will be required to pay the probable liability of
such Person on its debts as they become absolute and matured, (c) such
Person is able to realize upon its assets and pay its debts and other
liabilities, contingent obligations and other commitments as they
mature, (d) such Person does not intend to, and does not believe that
it will, incur debts or liabilities beyond such Person's ability to pay
as such debts and liabilities mature, and (e) such Person is not
engaged in a business or a transaction, and is not about to engage in a
business or a transaction, for which such Person's property would
constitute unreasonably small capital after giving due consideration to
the prevailing practice in the industry in which such Person is
engaged. In computing the amount of contingent liabilities at any time,
it is intended that such liabilities will be computed at the amount
which, in light of all the facts and circumstances existing at such
time, represents the amount that can reasonably be expected to become
an actual or matured liability.
"Specified Affiliate" means any corporation, association or
other business entity formed for the purpose of earning income not
qualified as "rents from real property" under applicable provisions of
the Code, in which the Borrower owns substantially all of the economic
interest but less than 10% of the voting interests, and the remaining
economic and voting interests are subject to restrictions requiring
that ownership of such interests be held by officers, directors or
employees of the Borrower.
"Subsidiaries Guarantee" means the Subsidiaries Guarantee to
be executed and delivered by each of the Material Subsidiaries,
substantially in the form of Schedule 5.09 as the same may be amended,
supplemented or otherwise modified from time to time.
"Subsidiary" means, with respect to any Person, any
corporation or other entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board
of directors or other persons performing similar functions are at such
time directly or indirectly owned by such Person.
"Swingline Bank" means NationsBank.
"Swingline Commitment" means the commitment of the Swingline
Bank to make Swingline Loans in an aggregate principal amount at any
time outstanding up to the Swingline Committed Amount and the
commitment of the Banks to purchase participation interests in the
Swingline Loans up to their respective Revolving Commitment Percentage
as provided in Section 2.07(b), as such amounts may be reduced from
time to time in accordance with the provisions hereof.
"Swingline Committed Amount" means the amount of the Swingline
Bank's Commitment as specified in Section 2.01(c).
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"Swingline Loan" means a swingline revolving loan made by the
Swingline Bank pursuant to the provisions of Section 2.01(c).
"Term Loan Agreement" means that $200 million Term Loan
Agreement dated as of the date hereof, as amended, modified,
supplemented and extended, among the Borrower, the banks identified
therein and NationsBank, N.A., as Agent.
"Term Loan" means the term loan made under the Term Loan
Agreement.
"Termination Date" means October 15, 2001, or such earlier
date on which the Commitments shall terminate, whether by acceleration
or otherwise.
"UCC" means, with respect to any jurisdiction, the Uniform
Commercial Code as then in effect in that jurisdiction.
"Unfunded Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (a) the present value of all
benefits under such Plan exceeds (b) the fair market value of all Plan
assets allocable to such benefits (excluding any accrued but unpaid
contributions), all determined as of the then most recent valuation
date for such Plan, but only to the extent that such excess represents
a potential liability of a member of the ERISA Group to the PBGC or any
other Person under Title IV of ERISA.
"Unused Fee" shall have the meaning given to such term in
Section 2.15(a).
"Wholly-Owned Consolidated Subsidiary" means, with respect to
any Person, any Consolidated Subsidiary of such Person all of the
shares of capital stock or other ownership interests of which (except
directors' qualifying shares) are at the time directly or indirectly
owned by such Person.
SECTION 1.02 Accounting Terms. Unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all accounting determinations
hereunder shall be made, and all financial statements and certificates required
to be delivered hereunder shall be prepared in accordance with generally
accepted accounting principles in effect as of the Closing Date consistently
applied; provided that, if the Borrower notifies the Agent that the Borrower
wishes to amend any covenant in Article V to eliminate the effect of any change
in generally accepted accounting principles on the operation of such covenant
(or if the Agent notifies the Borrower that the Majority Banks wish to amend
Article V for such purpose), then the Borrower's compliance with such covenant
shall be determined on the basis of generally accepted accounting principals in
effect immediately before the relevant change in generally accepted accounting
principles became effective, until either such notice is withdrawn or such
covenant is amended in a manner satisfactory to the Borrower and the Majority
Banks.
SECTION 1.03 Other Definitional Provisions. References to "Articles",
"Sections" "subsections", "Schedules" and "Exhibits" shall be to Articles,
Sections, subsections, Schedules and Exhibits, respectively, of this Credit
Agreement unless otherwise specifically provided. Any of the terms defined in
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Section 1.01 or referred to in Section 1.02 may, unless the context otherwise
requires, be used in the singular or the plural depending on the reference. In
this Credit Agreement, the word "including" means "including without limitation"
and the word "includes" means "includes without limitation." Terms defined in
this Credit Agreement and used, but not otherwise defined in the Exhibits and
Schedules, shall have the meaning ascribed to such terms in this Credit
Agreement.
ARTICLE II
THE LOANS
SECTION 2.01 Commitments.
(a) Revolving Commitments. During the Commitment Period, subject to the
terms and conditions hereof, each Revolving Bank severally agrees to make
revolving loans (the "Revolving Loans") to the Borrower in the amount of such
Bank's Revolving Commitment Percentage of such Revolving Loans for the purposes
hereinafter set forth; provided that (i) Extensions of Credit used for general
corporate purposes hereunder shall not exceed Fifty Million Dollars
($50,000,000) at any time, unless and to the extent necessary to maintain the
Borrower's REIT status, (ii) with regard to the Revolving Banks collectively,
the aggregate principal amount of Obligations at any time shall not exceed the
Aggregate Revolving Committed Amount and (iii) with regard to each Revolving
Bank individually, such Revolving Bank's Revolving Commitment Percentage of
Obligations at any time shall not exceed such Revolving Bank's Revolving
Committed Amount. Revolving Loans shall be made by the Revolving Banks ratably
in accordance with their respective Revolving Commitment Percentages. Revolving
Loans may consist of Base Rate Loans or Eurodollar Loans, or a combination
thereof, as the Borrower may request, and may be repaid and reborrowed in
accordance with the provisions hereof. Revolving Loans consisting of (A)
Eurodollar Loans shall be in the minimum aggregate principal amount of One
Million Dollars ($1,000,000) and integral multiples of One Hundred Thousand
Dollars ($100,000) in excess thereof, and (B) Base Rate Loans shall be in the
minimum aggregate principal amount of Five Hundred Thousand Dollars ($500,000)
and integral multiples of One Hundred Thousand Dollars ($100,000) in excess
thereof. Notwithstanding anything contained herein to the contrary, the Borrower
shall be limited to a maximum number of twenty (20) Eurodollar Loans outstanding
at any time.
(b) Letter of Credit Commitment. During the Commitment Period, subject
to the terms and conditions hereof and of the LOC Documents, if any, and such
other terms and conditions which the Issuing Bank may reasonably require, the
Issuing Bank shall issue, and the Banks shall participate severally in, such
Letters of Credit as the Borrower may request , in form acceptable to the
Issuing Bank, for the purposes hereinafter set forth; provided that (i) the
aggregate amount of LOC Obligations shall not exceed TEN MILLION DOLLARS
($10,000,000) at any time (the "LOC Committed Amount"), (ii) Extensions of
Credit used for general corporate purposes hereunder shall not exceed Fifty
Million Dollars ($50,000,000) at any time, unless and to the extent necessary to
maintain the Borrower's REIT status, (iii) with regard to the Revolving Banks
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collectively, the aggregate principal amount of Obligations at any time shall
not exceed the Aggregate Revolving Committed Amount and (iv) with regard to each
Revolving Bank individually, such Revolving Bank's Revolving Commitment
Percentage of Obligations at any time shall not exceed such Revolving Bank's
Revolving Committed Amount. Letters of Credit issued hereunder shall have an
expiry date not more than one year from the date of issuance or extension, and
may not extend beyond the Termination Date.
(c) Swingline Commitment. During the Commitment Period, subject to the
terms and conditions hereof, the Swingline Bank agrees to make certain revolving
loans (the "Swingline Loans") to the Borrower; provided that (i) the aggregate
principal amount of Swingline Loans shall not exceed FIVE MILLION DOLLARS
($5,000,000) (the "Swingline Committed Amount"), (ii) Extensions of Credit used
for general corporate purposes hereunder shall not exceed Fifty Million Dollars
($50,000,000) at any time, unless and to the extent necessary to maintain the
Borrower's REIT status, (iii) with regard to the Revolving Banks collectively,
the aggregate principal amount of Obligations at any time shall not exceed the
Aggregate Revolving Committed Amount and (iv) with regard to each Revolving Bank
individually, such Revolving Bank's Revolving Commitment Percentage of
Obligations at any time shall not exceed such Revolving Bank's Revolving
Committed Amount. Swingline Loans may consist of Base Rate Loans or Quoted Rate
Swingline Loans, or a combination thereof, as the Borrower may request, and may
be repaid and reborrowed in accordance with the provisions hereof. Swingline
Loans shall be in a minimum principal amount of One Hundred Thousand Dollars
($100,000) and integral multiples of One Hundred Thousand Dollars ($100,000) in
excess thereof.
(d) Increase in Revolving Commitments. Subject to the terms and
conditions set forth herein, upon thirty (30) days advance written notice to the
Agent, the Borrower shall have the right, at any time and from time to time
during the Commitment Period, to increase the Revolving Commitments by up to
$35,000,000 in the aggregate (to an Aggregate Revolving Committed Amount of up
to $300 million); provided that (i) any such increase shall be in a minimum
principal amount of $10,000,000 and integral multiples of $5,000,000 in excess
thereof (or the remaining amount, if less), (ii) if any Revolving Loans are
outstanding at the time of any such increase, the Borrower shall make such
payments and adjustments on the Revolving Loans (including payment of any
break-funding amount owing under Section 2.12) as necessary to give effect to
the revised commitment percentages and commitment amounts of the Banks and (iii)
the conditions to Extensions of Credit in Section 3.02 shall be true and
correct. An increase in the Aggregate Revolving Committed Amount hereunder shall
be subject to satisfaction of the following: (A) the amount of such increase
shall be offered first to the existing Banks, and in the event the additional
commitments which existing Banks are willing to take shall exceed the amount
requested by the Borrower, then in proportion to the commitments of such
existing Banks willing to take additional commitments, and (B) if the amount of
the additional commitments requested by the Borrower shall exceed the additional
commitments which the existing Banks are willing to take, then the Borrower may
invite other commercial banks and financial institutions reasonably acceptable
to the Agent to join this Credit Agreement as Banks hereunder for the portion of
commitments not taken by existing Banks, provided that such other commercial
banks and financial institutions shall enter into such joinder agreements to
give effect thereto as the Agent and the Borrower may reasonably request. In
connection with any increase in the Revolving Commitments pursuant to this
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Section, Schedule 2.1 shall be revised to reflect the modified commitment
percentages and commitments of the Banks.
SECTION 2.02 Method of Borrowing.
(a) The Borrower shall give the Agent and each Bank notice in
substantially the form of Schedule 2.02 (a "Notice of Borrowing") not later than
(i) 11:00 A.M. (Charlotte, North Carolina time) on the date of each Base Rate
Borrowing and (ii) 11:00 A.M. (Charlotte, North Carolina time) on the third
(3rd) Eurodollar Business Day before each Eurodollar Borrowing, specifying:
(i) the amount of the proposed Borrowing;
(ii) the date of such Borrowing, which shall be a
Business Day in the case of a Base Rate Borrowing or a Eurodollar
Business Day in the case of a Eurodollar Borrowing;
(iii) whether the Loans comprising such Borrowing are to
be Base Rate Loans or Eurodollar Loans, or a combination thereof, and
(iv) in the case of a Eurodollar Borrowing, the duration
of the initial Interest Period applicable thereto, subject to the
provisions of the definition of Interest Period.
(b) Upon receipt of a Notice of Borrowing, the Agent shall promptly
notify each Bank of the contents thereof and of such Banks ratable share of such
Borrowing and such Notice of Borrowing shall not thereafter be revocable by the
Borrower.
(c) Not later than (i) 2:00 P.M., (Charlotte, North Carolina time) on
the date of each Base Rate Borrowing, and (ii) 11:00 A.M. (Charlotte, North
Carolina time) on the date of each Eurodollar Borrowing, each Bank shall make
available its ratable share of such Borrowing, in federal or other funds
immediately available in Charlotte, North Carolina, to the Agent at its address
specified in or pursuant to Section 9.01. Unless any applicable condition
specified in Article III has not been satisfied, the Agent will make the funds
so received from the Banks available to the Borrower at an account of the
Borrower with the Agent immediately after being made available to the Agent at
the Agent's aforesaid address in immediately available funds.
SECTION 2.03 Notes.
(a) The Revolving Loans and Swingline Loans shall be evidenced by a
duly executed Revolving Note in favor of each Bank.
(b) Upon receipt of each Bank's Note pursuant to Section 3.01(b), the
Agent shall forward such Note to such Bank via overnight courier service. Each
Bank shall record on its Note the date, amount and maturity of each Loan made by
it and the date and amount of each payment of principal made by the Borrower
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with respect thereto, and prior to any transfer of its Note shall endorse on the
schedule forming a part thereof appropriate notations to evidence the foregoing
information with respect to each such Loan then outstanding; provided that the
failure of any Bank to make any such recordation or endorsement shall not affect
the obligations of the Borrower hereunder or under such Note. Each Bank is
hereby irrevocably authorized by the Borrower so to endorse its Note and to
attach to and make a part of its Note a continuation of any such schedule as and
when required.
SECTION 2.04 Scheduled Termination of Commitments; Maturity of Loans.
(a) The Commitments shall terminate on the Termination Date and any
Loans then outstanding (together with accrued interest thereon) and all accrued
fees and other amounts payable hereunder (including all amounts payable under
Section 2.12) shall be due and payable in full on such date. Each repayment
pursuant to this Section 2.04(a) shall be made together with accrued interest to
the date of payment, and shall be applied ratably to payment of the Loans of the
several Banks in accordance with their respective Revolving Commitment
Percentages.
(b) Within the foregoing limits of this Section 2.04, each required
payment or prepayment shall be applied to the outstanding Group or Groups of
Loans as the Borrower may designate to the Agent not less than five (5) Business
Days or five (5) Eurodollar Business Days, as the case may be, prior to the date
required for such payment or prepayment or failing such designation by the
Borrower, as the Agent may specify by notice to the Borrower and the Banks.
SECTION 2.05 Interest Rates.
(a) Each Base Rate Loan shall bear interest on the outstanding
principal amount thereof, for each day from the date such Loan is made until it
becomes due, at a rate equal to the Base Rate for such day plus the Applicable
Percentage. Such interest shall be payable quarterly in arrears on the last day
of each Quarterly Period and on each date a Base Rate Loan is converted to a
Eurodollar Loan. Any overdue principal of or interest on any Base Rate Loan
shall bear interest, payable on demand, for each day until paid at a rate per
annum equal to the sum of 2.000% plus the rate otherwise applicable to Base Rate
Loans for such day.
(b) Each Eurodollar Loan shall bear interest on the outstanding
principal amount thereof, for the Interest Period applicable thereto, at a rate
equal to the Adjusted Eurodollar Rate for such Interest Period plus the
Applicable Percentage. Such interest shall be payable for each Interest Period
on the last day thereof and, if such Interest Period is longer than 3 months, at
intervals of 3 months after the first day thereof. Any overdue principal of or
interest on any Eurodollar Loan shall bear interest, payable on demand for each
day until paid at a rate per annum equal to the sum of 2.000% plus (i) for each
day during any Interest Period applicable to such Eurodollar Loan, the rate
applicable to such Eurodollar Loan for such day, and (ii) for each day after the
end of such Interest Period, the sum of 2.000% plus the rate applicable to Base
Rate Loans for such day.
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(c) Each Swingline Loan shall bear interest on the outstanding
principal amount thereof, for each day from the date such Loan is made until it
becomes due, at a rate equal to the Base Rate plus Applicable Percentage, or the
Quoted Rate, as applicable. Such interest shall be payable quarterly on the last
day of each Quarterly Period in the case of Base Rate Loans, and on the last day
of each Interest Period, or if the Interest Period is longer than three (3)
months, at intervals of three (3) months after the first day thereof, in the
case of Quoted Rate Swingline Loans. Any overdue principal of or interest on any
Swingline Loans shall bear interest, payable on demand, for each day until paid
at a rate per annum equal to the sum of 2.000% plus the rate otherwise
applicable to such Swingline Loans for such day (or if no rate is otherwise
applicable for such day, the Base Rate).
(d) The Agent shall determine each interest rate applicable to the
Loans hereunder. The Agent shall give prompt notice to the Borrower and the
Banks by facsimile, telex or cable of each rate of interest so determined, and
its determination thereof shall be conclusive in the absence of manifest error.
(e) The Eurodollar Reference Bank agrees to use its best efforts to
furnish quotations to the Agent as contemplated by this Section 2.05. If the
Eurodollar Reference Bank does not provide a timely quotation, the provisions of
Section 8.01 shall apply.
2.06 Letters of Credit.
(a) Notice and Reports. Except for those Letters of Credit described on
Schedule 2.06(a) which shall be issued on the Closing Date, the request for the
issuance of a Letter of Credit shall be submitted by the Borrower to the Issuing
Bank at least three (3) Business Days prior to the requested date of issuance
(or such shorter period as may be agreed by the Issuing Bank). A form of Notice
of Request for Letter of Credit is attached as Schedule 2.06(b)-2. The Issuing
Bank will provide copies of the Letters of Credit to the Agent and the Banks
quarterly and more frequently upon request.
(b) Participation. Each Bank, with respect to the Existing Letters of
Credit, hereby purchases a participation interest in such Existing Letters of
Credit, and with respect to Letters of Credit issued on or after the Closing
Date, upon issuance of a Letter of Credit, shall be deemed to have purchased
without recourse a risk participation from the applicable Issuing Bank in such
Letter of Credit and the obligations arising thereunder, in each case in an
amount equal to its Revolving Commitment Percentage of the obligations under
such Letter of Credit and shall absolutely and unconditionally assume, and be
obligated to pay to the Issuing Bank therefor and discharge when due, its pro
rata share of the obligations arising under such Letter of Credit. Without
limiting the scope and nature of each Bank's participation in any Letter of
Credit, to the extent that the Issuing Bank has not been reimbursed as required
hereunder or under any such Letter of Credit, each such Bank shall pay to the
Issuing Bank its pro rata share of such unreimbursed drawing in same day funds
on the day of notification by the Issuing Bank of an unreimbursed drawing
pursuant to the provisions of subsection (d) hereof. The obligation of each Bank
to so reimburse the Issuing Bank shall be absolute and unconditional and shall
not be affected by the occurrence of a Default, an Event of Default or any other
occurrence or event. Any such reimbursement shall not relieve or otherwise
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impair the obligation of the Borrower to reimburse the Issuing Bank under any
Letter of Credit, together with interest as hereinafter provided. The Borrower
agrees, to the fullest extent it may effectively do so under applicable law,
that each Bank which holds a participation in a Letter of Credit may exercise
rights of set-off or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of the Borrower in the amount of such participation.
(c) Reimbursement. In the event of any drawing under any Letter of
Credit, the Issuing Bank will promptly notify the Borrower. Unless the Borrower
shall immediately notify the Issuing Bank that the Borrower intends to otherwise
reimburse the Issuing Bank for such drawing, the Borrower shall be deemed to
have requested that the Banks make a Revolving Loan in the amount of the drawing
as provided in subsection (e) hereof on the related Letter of Credit, the
proceeds of which will be used to satisfy the related reimbursement obligations.
The Borrower promises to reimburse the Issuing Bank on the day of drawing under
any Letter of Credit (either with the proceeds of a Revolving Loan obtained
hereunder or otherwise) in same day funds. If the Borrower shall fail to
reimburse the Issuing Bank as provided hereinabove, the unreimbursed amount of
such drawing shall bear interest at a per annum rate equal to the Base Rate plus
the sum of (i) the Applicable Percentage and (ii) two percent (2%). The
Borrower's reimbursement obligations hereunder shall be absolute and
unconditional under all circumstances irrespective of any rights of setoff,
counterclaim or defense to payment the Borrower may claim or have against the
Issuing Bank, the Agent, the Banks, the beneficiary of the Letter of Credit
drawn upon or any other Person, including without limitation any defense based
on any failure of the Borrower to receive consideration or the legality,
validity, regularity or unenforceability of the Letter of Credit. The Issuing
Bank will promptly notify the other Banks of the amount of any unreimbursed
drawing and each Bank shall promptly pay to the Agent for the account of the
Issuing Bank in Dollars and in immediately available funds, the amount of such
Bank's pro rata share of such unreimbursed drawing. Such payment shall be made
on the day such notice is received by such Bank from the Issuing Bank if such
notice is received at or before 2:00 P.M. (Charlotte, North Carolina time)
otherwise such payment shall be made at or before 12:00 Noon (Charlotte, North
Carolina time) on the Business Day next succeeding the day such notice is
received. If such Bank does not pay such amount to the Issuing Bank in full upon
such request, such Bank shall, on demand, pay to the Agent for the account of
the Issuing Bank interest on the unpaid amount during the period from the date
of such drawing until such Bank pays such amount to the Issuing Bank in full at
a rate per annum equal to, if paid within two (2) Business Days of the date that
such Bank is required to make payments of such amount pursuant to the preceding
sentence, the Federal Funds Rate and thereafter at a rate equal to the Base
Rate. Each Bank's obligation to make such payment to the Issuing Bank, and the
right of the Issuing Bank to receive the same, shall be absolute and
unconditional, shall not be affected by any circumstance whatsoever and without
regard to the termination of this Credit Agreement or the Commitments hereunder,
the existence of a Default or Event of Default or the acceleration of the
obligations of the Borrower hereunder and shall be made without any offset,
abatement, withholding or reduction whatsoever. Simultaneously with the making
of each such payment by a Bank to the Issuing Bank, such Bank shall,
automatically and without any further action on the part of the Issuing Bank or
such Bank, acquire a participation in an amount equal to such payment (excluding
the portion of such payment constituting interest owing to the Issuing Bank) in
the related unreimbursed drawing portion of the LOC Obligation and in the
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interest thereon and in the related LOC Documents, and shall have a claim
against the Borrower with respect thereto.
(d) Repayment with Revolving Loans. On any day on which the Borrower
shall have requested, or been deemed to have requested, a Revolving Loan advance
to reimburse a drawing under a Letter of Credit, the Agent shall give notice to
the Banks that a Revolving Loan has been requested or deemed requested by the
Borrower to be made in connection with a drawing under a Letter of Credit, in
which case a Revolving Loan advance comprised of Base Rate Loans (or Eurodollar
Loans to the extent the Borrower has complied with the procedures of Section
2.02(a) with respect thereto) shall be immediately made to the Borrower by all
Banks (notwithstanding any termination of the Commitments pursuant to Section
6.01) pro rata based on the respective Revolving Commitment Percentages of the
Banks (determined before giving effect to any termination of the Commitments
pursuant to Section 6.01) and the proceeds thereof shall be paid directly to the
Issuing Bank for application to the respective LOC Obligations. Each such Bank
hereby irrevocably agrees to make its pro rata share of each such Revolving Loan
immediately upon any such request or deemed request in the amount, in the manner
and on the date specified in the preceding sentence notwithstanding (i) the
amount of such borrowing may not comply with the minimum amount for advances of
Revolving Loans otherwise required hereunder, (ii) whether any conditions
specified in Section 3.02 are then satisfied, (iii) whether a Default or an
Event of Default then exists, (iv) failure for any such request or deemed
request for Revolving Loan to be made by the time otherwise required hereunder,
(v) whether the date of such borrowing is a date on which Revolving Loans are
otherwise permitted to be made hereunder or (vi) any termination of the
Commitments relating thereto immediately prior to or contemporaneously with such
borrowing. In the event that any Revolving Loan cannot for any reason be made on
the date otherwise required above (including, without limitation, as a result of
the commencement of a proceeding under the Bankruptcy Code with respect to the
Borrower), then each such Bank hereby agrees that it shall forthwith purchase
(as of the date such borrowing would otherwise have occurred, but adjusted for
any payments received from the Borrower on or after such date and prior to such
purchase) from the Issuing Bank such participation in the outstanding LOC
Obligations as shall be necessary to cause each such Bank to share in such LOC
Obligations ratably (based upon the respective Revolving Commitment Percentages
of the Banks (determined before giving effect to any termination of the
Commitments pursuant to Section 6.01)), provided that in the event such payment
is not made on the day of drawing, such Bank shall pay in addition to the
Issuing Bank interest on the amount of its unfunded Participation Interest at a
rate equal to, if paid within two (2) Business Days of the date of drawing, the
Federal Funds Rate, and thereafter at the Base Rate.
(e) Renewal, Extension. The renewal or extension of any Letter of
Credit shall, for purposes hereof, be treated in all respects the same as the
issuance of a new Letter of Credit hereunder.
(f) Uniform Customs and Practices. The Issuing Bank may have the
Letters of Credit be subject to The Uniform Customs and Practice for Documentary
Credits, as published as of the date of issue by the International Chamber of
Commerce (the "UCP"), in which case the UCP may be incorporated therein and
deemed in all respects to be a part thereof.
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(g) Indemnification; Nature of Issuing Bank's Duties.
(i) In addition to its other obligations under this Section
2.06, the Borrower hereby agrees to protect, indemnify, pay and save
the Issuing Bank harmless from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including
reasonable attorneys' fees) that the Issuing Bank may incur or be
subject to as a consequence, direct or indirect, of (A) the issuance of
any Letter of Credit or (B) the failure of the Issuing Bank to honor a
drawing under a Letter of Credit as a result of any act or omission,
whether rightful or wrongful, of any present or future de jure or de
facto government or governmental authority (all such acts or omissions,
herein called "Government Acts").
(ii) As between the Borrower and the Issuing Bank, the
Borrower shall assume all risks of the acts, omissions or misuse of any
Letter of Credit by the beneficiary thereof. The Issuing Bank shall not
be responsible: (A) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in
connection with the application for and issuance of any Letter of
Credit, even if it should in fact prove to be in any or all respects
invalid, insufficient, inaccurate, fraudulent or forged; (B) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, that may
prove to be invalid or ineffective for any reason; (C) for errors,
omissions, interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether or not
they be in cipher; (D) for any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under a
Letter of Credit or of the proceeds thereof; and (E) for any
consequences arising from causes beyond the control of the Issuing
Bank, including, without limitation, any acts by Governmental
Authorities. None of the above shall affect, impair, or prevent the
vesting of the Issuing Bank's rights or powers hereunder.
(iii) In furtherance and extension and not in limitation of
the specific provisions hereinabove set forth, any action taken or
omitted by the Issuing Bank, under or in connection with any Letter of
Credit or the related certificates, if taken or omitted in good faith,
shall not put such Issuing Bank under any resulting liability to the
Borrower. It is the intention of the parties that this Credit Agreement
shall be construed and applied to protect and indemnify the Issuing
Bank against any and all risks involved in the issuance of the Letters
of Credit, all of which risks are hereby assumed by the Borrower,
including, without limitation, any and all acts by Governmental
Authorities. The Issuing Bank shall not, in any way, be liable for any
failure by the Issuing Bank or anyone else to pay any drawing under any
Letter of Credit as a result of any acts by Governmental Authorities or
any other cause beyond the control of the Issuing Bank.
(iv) Nothing in this subsection (g) is intended to limit the
reimbursement obligations of the Borrower contained in subsection (c)
above. The obligations of the Borrower under this subsection (g) shall
survive the termination of this Credit Agreement. No act or omission
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of any current or prior beneficiary of a Letter of Credit shall in any
way affect or impair the rights of the Issuing Bank to enforce any
right, power or benefit under this Credit Agreement.
(v) Notwithstanding anything to the contrary contained in this
subsection (g), the Borrower shall have no obligation to indemnify the
Issuing Bank in respect of any liability incurred by the Issuing Bank
(A) arising solely out of the gross negligence or willful misconduct of
the Issuing Bank, as determined by a court of competent jurisdiction,
or (B) caused by the Issuing Bank's failure to pay under any Letter of
Credit after presentation to it of a request strictly complying with
the terms and conditions of such Letter of Credit, as determined by a
court of competent jurisdiction, unless such payment is prohibited by
any law, regulation, court order or decree.
(vi) The rights and benefits of this subsection (g) shall also
extend to Banks which hold participations in Letters of Credit
hereunder.
(h) Responsibility of Issuing Bank. It is expressly understood and
agreed that the obligations of the Issuing Bank hereunder to the Banks are only
those expressly set forth in this Credit Agreement and that the Issuing Bank
shall be entitled to assume that the conditions precedent set forth in Section
3.02 have been satisfied unless it shall have acquired actual knowledge that any
such condition precedent has not been satisfied; provided, however, that nothing
set forth in this Section 2.06 shall be deemed to prejudice the right of any
Bank to recover from the Issuing Bank any amounts made available by such Bank to
the Issuing Bank pursuant to this Section 2.06 in the event that it is
determined by a court of competent jurisdiction that the payment with respect to
a Letter of Credit constituted gross negligence or willful misconduct on the
part of the Issuing Bank.
(i) Conflict with LOC Documents. In the event of any conflict between
this Credit Agreement and any LOC Document (including any letter of credit
application), this Credit Agreement shall control.
2.07 Swingline Loan Advances.
(a) Notices; Disbursement. Whenever the Borrower desires a Swingline
Loan advance hereunder it shall give written notice (or telephonic notice
promptly confirmed in writing) to the Swingline Bank not later than 11:00 A.M.
(Charlotte, North Carolina time) on the Business Day of the requested Swingline
Loan advance. Each such notice shall be irrevocable and shall specify (A) that a
Swingline Loan advance is requested, (B) the date of the requested Swingline
Loan advance (which shall be a Business Day) and (C) the principal amount of and
Interest Period for the Swingline Loan advance requested. Each Swingline Loan
shall have such maturity date as the Swingline Bank and the Borrower shall agree
upon receipt by the Swingline Bank of any such notice from the Borrower. The
Swingline Bank shall initiate the transfer of funds representing the Swingline
Loan advance to the Borrower by 3:00 P.M. (Charlotte, North Carolina time) on
the Business Day of the requested borrowing.
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(b) Repayment of Swingline Loans. The principal amount of all Swingline
Loans shall be due and payable on the earlier of (A) the maturity date agreed to
by the Swingline Bank and the Borrower with respect to such Loan or (B) the
Termination Date. The Swingline Bank may, at any time, in its sole discretion,
by written notice to the Borrower and the Banks, demand repayment of its
Swingline Loans by way of a Revolving Loan advance, in which case the Borrower
shall be deemed to have requested a Revolving Loan advance comprised solely of
Base Rate Loans (or, with the requisite notice, Eurodollar Loans) in the amount
of such Swingline Loans; provided, however, that any such demand shall be deemed
to have been given one Business Day prior to the Termination Date and on the
date of the occurrence of any Event of Default described in Section 6.01 and
upon acceleration of the indebtedness hereunder and the exercise of remedies in
accordance with the provisions of Section 6.01. Each Bank hereby irrevocably
agrees to make its pro rata share of each such Revolving Loan in the amount, in
the manner and on the date specified in the preceding sentence notwithstanding
(i) the amount of such borrowing may not comply with the minimum amount for
advances otherwise required hereunder, (ii) whether any conditions specified in
Section 3.02 are then satisfied, (iii) whether a Default or an Event of Default
then exists, (iv) failure of any such request or deemed request for Revolving
Loan to be made by the time otherwise required hereunder, (v) whether the date
of such borrowing is a date on which Revolving Loans are otherwise permitted to
be made hereunder or (vi) any termination of the Commitments relating thereto
immediately prior to or contemporaneously with such borrowing. In the event that
a Revolving Loan cannot for any reason be made on the date otherwise required
above (including, without limitation, as a result of the commencement of a
proceeding under the Bankruptcy Code with respect to the Borrower), then each
Bank hereby agrees that it shall forthwith purchase (as of the date such
borrowing would otherwise have occurred, but adjusted for any payments received
from the Borrower on or after such date and prior to such purchase) from the
Swingline Bank such Participation Interests in the outstanding Swingline Loans
as shall be necessary to cause each such Bank to share in such Swingline Loans
ratably based upon its Revolving Commitment Percentage (determined before giving
effect to any termination of the Commitments pursuant to Section 6.01), provided
that (A) all interest payable on the Swingline Loans shall be for the account of
the Swingline Bank until the date as of which the respective Participation
Interest is requested to be purchased and (B) at the time any purchase of
Participation Interests pursuant to this sentence is actually made, the
purchasing Bank shall be required to pay to the Swingline Bank, to the extent
not paid to the Swingline Bank by the Borrower in accordance with the terms
hereof, interest on the principal amount of Participation Interests purchased
for each day from and including the day upon which such borrowing would
otherwise have occurred to but excluding the date of payment for such
Participation Interests, at the rate equal to the Federal Funds Rate.
SECTION 2.08 Optional Termination or Reduction of Revolving
Commitments. The Borrower may at any time, upon at least three (3) Business
Days' written notice to the Agent, terminate the Revolving Commitments in whole
or reduce the Revolving Commitments in part up to the amount by which the
Revolving Commitments exceed the aggregate principal amount of the Revolving
Loans; provided, however, any such partial reduction shall be in a minimum
amount of $5,000,000.00 (or such lesser aggregate amount of the Revolving
Commitments as may then be in effect) or any larger multiple of $1,000,000.00,
provided further, any such reduction shall be made ratably among the Banks.
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SECTION 2.09 Prepayments.
(a) Optional Prepayments.
(i) The Borrower may, upon written notice delivered to
the Agent not later than 2:00 P.M. (Charlotte, North Carolina time) on
the first Business Day prior to the date of such prepayment, prepay a
Group of Base Rate Loans in whole at any time, or from time to time in
part in amounts aggregating $500,000.00 or any larger multiple of
$100,000.00 by paying (in Dollars) the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment. Each
such optional prepayment shall be applied to prepay ratably the Base
Rate Loans of the several Banks included in such Group.
(ii) The Borrower may, upon at least three (3) Eurodollar
Business Days' notice to the Agent, prepay a Group of Eurodollar Loans
in whole at any time, or from time to time in part in amounts
aggregating $1,000,000.00 or any larger multiple of $100,000.00, by
paying the principal amount to be prepaid together with accrued
interest thereon to the date of prepayment, as designated by Borrower
pursuant to Section 2.04(b); provided that the Borrower shall reimburse
each Bank for any loss or expense incurred by it as a result of any
such prepayment in accordance with Section 2.12. Each such optional
prepayment shall be applied to prepay ratably the Loans of the several
Banks included in such Group.
(iii) Upon receipt of a notice of prepayment pursuant to
this Section, the Agent shall promptly notify each Bank of the contents
thereof and of such Bank's ratable share of such prepayment and such
notice shall not thereafter be revocable by the Borrower.
(b) Mandatory Prepayments.
(i) Mandatory Prepayments from Asset Sales. Within five (5)
Business Days (or such longer period of time agreed to by the Banks
under the Term Loan Agreement) of each receipt by the Borrower or any
of its Subsidiaries or Specified Affiliates of any Net Sale Proceeds
from any Asset Sale, the Borrower shall prepay, or cause such
Subsidiary or Specified Affiliate to prepay on behalf of the Borrower,
to the Agent under the Term Loan Agreement for the account of the Banks
thereunder an amount equal to 100% of all Net Sale Proceeds from all
such Asset Sales. Prepayments pursuant to this subsection (b)(i) shall
be applied to prepay the Term Loans as provided in the Term Loan
Agreement until paid in full, including accrued interest and fees and
other amounts owing thereunder, together with interest accrued thereon
to the date of prepayment.
(ii) Mandatory Prepayment from the Proceeds of Equity
Contributions or the Issuance of Stock. Within five (5) Business Days
(or such longer period of time agreed to by the Banks under the Term
Loan Agreement) of each date on which the Borrower or any of its
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Subsidiaries receives cash proceeds from any equity contributions or
cash proceeds from the issuance of stock, the Borrower shall make
payment, or shall cause any such Subsidiary to make payment, of such
cash proceeds less any actual out of pocket expenses, fees and other
sums paid or incurred by Borrower or its Subsidiary in connection
therewith, to prepay the Term Loans as provided in the Term Loan
Agreement until paid in full, including accrued interest and fees and
other amounts owing thereunder.
(iii) Mandatory Prepayment from the Proceeds of Debt. Within
five (5) Business Days (or such longer period of time agreed to by the
Banks under the Term Loan Agreement) of each date on which the Borrower
or any of its Subsidiaries receives cash proceeds from the issuance of
any Debt after the Closing Date (other than (i) borrowings under this
Revolving Credit Agreement, or (ii) mortgage indebtedness assumed in
connection with purchases and acquisitions otherwise permitted
hereunder), the Borrower shall make payment, or shall cause any such
Subsidiary to make payment, of such cash proceeds, less any actual out
of pocket expenses, fees and other sums paid or incurred by Borrower or
such Subsidiary in connection therewith, to prepay the Term Loans as
provided in the Term Loan Agreement until paid in full, including
accrued interest and fees and other amounts owing thereunder.
(iv) Mandatory Prepayment in respect of Commitments. If at any
time (i) the aggregate Obligations shall exceed the Aggregate Revolving
Commitments, (ii) the aggregate LOC Obligations shall exceed the
aggregate LOC Committed Amount, (iii) the Swingline Loans shall exceed
the Swingline Committed Amount, or (iv) Extensions of Credit used for
general corporate purposes shall exceed the sum of Fifty Million
Dollars ($50,000,000), plus any additional amounts to the extent
necessary to maintain the Borrower's REIT status, then the Borrower
shall make prompt payment on the Loans or after payment of the Loans in
full, provide cash collateral in respect of the LOC Obligations, in an
amount sufficient to eliminate the deficiency.
(v) Notice of Mandatory Prepayment. The Borrower shall notify
the Agent of any prepayment pursuant to this Section 2.09 at least two
(2) Business Days prior to the date on which such prepayment is
required to be made and deliver a compliance certificate with the
prepayment in form and substance satisfactory to the Agent; provided,
however, that the failure to give such notice shall not affect the
obligation of the Borrower to make such prepayment on such date.
SECTION 2.10 Method of Electing Interest Rates.
(a) The Loans included in each Borrowing shall bear interest initially
at the type of rate specified by the Borrower in the applicable Notice of
Borrowing. Thereafter, the Borrower may from time to time elect to change or
continue the type of interest rate borne by each Group of Loans (subject in each
case to the provisions of Article VIII), as follows:
(i) if such Loans are Base Rate Loans, the Borrower may
elect to convert such Loans to Eurodollar Loans as of any Eurodollar
Business Day; and
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(ii) if such Loans are Eurodollar Loans, the Borrower may
elect to convert such Loans to Base Rate Loans or elect to continue
such Loans as Eurodollar Loans for an additional Interest Period, in
each case effective on the last day of the then current Interest Period
applicable to such Loans;
provided, that the Borrower may not elect to continue any Eurodollar Loan or
convert any Loan into a Eurodollar Loan after the occurrence and during the
continuation of a Default. Each such election shall be made by delivering a
notice in substantially the form of Schedule 2.10 (a "Notice of Interest Rate
Election") to the Agent no later than 11:00 A.M. (Charlotte, North Carolina
time) (x) if the relevant Loans are to be converted to Base Rate Loans, the
second Business Day before such conversion or continuation is to be effective
and (y) if the relevant Loans are to be converted to Eurodollar Loans or
continued as Eurodollar Loans for an additional Interest Period, the third
Eurodollar Business Day before such conversion or continuation is to be
effective. A Notice of Interest Rate Election may, if it so specifies, apply to
only a portion of the aggregate principal amount of the relevant Group of Loans;
provided that (i) such portion is allocated ratably among the Loans comprising
such Group and (ii) the portion to which such Notice applies, and the remaining
portion to which it does not apply, are each at least $500,000.00 and no more
than one of such portions is other than a multiple of $100,000.00.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans ( or portion thereof) to which
such notice applies;
(ii) the date on which the conversion or continuation
selected in such notice is to be effective, which shall comply with
subsection (a) above;
(iii) if the Loans comprising such Group are to be
converted, the new type of Loans and, if such new Loans are Eurodollar
Loans, the duration of the initial Interest Period applicable thereto;
and
(iv) if such Loans are to be continued as Eurodollar
Loans for an additional Interest Period, the duration of such
additional Interest Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period. No more than
twenty (20) Groups of Loans shall be outstanding at any one time.
(c) Upon receipt of a Notice of Interest Rate Election from the
Borrower pursuant to Section 2.10(a) above, the Agent shall promptly notify each
Bank of the contents thereof and such notice shall not thereafter be revocable
by the Borrower. If the Borrower fails to deliver a timely Notice of Interest
Rate Election to the Agent for any Group of Eurodollar Loans, such Loans shall
be converted into Base Rate Loans on the last day of the then current Interest
Period applicable thereto.
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SECTION 2.11 General Provisions as to Payments.
(a) The Borrower shall make each payment of principal of, and interest
on, the Loans and of fees hereunder, without setoff, deduction, counterclaim or
withholding of any kind, not later than 3:00 p.m. (Charlotte, North Carolina
time) on the date when due, in federal or other funds immediately available in
Charlotte, North Carolina, to the Agent at its address referred to in Section
9.01 and any of such payments received after 3:00 p.m. on the required due date
shall be deemed to have been paid by the Borrower on the next succeeding
Business Day. Any such payment with respect to a Loan shall be made in Dollars.
The Agent will promptly distribute to each Bank its ratable share of each such
payment received by the Agent for the account of the Banks. Whenever any payment
of principal of, or interest on, the Base Rate Loans or of fees shall be due on
a day which is not a Business Day, the date for payment thereof shall be
extended to the next succeeding Business Day. Whenever any payment of principal
of, or interest on, the Eurodollar Loans shall be due on a day which is not a
Eurodollar Business Day, the date for payment thereof shall be extended to the
next succeeding Eurodollar Business Day unless such Eurodollar Business Day
falls in another calendar month, in which case the date for payment thereof
shall be the next preceding Eurodollar Business Day. If the date for any payment
of principal is extended by operation of law or otherwise, interest thereon
shall be payable for such extended time.
(b) Unless the Agent shall have received notice from the Borrower prior
to the date on which any payment is due to the Banks hereunder that the Borrower
will not make such payment in full, the Agent may assume that the Borrower has
made such payments in full to the Agent, on such date and the Agent may, in
reliance upon such assumption, cause to be distributed to each Bank on such due
date an amount equal to the amount then due such Bank. If and to the extent that
the Borrower shall not have so made such payments, each Bank shall repay to the
Agent forthwith on demand such amount distributed to such Bank together with
interest thereon, for each day from the date such amount is distributed to such
Bank until the date such Bank repays such amount to the Agent, at the Federal
Funds Rate.
SECTION 2.12 Funding Losses. If the Borrower makes any payments of
principal with respect to any Eurodollar Loan or any Eurodollar Loan is
converted to another type of Loan (pursuant to Articles II, VI, VIII, or
otherwise) on any day other than the last day of an Interest Period applicable
thereto, or if the Borrower fails to borrow or prepay any Eurodollar Loans after
notice has been given to any Bank in accordance with the terms hereof, the
Borrower shall reimburse each applicable Bank on demand for any resulting
reasonable out of pocket loss or expense incurred by it (or any existing
Participant in the related Loan, provided that the amount collected by a Bank
and its Participant shall not exceed the amount which the Bank would have been
entitled to collect absent such participation), including (without limitation)
any such loss incurred in obtaining, liquidating or employing deposits from
third parties to fund or maintain such Loan or proposed Loan, but excluding loss
of margin for the period after any such payment or conversion or failure to
borrow or prepay, provided that such Bank shall have delivered to the Borrower
(with a copy to the Agent) a certificate prior to requesting reimbursement
setting forth in reasonable detail its calculation of the amount of such loss or
expense, which certificate shall be conclusive in the absence of manifest error.
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NOTWITHSTANDING THE FOREGOING PROVISIONS OF THIS SECTION 2.12 TO THE CONTRARY,
THE TERM "LOSS" SHALL NOT INCLUDE AND BORROWER SHALL NOT BE RESPONSIBLE FOR THE
PAYMENT OF ANY LOST PROFITS (IN EXCESS OF THE AMOUNTS OTHERWISE PAYABLE BY
BORROWER HEREUNDER AS A PART OF THE ADJUSTED EURODOLLAR RATE) OR ANY
CONSEQUENTIAL, SPECULATIVE, PUNITIVE OR OTHER DAMAGES.
SECTION 2.13 Computation of Interest and Fees. All interest and fees
hereunder shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.14 Withholding Tax Exemption. At least five (5) Business Days
prior to the first date on which interest or fees are payable hereunder for the
account of any Bank, each Bank that is not incorporated under the laws of the
United States of America or a state thereof agrees that it will deliver to the
Borrower and the Agent two duly and properly completed copies of United States
Internal Revenue Service Form 1001 or 4224 (or any successor form, in either
case), certifying in either case that such Bank is entitled to receive payments
under this Credit Agreement and the Notes without deduction or withholding of
any United States federal income taxes. Each Bank which so delivers a Form 1001
or 4224 (or any successor form, in either case) further undertakes to deliver to
the Borrower and the Agent two (2) additional copies of such form (or a
successor form) on or before the date that such form expires or becomes obsolete
or after the occurrence of any event requiring a change in the most recent form
so delivered by it, and such amendments thereto or extensions or renewals
thereof as may be reasonably requested by the Borrower or the Agent, in each
case certifying that such Bank is entitled to receive payments under this Credit
Agreement and the Notes without deduction or withholding of any United States
federal income taxes, unless an event (including without limitation any change
in treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Bank from duly completing and delivering any such
form with respect to it and such Bank advises the Borrower and the Agent that it
is not capable of receiving payments without any deductions or withholding of
United States federal income tax, in which case such Bank shall have appropriate
amounts withheld pursuant to applicable law. Notwithstanding any provision
contained in this Credit Agreement to the contrary, if the Borrower, on advice
of counsel, reasonably believes that the Borrower should withhold an amount with
respect to any Bank on account of any applicable Government requirement, the
Borrower shall be entitled to withhold such sum in accordance with the
applicable Government requirement.
SECTION 2.15 Fees.
(a) Unused Fee. From and after the Closing Date, the Borrower agrees to
pay the Agent for the ratable benefit of the Banks an unused fee for each
calendar quarter, prorated for partial quarters, in an amount equal to the
Applicable Percentage multiplied by the average daily unused amount of the
Revolving Commitments (the "Unused Fee"). For purposes hereof, (i) Swingline
Loans shall not be counted toward or considered usage under the Revolving Loan
facility but (ii) LOC Obligations shall be counted toward and considered usage
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under the Revolving Loan facility subject to compensation provided in Section
2.15(c)(i) hereof. The Unused Fee shall be payable quarterly in arrears on the
last day of each Quarterly Period commencing with the period ending December 31,
1998. The Agent shall distribute the Unused Fee to the Banks pro rata in
accordance with the respective Revolving Commitments of the Banks.
(b) Upfront and Other Fees. The Borrower agrees to pay to the Agent for
the benefit of the Banks the upfront and other fees provided in the Agent's Fee
Letter.
(c) Letter of Credit Fees.
(i) Letter of Credit Fee. In consideration of the LOC
Commitment hereunder, the Borrower agrees to pay to the Agent for the
ratable benefit of the Banks a fee (the "Letter of Credit Fee") equal
to the Applicable Percentage per annum on the average daily maximum
amount available to be drawn under Letters of Credit from the date of
issuance to the date of expiration. The Letter of Credit Fee shall be
payable quarterly in arrears on the 15th day following the last day of
each calendar quarter for the immediately preceding quarter (or portion
thereof) beginning with the first such date to occur after the Closing
Date.
(ii) Issuing Bank Fees. In addition to the Letter of Credit
Fee, the Borrower agrees to pay to the Issuing Bank for its own account
without sharing by the other Banks (A) a fronting and negotiation fee
of one eighth of one percent (0.125%) per annum on the average daily
maximum amount available to be drawn under Letters of Credit issued by
it from the date of issuance to the date of expiration, and (B)
customary charges of the Issuing Bank with respect to the issuance,
amendment, transfer, administration, cancellation and conversion of,
and drawings under, such Letters of Credit (collectively, the "Issuing
Bank Fees").
(d) Agent's Fees. The Borrower agrees to pay the Agent such fees as may
be agreed upon by the Agent and the Borrower from time to time.
ARTICLE III
CONDITIONS
SECTION 3.01 Conditions to Initial Extensions of Credit. The obligation
of the Banks to make initial Extensions of Credit hereunder is subject to the
satisfaction of such of the following conditions in all material respects on or
prior to the Closing Date as shall not have been expressly waived in accordance
with Section 9.05:
(a) The Agent shall have received counterparts hereof signed by each of
the parties hereto (or, in the case of any party (other than the Borrower) as to
which an executed counterpart shall not have been received, receipt by the Agent
in form satisfactory to it of telegraphic, facsimile, telex or other written
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confirmation from such party of execution of a counterpart hereof by such
party); provided, however, in any event, the Agent shall distribute to each Bank
promptly after the Closing Date an original Credit Agreement executed by the
Borrower, the Banks and the Agent;
(b) The Agent shall have received a duly executed Revolving Note for
the account of each Bank, complying with Section 2.03;
(c) The Agent shall have received the duly executed Subsidiaries
Guarantees;
(d) The Agent and each Bank shall have received legal opinions of
counsel to the Borrower and the other Obligors, in form and substance
satisfactory to the Agent and the Banks;
(e) The Agent shall have received all documents it may reasonably
request relating to the existence of the Borrower and each Obligor, the
corporate authority for and the validity of each of the Financing Documents, and
any other matters relevant hereto, all in form and substance satisfactory to the
Agent;
(f) The Agent shall receive the applicable Notice of Borrowing relating
to such Extension of Credit;
(g) No Default shall have occurred and be continuing immediately before
the making of such Extension of Credit and no Default shall exist immediately
thereafter;
(h) The representations and warranties of the Borrower and the Obligors
made in or pursuant to the Financing Documents to which it is a party shall be
true in all material respects as of the date of the making of such Extensions of
Credit;
(i) The Extension of Credit will be extended in compliance with all
applicable governmental laws and regulations (including without limitation
Regulations U, T and X);
(j) The Agent shall have received a certificate of the Borrower, signed
on behalf of Borrower by the Borrower's chief executive officer or chief
financial officer, confirming to the knowledge of such officer that no Default
is continuing, the Borrower is Solvent and all other conditions precedent to the
initial borrowing hereunder have been satisfied in all material respects;
(k) The Agent and the Banks shall have been paid all fees due and
payable pursuant to Sections 2.15(b) and (d) hereof;
(l) No litigation shall be pending or to the knowledge of Borrower
threatened against the Borrower, any Material Subsidiary or any Specified
Affiliate which would be likely to materially and adversely affect the assets,
operations, business or condition, financial or otherwise, of the Borrower, any
Material Subsidiary or any Specified Affiliate, or which could reasonably be
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expected to affect materially and adversely the ability of the Borrower to
fulfill its obligations hereunder;
(m) There shall not have occurred or become known any material adverse
change with respect to the condition (financial or otherwise), operations,
business or assets of the Borrower and its Subsidiaries (including CCT and its
Subsidiaries) taken as a whole, since December 31, 1997;
(n) The Agent shall have received a certified copy of the definitive
Agreement and Plan of Merger dated as of June 8, 1998, among the Borrower, HR
Acquisition I Corporation and Capstone Capital Corporation, including exhibits,
schedules, amendments and modifications thereto, and related documentation;
(o) The acquisition of CCT shall have been consummated in accordance
with the foregoing Agreement and Plan of Merger and all applicable laws, and all
waiting periods required by any Governmental Authority applicable to the
Borrower with respect to such acquisition shall have lapsed without objection;
(p) within three (3) Business Days following the Closing Date, a
preliminary pro forma balance sheet, together with a statement of sources and
uses of funds in connection with the acquisition of CCT and the initial
Extensions of Credit hereunder, in form and detail satisfactory to the Agent
(subject to final adjustments, including reallocation of purchase
consideration);
(q) confirmation of the execution and effectiveness of the Term Loan
Agreement and the other credit documents relating thereto;
The certificates and opinions referred to in this Section shall be
dated not earlier than the date hereof and not later than the date of such
initial Extensions of Credit.
SECTION 3.02 Conditions to Extension of Credit. The obligation of any
Bank to make any Extension of Credit hereunder subsequent to the initial
Extension of Credit is subject to the satisfaction of such of the following
conditions on or prior to the proposed date of the making of such Extension of
Credit:
(a) The Agent shall receive the applicable Notice of Borrowing relating
to such loan pursuant to Section 2.02(a) hereof;
(b) No Default shall have occurred and be continuing immediately before
the making of such Extension of Credit and no Default shall exist immediately
thereafter;
(c) The representations and warranties of the Borrower and the other
Obligors made in or pursuant to the Financing Documents to which it is a party
shall be true in all material respects on and as of the date of such Extension
of Credit; and
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(d) Immediately following the making of such Loan the sum of the
outstanding principal balance of the Obligations shall not exceed the
Commitments.
The making of such Extension of Credit hereunder shall be deemed to be
a representation and warranty by the Borrower on the date thereof as to the
facts specified in clauses (b), (c) and (d) of this Section.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants, for itself and its subsidiaries
(except that with respect to CCT, the representation and warranties made
hereunder, other than those contained in Sections 4.01, 4.02 and 4.03, shall be
made to the best of the Borrower's knowledge based on due inquiry) that:
SECTION 4.01 Corporate Existence and Power. The Borrower and each of
its Subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation, has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted and is
duly qualified as a foreign entity and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of property or the conduct
of its business requires such qualification, other than in such jurisdictions
where the failure to be so qualified and in good standing would not, in the
aggregate, have a Material Adverse Effect.
SECTION 4.02 Corporate and Governmental Authorization; No
Contravention. The execution and delivery by the Obligors of the Financing
Documents and the performance by the Obligors of their respective obligations
thereunder are within the corporate power of the Obligors, have been duly
authorized by all necessary corporate action, require no action by or in respect
of, or filing with, any governmental body, agency or official (except for any
such action or filing that has been taken and is in full force and effect) and
do not contravene, or constitute a default under, any provision of applicable
law or regulation or of the Constitutional Documents of any Obligor or of any
material agreement, judgment, injunction, order, decree or other material
instrument binding upon any Obligor or result in the creation or imposition of
any Lien on any asset of any Obligor other than Liens created pursuant to the
Financing Documents.
SECTION 4.03 Binding Effect. The Financing Documents constitute valid
and binding agreements of the Obligors enforceable against the Obligors in
accordance with their terms.
SECTION 4.04 Litigation. Except as set forth on Schedule 4.04 attached
hereto, there is no action, suit or proceeding pending against, or to the
knowledge of the Borrower threatened against or affecting, the Borrower or any
of its Subsidiaries before any court or arbitrator or any governmental body,
agency or official in which there is a reasonable possibility of an adverse
decision which would materially adversely affect the business or the
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consolidated results of operations of the Borrower and its Subsidiaries, or
which in any manner draws into question the validity of any Financing Document.
SECTION 4.05 Compliance with ERISA. Except as set forth on Schedule
4.05 attached hereto, each member of the ERISA Group has fulfilled its
obligations in all material aspects under the minimum funding standards of ERISA
and the Code with respect to each Plan and is in compliance in all material
respects with the presently applicable provisions of ERISA and the Code with
respect to each Plan. Except as previously disclosed to the Banks in writing
prior to the date hereof, no member of the ERISA Group has (i) sought a waiver
of the minimum funding standard under Section 412 of the Code in respect of any
Plan, (ii) failed to make any contribution or payment to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement, or made any
amendment to any Plan or Benefit Arrangement, which in either event has resulted
or could reasonably be expected to result in the imposition of a Lien or the
posting of a bond or other security under ERISA or the Code or (iii) incurred
any liability under Title IV of ERISA other than a liability to the PBGC for
premiums or similar items under Section 4007 of ERISA.
SECTION 4.06 Environmental Matters. Except as set forth on Schedule
4.06 hereto:
(a) No written notice, notification, demand, request for information,
citation, summons, complaint or order has been received by the Borrower and to
the knowledge of the Borrower, no penalty has been assessed and no investigation
or review is pending or threatened by any governmental or other entity, (i) with
respect to any alleged violation of any Environmental Laws in connection with
the conduct of the Borrower and relating to a Hazardous Substance or (ii) with
respect to any alleged failure to have any permit, certificate, license,
approval, registration or authorization required in connection with the conduct
of the Borrower relating to a Hazardous Substance or (iii) with respect to any
generation, treatment, storage, recycling, transportation, disposal or release
(including a release as defined in 42 U.S.C. Section 9601(22)) ("Release") of
any Hazardous Substance used by the Borrower, which alleged violation, alleged
failure to have any required permit, certificate, license, approval, or
registration, or generation, treatment, storage, recycling, transportation,
disposal or release, is reasonably likely to result in liability to the Borrower
in excess of $1,000,000 in any instance or $5,000,000 in the aggregate.
(b) (i) To the Borrower's knowledge, there has been no Release of a
Hazardous Substance at, on or under any property used by the Borrower or for
which the Borrower or any of its Subsidiaries would be liable, which Release, is
reasonably likely to result in liability to the Borrower in excess of $1,000,000
in any instance or $5,000,000 in the aggregate; (ii) to the Borrower's
knowledge, neither the Borrower nor any of its Subsidiaries has, other than as a
generator or in a manner not regulated or prohibited under the Environmental
Laws, stored or treated any "hazardous waste" (as defined in 42 U.S.C Section
6903(5)) on any property used by the Borrower or for which the Borrower or any
of its Subsidiaries would be liable, except for such storage or treatment which
is not reasonably likely to result in liability to the Borrower or any of its
Subsidiaries in excess of $1,000,000 in any instance or $5,000,000 in the
aggregate; and (iii) to the Borrower's knowledge no polychlorinated biphenyl
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("PCB") in concentrations greater than 50 parts per million, friable asbestos,
or underground storage tank (in use or abandoned) is at any property used by the
Borrower or for which the Borrower or any of its Subsidiaries would be liable,
except for such PCBs, friable asbestos or underground storage tanks that are not
reasonably likely to result in liability to the Borrower or any of its
Subsidiaries in excess of $1,000,000 in any instance or $5,000,000 in the
aggregate.
(c) To the knowledge of the Borrower, neither the Borrower nor any of
its Subsidiaries has transported or arranged for the transportation (directly or
indirectly) of any Hazardous Substance to any location which is listed under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), on the Comprehensive Environmental Response, Compensation
and Liability Information System, as amended ("CERCLIS"), or on any similar
state list or which is the subject of any federal state or local enforcement
action or other investigation which may lead to claims for clean-up costs,
remedial work, damages to natural resources or for personal injury claims,
including, but not limited to, claims under CERCLA, that are reasonably likely
to result in liability to the Borrower or any of its Subsidiaries in excess of
$1,000,000 in any instance or $5,000,000 in the aggregate.
(d) No written notification of a Release of a Hazardous Substance has
been filed by or on behalf of the Borrower or any of its Subsidiaries, which
individually or in combination with other such Releases, is reasonably likely to
result in liability for the Borrower or any of its Subsidiaries in excess of
$1,000,000 in any instance or $5,000,000 in the aggregate.
(e) There have been no environmental audits or similar investigations
conducted by or which are in the possession of the Borrower or any of its
Subsidiaries in relation to any property used by the Borrower or for which the
Borrower or any of its Subsidiaries would be liable, which identify one or more
environmental liabilities of the Borrower or any of its Subsidiaries which are
reasonably likely to exceed $1,000,000 in any instance or $5,000,000 in the
aggregate.
SECTION 4.07 Subsidiaries. Set forth on Schedule 4.07 hereto is a
complete and accurate list of all of the Subsidiaries of the Borrower, showing
as to each such Subsidiary the jurisdiction of its organization, the number of
shares of each class of capital stock or other equity interests outstanding and
the percentage of the outstanding shares of each such class owned (directly or
indirectly) by the Borrower or any other Subsidiary of the Borrower and the
number of shares covered by all outstanding options, warrants, rights of
conversion or purchase, and similar rights. All of the outstanding capital stock
or other equity interests of all of such Subsidiaries identified in such
Schedule 4.07 as being owned by the Borrower or any of its Subsidiaries has been
validly issued, is fully paid and nonassessable and is owned directly or
indirectly by the Borrower or any of its Subsidiaries, as the case may be, free
and clear of all Liens other than a Lien described in and permitted by Section
5.07 hereof. Each corporate Subsidiary of the Borrower is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted.
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SECTION 4.08 Not an Investment Company. Neither the Borrower nor any of
its Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
SECTION 4.09 Margin Stock. No proceeds of any Loan will be used to
purchase or carry any Margin Stock or to extend credit to others for the purpose
of purchasing or carrying any Margin Stock in violation of Regulations U, T or
X.
SECTION 4.10 Compliance With Laws. Except as set forth on Schedule 4.10
attached hereto and made a part hereof or as previously disclosed in writing to
the Banks prior to the date hereof, the Borrower and each of its Subsidiaries is
in compliance in all material respects with all applicable laws, rules and
regulations (including, without limitation, environmental laws, rules and
regulations), and is not in violation of, or in default under, any term or
provision of any charter, bylaw, mortgage, indenture, agreement, instrument,
statute, rule, regulation, judgment, decree, order, writ or injunction
applicable to it, except for any such non-compliance, violation, default or
failure to comply which would not be reasonably expected, individually or in the
aggregate, to have a material adverse effect on the business, financial position
or results of operations of the Borrower or any of its Subsidiaries, or on the
ability of the Borrower or any of its Subsidiaries to perform its obligations
under the Financing Documents.
SECTION 4.11 Absence of Liens. There are no liens of any nature
whatsoever on any properties or assets of the Borrower or any of its
Subsidiaries, except as otherwise permitted under Section 5.07 hereof.
SECTION 4.12 Debt. Other than as set forth on Schedule 4.12 hereto,
there is no material Debt of the Borrower and its Subsidiaries outstanding as of
the date hereof.
SECTION 4.13 Contingent Liabilities. As of the Closing Date, other than
as set on Schedule 4.13 there are no material contingent liabilities (other than
contingent liabilities that constitute Debt and material contingent liabilities
arising out of customary indemnifications given by the Borrower or its
Subsidiaries to its officers and directors, its underwriters or its lenders) of
the Borrower or its Subsidiaries as of the date hereof.
SECTION 4.14 Investments. Set forth on Schedule 4.14 is a complete and
accurate list, in all material respects, as of the date hereof of all
investments by the Borrower or any of its Subsidiaries in any Person, other than
investments by the Borrower or any of its Subsidiaries in a Subsidiary or
Specified Affiliate.
SECTION 4.15 Solvency. Each Obligor is Solvent after giving effect to
the transactions contemplated by the Financing Documents.
SECTION 4.16 Taxes. The Borrower and its Subsidiaries have filed, or
caused to be filed, all tax returns (federal, state, local and foreign) required
to be filed and paid all amounts of taxes shown thereon to be due (including
interest and penalties) and have paid all other taxes, fees, assessments and
other governmental charges owing by them, except for such taxes (i) which are
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not yet delinquent or (ii) as are being contested in good faith and by proper
proceedings, and against which adequate reserves are being maintained in
accordance with generally accepted accounting principles. The Borrower is not
aware of any proposed material tax assessments against it or any of its
Subsidiaries.
SECTION 4.17 REIT Status. The Borrower is taxed as a "real estate
investment trust" within the meaning of Section 856 (a) of the Code.
SECTION 4.18 Specified Affiliates. Except as set forth on Schedul
4.07, there are no Specified Affiliates as of the date hereof.
SECTION 4.19 Financial Condition. Each of the financial statements
described below (copies of which have been provided to the Agent and the
Lenders), have been prepared in accordance with generally accepted accounting
principles applied on consistent basis throughout the periods covered thereby,
present fairly the financial condition and results from operations of the
entities and for the periods specified, subject in the case of interim
company-prepared statements to normal year-end adjustments:
(i) annual audited consolidated balance sheet of the Borrower
and its consolidated subsidiaries dated as of December 31, 1997,
together with related statements of income and cash flows certified by
Ernst & Young, certified public accountants;
(ii) annual audited consolidated balance sheet of Capstone
Capital Corporation dated as of December 31, 1997, together with
related statements of income and cash flows certified by KPMG Peat
Marwick, certified public accountants;
(iii) interim company-prepared consolidated balance sheet of
the Borrower and its consolidated subsidiaries dated as of June 30,
1998, together with related company-prepared statements of income and
cash flows; and
(iv) interim company-prepared consolidated balance sheet of
CCT and its consolidated subsidiaries dated as of June 30, 1998,
together with related company-prepared statements of income and cash
flows.
SECTION 4.20 No Material Adverse Effect. Since the date of the annual
audited financial statements referenced in Section 4.19, other than the
acquisition of Capstone Capital Corporation, there has been no circumstance,
development or event relating to or affecting the Borrower and its Subsidiaries
which has had or would reasonably be expected to have a Material Adverse Effect.
SECTION 4.21 Year 2000 Compliance. The Borrower has (i) initiated a
review and assessment of all areas within its and each of its Subsidiaries'
business and operations (including those affected by suppliers, vendors and
customers) that could be adversely affected by the "Year 2000 Problem" (that is,
the risk that computer applications used by the Borrower or any of its
Subsidiaries (or suppliers, vendors and customers) may be unable to recognize
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and perform properly date-sensitive functions involving certain dates prior to
and any date after December 31, 1999), (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (iii) to date,
implemented that plan in accordance with that timetable. Based on the foregoing,
the Borrower believes that all computer applications (including those of its
suppliers, vendors and customers) that are material to its or any of its
Subsidiaries' business and operations are reasonably expected by no later than
December 31, 1999 to be able to perform properly date-sensitive functions for
all dates before and after January 1, 2000 (that is, be "Year 2000 compliant"),
except to the extent that a failure to do so could not reasonably be expected to
have a Material Adverse Effect.
ARTICLE V
COVENANTS
The Borrower hereby covenants and agrees that until the Obligations,
together with interest, fees and other obligations hereunder, have been paid in
full and the Commitments hereunder shall have terminated, the Borrower shall,
and shall cause its Subsidiaries to, perform and comply with the following
covenants:
SECTION 5.01 Information. The Borrower will deliver to Agent and the
Banks:
(a) as soon as available and in any event within ninety (90) days after
the end of each fiscal year of the Borrower, a consolidated and consolidating
balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal
year and the related consolidated and consolidating statements of income and
consolidated statement of cash flows for such fiscal year, setting forth in each
case in comparative form the figures for the previous fiscal year, and, with
respect to such financial information for the Borrower, such consolidated
statements shall be audited statements by Ernst & Young or other independent
public accountants of nationally recognized standing and containing an opinion
of such accountants, which opinion shall be without exception, qualification or
limitation on scope of audit;
(b) as soon as available and in any event within forty-five (45) days
after the end of each of the first three (3) fiscal quarters of each fiscal year
of the Borrower, a consolidated and consolidating balance sheet of the Borrower
and its Subsidiaries as of the end of such quarter and the related consolidated
and consolidating statements of income and consolidated statement of cash flows
for such quarter and for the portion of the Borrower's fiscal year ended at the
end of such quarter, setting forth in each case in comparative form the figures
for the corresponding quarter and the corresponding portion of the previous
fiscal year, all certified (subject to normal year-end adjustments) as to
fairness of presentation, generally accepted accounting principles and
consistency by the chief financial officer of the Borrower;
(c) simultaneously with the delivery of each set of financial
statements referred to in subsections (a) and (b) of this Section, a certificate
of Borrower, signed on behalf of Borrower by the chief financial officer of the
Borrower (i) stating whether, to such officer's knowledge, there exists on the
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date of such certificate any Default and, if any Default then exists, setting
forth the details thereof and the action that the Borrower is taking or proposes
to take with respect thereto, (ii) stating whether, since the date of the most
recent financial statements previously delivered pursuant to subsection (a) or
(b) of this Section, there has been a change in the generally accepted
accounting principles applied in preparing the financial statements then being
delivered from those applied in preparing the most recent audited financial
statements so delivered which is material to the financial statements then being
delivered, (iii) stating how much of the outstanding principal balance of the
Loans as of the end of the applicable fiscal quarter has been used for the
general corporate purposes of the Borrower and its Subsidiaries, (iv) furnishing
calculations demonstrating the compliance by the Borrower of the covenants
contained in Sections 5.18, 5.19, 5.20, 5.21 and 5.22 hereof, and (v) attaching
management's summary of the results contained in such financial statements;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement (addressed to the Agent
for the benefit of the Banks) of the firm of independent public accountants
which reported on such statements whether anything has come to their attention
to cause them to believe that any Default existed on the date of such
statements;
(e) within five (5) Business Days after any officer obtains knowledge
of any Default, if such Default is then continuing, a certificate of Borrower,
signed on behalf of Borrower by the chief financial officer of the Borrower,
setting forth the details thereof and the action which the Borrower is taking or
proposes to take with respect thereto;
(f) promptly upon the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports and proxy
statements so mailed;
(g) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) which the Borrower shall have filed with the Securities and
Exchange Commission;
(h) if and when any member of the ERISA Group (i) gives or is required
to give notice to the PBGC of any "reportable event" (as defined in Section 4043
of ERISA) with respect to any Plan which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability with respect to any Multiemployer Plan under Title IV of
ERISA or notice that any Multiemployer Plan is in reorganization, is not Solvent
or has been terminated, a copy of such notice; (iii) receives notice from the
PBGC under Title IV of ERISA of its intent to terminate, impose liability (other
than for premiums under Section 4007 of ERISA) in respect of, or appoint a
trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver
of the minimum funding standard under Section 412 of the Code, a copy of such
application; (v) gives notice of intent to terminate any Plan under Section
4041(c) of ERISA, a copy of such notice and other information filed with the
PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of
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ERISA, a copy of such notice; or (vii) except as previously disclosed to the
Banks in writing prior to the date hereof, fails to make any payment or
contribution to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement or makes any amendment to any Plan or Benefit Arrangement which has
resulted or could result in the imposition of a lien or the posting of a bond or
other security under ERISA or the Code, a certificate of Borrower, signed on
behalf of Borrower by the chief financial officer, the chief accounting officer
or the treasurer of the Borrower, setting forth details as to such occurrence
and the action, if any, which the Borrower or any applicable member of the ERISA
Group is required or proposes;
(i) as soon as possible after any officer of the Borrower obtains
knowledge of the commencement of, or of a material threat of the commencement
of, an action, suit or proceeding against the Borrower or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency or
official in which there is a reasonable likelihood of an adverse decision which
would after the application of applicable insurance materially and adversely
affect the business, financial position or results of operations of the Borrower
and its Consolidated Subsidiaries, in each case considered as a whole, or which
in any manner questions the validity of any Financing Document, a written report
informing the Banks in reasonable detail of the nature of such pending or
threatened action, suit or proceeding;
(j) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries, as the
Agent or any Bank may reasonably request; and
For purposes of the foregoing:
(i) during any period when generally accepted accounting
principles or related auditing standards require that a Specified
Affiliate of the Borrower be accounted for as a Subsidiary for purposes
of the consolidated financial statements of the Borrower and its
Subsidiaries, the term "Subsidiary" shall include a Specified Affiliate
of the Borrower for purposes of paragraphs (a) and (b) above; and
(ii) during any period when generally accepted accounting
principles or related auditing standards do not require that a
Specified Affiliate of the Borrower be accounted for as a Subsidiary
for purposes of the consolidated financial statements of the Borrower
and its Subsidiaries, the terms "Subsidiary" shall not include a
Specified Affiliate of the Borrower for purposes of paragraphs (a) and
(b) above and, if the Borrower shall have any Specified Affiliates
during any period covered by the financial statements delivered
pursuant to paragraphs (a) or (b) above, the Borrower shall deliver (A)
financial statements of the character specified in paragraphs (a) and
(b) above for such Specified Affiliates within the time periods set
forth in paragraphs (a) and (b) above, and (B) on a combined basis,
financial statements of the character specified in paragraphs (a) and
(b) above for the Borrower, its Subsidiaries and such Specified
Affiliates accompanied by the opinions and certificates specified in
paragraphs (b) and (c) above within the time periods set forth in
paragraphs (a), (b) and (c) above.
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SECTION 5.02 Payment of Obligations. The Borrower will pay and
discharge, and will cause each of its Subsidiaries to pay and discharge, at or
before maturity, or prior to expiration of applicable notice, grace and curative
periods, all their respective material obligations and liabilities, including,
without limitation, tax liabilities, except where the same may be contested in
good faith by appropriate proceedings, and will maintain, and will cause each of
its Subsidiaries to maintain, in accordance with generally accepted accounting
principles, appropriate reserves for the accrual of any of the same.
SECTION 5.03 Maintenance of Property; Insurance.
(a) The Borrower will keep, and will cause each of its Subsidiaries to
keep, or will in the ordinary course of business cause the tenants of respective
properties to keep, all property materially useful and necessary in its business
in good working order and condition, ordinary wear and tear excepted.
(b) The Borrower will maintain, and will cause each of its Subsidiaries
to maintain, with financially sound and responsible insurance companies,
insurance on all their respective properties in at least such amounts and
against such risks (and with such risk retention) as are usually insured against
in the same general area by companies of established repute engaged in the same
or a similar business, and will furnish to the Banks, upon request from the
Agent, information presented in reasonable detail as to the insurance so
carried. The insurance described in this Section 5.03 may be carried by the
tenants under the respective tenant leases of such properties in lieu of by
Borrower or its Subsidiaries so long as the Borrower or its respective
Subsidiary is named as loss payee and additional insured with respect to such
insurance.
SECTION 5.04 Conduct of Business and Maintenance of Existence.Except
as contemplated otherwise by the Investment Policy, the Borrower will continue,
and will cause each Subsidiary to continue, to engage in business of the same
general type as now conducted by the Borrower and each of its Subsidiaries, and
will preserve, renew and keep in full force and effect, and will cause each of
its Subsidiaries to preserve, renew and keep in full force and effect their
respective corporate existences and, except for any such rights, privileges and
franchises the failure to preserve which would not in the aggregate have a
material adverse effect on the Borrower and its Subsidiaries or the ability of
the Borrower or any Subsidiary to perform any of their respective obligations
under any Financing Document, their respective rights, privileges and franchises
necessary or desirable in the normal conduct of business; provided that nothing
in this Section 5.04 shall prohibit (a) the merger of a Subsidiary of the
Borrower into the Borrower or the merger or consolidation of any Subsidiary of
the Borrower with or into another Person if the corporation surviving such
consolidation or merger is a Wholly-Owned Consolidated Subsidiary of the
Borrower and if, in each case, after giving effect thereto, no Default shall
have occurred and be continuing and a responsible officer of the Borrower shall
deliver to the Agent an officer's certificate, in form and substance
satisfactory to the Agent, indicating compliance with the terms hereof,
including specifically, the financial covenants hereunder, on a pro forma basis
after giving effect thereto, or (b) the termination of the corporate existence
of any Subsidiary of the Borrower or the discontinuation of any line of business
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of the Borrower or any of its Subsidiaries if the Borrower in good faith
determines that such termination is in the best interest of the Borrower or such
Subsidiary, as the case may be, and is not materially disadvantageous to the
Banks.
SECTION 5.05 Compliance with Laws. The Borrower will comply, and cause
each of its Subsidiaries to comply, in all material respects with all applicable
laws, ordinances, rules, regulations, and requirements of governmental
authorities (including, without limitation, Environmental Laws and ERISA and the
rules and regulations thereunder) the failure to comply with which would have a
material adverse effect on the Borrower and its Subsidiaries or their ability to
perform any of its obligations under any Financing Document, except where the
necessity of compliance therewith is contested in good faith by appropriate
proceedings.
SECTION 5.06 Inspection of Property, Books and Records. The Borrower
will keep, and will cause each of its Subsidiaries to keep, proper books of
record and account in which full, true and correct entries shall be made of all
material dealings and transactions in relation to its business and activities;
and, except to the extent prohibited by applicable law, rule, regulations or
orders, will permit, and will cause each of its Subsidiaries to permit,
representatives of any Bank at such Bank's expense (which expense shall not be
subject to reimbursement by Borrower hereunder) to visit and inspect any of
their respective properties (subject to the rights of tenants in possession
thereof and to any limitations on the inspection rights of Borrower in
connection therewith), to examine and make abstracts from any of their
respective books and records and to discuss their respective affairs, finances
and accounts with their respective officers, employees and independent public
accountants, upon reasonable prior written notice to Borrower, all at such
reasonable times and as often as may reasonably be desired.
SECTION 5.07 Negative Pledge. The Borrower will not nor will it permit
any of its Subsidiaries to create, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired by it, except:
(a) (i) Liens securing up to $12.6 million of indebtedness under the
Term Loan Agreement, (ii) Liens created by and existing under the Financing
Documents hereunder, and (iii) other mortgage Liens to the extent not
prohibited, both before and after giving effect thereto, by the provisions of
Sections 5.21 (Consolidated Senior Secured Debt to Consolidated Total Capital
Ratio) and Section 5.22 (Consolidated Unencumbered Realty to Consolidated
Unsecured Debt Ratio);
(b) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's, statutory banker's or other like Liens arising in the ordinary
course of business and which are not overdue for a period of more than thirty
(30) days or which are being contested in good faith by appropriate proceedings;
(c) Liens for taxes, assessments or other governmental charges not yet
due or which are being contested in good faith and by appropriate proceedings
and for which adequate reserves are taken in accordance with generally accepted
accounting principals;
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(d) Liens imposed by law on pledges or deposits in connection with
workmen's compensation, unemployment insurance and other social security
legislation which do not interfere with or adversely affect in any material
respect the ordinary conduct of the business of the Borrower or any of its
Subsidiaries;
(e) deposits to secure the performance of bids, tenders, trade or
government contracts (other than for borrowed money), leases, licenses,
statutory obligations, surety bonds (other than in relation to judgments),
performance bonds, reserves for capital improvements and other obligations of a
like nature incurred in the ordinary course of business;
(f) easements, rights-of-way, zoning and similar restrictions and other
encumbrances or title defects incurred, or leases or subleases granted to others
which are in existence as of the date hereof, or if not in existence as of the
date hereof, do not interfere with or adversely affect in any material respect
the ordinary conduct of the business, or detract from the value of the property,
of the Borrower or any of its Subsidiaries;
(g) Liens securing reimbursement obligations with respect to trade
letters of credit issued in the ordinary course of business; provided that such
Liens only attach to the assets being acquired with the proceeds of such letters
of credit;
(h) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien, to the extent such Lien is permitted
by any of the foregoing clauses of this Section; provided that such Debt is not
increased and is not secured by any additional assets;
(i) Liens on properties securing security deposits of tenants, provided
that the aggregate amount of such security deposits secured by such Liens shall
not exceed 5% of Consolidated Total Capital at any time outstanding; and
(j) Liens securing Debt of any Subsidiary or Specified Affiliate owing
to the Borrower, any Subsidiary or Specified Affiliate.
SECTION 5.08 Consolidations, Mergers and Sales of Assets.
(a) The Borrower will not, nor will it permit any of its Subsidiaries
to, consolidate or merge with or into any other Person except as permitted in
accordance with Section 5.04.
(b) The Borrower will not, nor will it permit any of its Subsidiaries
to, make any Asset Sale except the sale of any asset listed in Schedule 5.08
hereof, unless in connection with such Asset Sale, Borrower or such Subsidiary
makes provision for the Mandatory Prepayments described in Section 2.07.
SECTION 5.09 Creation of Subsidiaries. The Borrower will not, nor will
it permit any of its Subsidiaries to, create any Subsidiary except for the
creation of a wholly owned Subsidiary of the Borrower or a Specified Affiliate
provided that (i) such Subsidiary or Specified Affiliate is organized under the
laws of a jurisdiction within the United States of America, (ii) such Specified
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Affiliate and such Subsidiary, if such Subsidiary is a Material Subsidiary,
executes at the time of its creation a guaranty in favor of the Banks in the
form of Schedule 5.09 attached hereto, and (iii) no Default exists immediately
prior to or after the creation of such Subsidiary or Specified Affiliate.
SECTION 5.10 Incurrence of Debt. The Borrower will not incur, nor will
it permit any of its Subsidiaries to incur, Debt except as follows:
(i) in the case of publicly issued or privately placed Debt,
the final maturity of such Debt shall not be prior to the Termination
Date hereunder, nor prior to the final maturity of the Term Loan;
(ii) in the case of Debt secured by mortgage liens, such Debt
shall be non-recourse to the Borrower and its Subsidiaries except to
the extent of the property pledged to secure such Debt; and
(iii) in all cases, Debt of the Borrower, provided that, after
giving effect to the incurrence thereof, the Borrower and its
Subsidiaries shall be in compliance with the terms of this Credit
Agreement, including the financial covenants hereunder.
SECTION 5.11 Transactions with Affiliates. The Borrower will not and
will not permit any Subsidiary to enter into directly or indirectly any material
transaction or material group of related transactions (including without
limitation the purchase, lease, sale or exchange of properties of any kind or
the rendering of any service) with any Affiliate (other than the Borrower or any
Guarantor), except in the ordinary course and pursuant to the reasonable
requirements of the Borrower's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to the Borrower or such Subsidiary than would
be obtainable in a comparable arm's-length transaction with a Person not an
Affiliate.
SECTION 5.12 Use of Proceeds. The Extensions of Credit hereunder will
be used (i) to finance the acquisition of Capstone Capital Corporation, (ii) to
refinance existing indebtedness for borrowed money, (iii) to finance the
acquisition of healthcare real estate properties by the Borrower and its
Subsidiaries, and (iv) to finance the general corporate purposes of the Borrower
and its Subsidiaries, provided, however, no more than Fifty Million Dollars
($50,000,000) of Extensions of Credit at any one time outstanding shall be used
for general corporate purposes of the Borrower and its Subsidiaries, unless and
to the extent necessary to maintain the Borrower's REIT status.
SECTION 5.13 Constitutional Documents. Subject to changes, including
any dissolutions permitted pursuant to this Credit Agreement: (i) the Borrower
will not, nor will it permit any of its Subsidiaries to, amend its
Constitutional Documents in any manner which could materially adversely affect
the rights of the Banks under the Financing Documents or their ability to
enforce the same; (ii) the Borrower will not amend its Constitutional Documents
in a manner which would permit a single shareholder (as determined for purposes
hereof pursuant to the attribution provisions of Section 544 of the Code as
modified by Section 856 of the Code) to own more than thirty percent (30%) of
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the outstanding stock in Borrower; and (iii) the Borrower will not consent to
any material amendment, modification, supplement or waiver to the Agreement and
Plan of Merger (including, but not limited to, any material amendment,
modification supplement or waiver relating to any disclosure schedule or
exhibit) without the prior written consent of the Agent and the Majority Banks.
SECTION 5.14 Investments. The Borrower shall not make, nor shall it
permit any of its Subsidiaries to make, any Investment in any other Person
except for Investments made in accordance with the Borrower's Investment Policy,
except that the Borrower may make and own Investments in (i) marketable direct
obligations issued or unconditionally guaranteed by the Government or issued by
any agency thereof and backed by the full faith and credit of the United States
of America, in each case maturing within one (1) year from the date of
acquisition thereof, (ii) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one (1) year from the date of
acquisition thereof and, at the time of acquisition, having the highest rating
obtainable from either S&P or Moody's, (iii) commercial paper maturing no more
than one (1) year from the date of creation thereof and, at the time of
acquisition, having a rating in one of the two highest rating categories of S&P
or Moody's, (iv) certificates of deposit, bankers acceptances or time deposits
maturing within one (1) year from the date of acquisition thereof issued by any
of the Banks, (v) certificates of deposit or bankers acceptances maturing within
one (1) year from the date of acquisition thereof or time deposits maturing
within thirty (30) days from the date of acquisition thereof issued by other
commercial banks organized under the laws of the United States of America or any
state thereof or the District of Columbia, each having shareholders' equity of
not less than $600,000,000, (vi) repurchase agreements with commercial banks or
with securities dealers, in any case fully secured as to principal and interests
by obligations described in clauses (i)-(v) of this Section, or (vii) joint
ventures or other non-Subsidiary enterprises in the same or closely related
lines of business in an aggregate amount up to ten percent (10%) of the book
value of consolidated assets of the Borrower and its Subsidiaries.
SECTION 5.15 Prepayments of Debt. The Borrower shall not, nor shall it
permit any of its Subsidiaries to, prepay, redeem, defease (whether actually or
in substance) or purchase in any manner (or deposit or set aside funds for the
purpose of any of the foregoing), make any payment in respect of principal of,
or make any payment in respect of interest on, or permit any of its Subsidiaries
to prepay, redeem, or purchase in an manner, make any payment in respect of
principal of, or make any payment in respect of interest on, any Debt of the
Borrower or any of its Subsidiaries except for (i) payments of principal,
interest or other sums required or permitted in accordance with the terms of the
instruments governing such Debt, (ii) payments with respect to Debt under this
Credit Agreement or any of the Financing Documents hereunder or under the Term
Loan Agreement or any of the Financing Documents thereunder, (iii) payments with
respect to Debt assumed or taken subject to in connection with any Securities
Transaction or asset purchase after the date hereof, (iv) payments with respect
to Debt of any Subsidiary to the Borrower and (v) payments and prepayments on up
to $60 million in principal amount of mortgage indebtedness assumed in
connection with the acquisition of Capstone Capital Corporation.
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SECTION 5.16 Capital Expenditures. The Borrower shall not, nor shall it
permit any of its Subsidiaries to, make any capital expenditures in an aggregate
amount in excess of FIVE MILLION DOLLARS ($5,000,000) per fiscal year; provided,
however (i) capital expenditures incurred to acquire, expand or improve
facilities intended to be revenue producing shall not be deemed to be capital
expenditures for purposes of the foregoing requirement, and (ii) capital
expenditures required pursuant to any lease or other contract shall not be
deemed to be capital expenditures for purposes of the foregoing requirement.
SECTION 5.17 Repurchase, Retirement or Redemption of Capital Stock;
Dividends. The Borrower will not, nor will it permit any of its Subsidiaries
(other than its wholly-owned Subsidiaries or the Specified Affiliates) to,
repurchase, retire or redeem any of its capital stock. The Borrower will not pay
dividends on any of its stock in any fiscal year in excess of ninety five
percent (95%) of Funds From Operations for such fiscal year; provided that (i)
any wholly-owned Subsidiary of the Borrower may pay dividends or make
distributions to its parent company and (ii) the Borrower may pay such dividends
as are necessary to maintain its status as a REIT.
SECTION 5.18 Ratio of Consolidated Funded Indebtedness to Consolidated
Total Capital. The Borrower will not permit its ratio of Consolidated Funded
Indebtedness to Consolidated Total Capital to exceed (i) .42 to 1.0 as of the
last day of each fiscal quarter ending prior to December 31, 1999, and (ii) .40
to 1.0 as of the last day of each fiscal quarter ending as of December 31, 1999
and thereafter.
SECTION 5.19 Consolidated Tangible Net Worth. The Borrower shall
maintain Consolidated Tangible Net Worth at all times of at least
$800,000,000.00; provided, however, such amount shall be increased by an amount
equal to (a) ninety-five percent (95%) of the net proceeds received by the
Borrower on account of any additional equity offerings made subsequent to the
Closing Date; and (b) ninety-five percent (95%) of the net proceeds received by
the Borrower on account of any Securities Transaction completed subsequent to
the Closing Date.
SECTION 5.20 Consolidated Interest Coverage Ratio. The Borrower will
maintain a ratio of Consolidated EBIT to Consolidated Interest Expense as of the
last day of each fiscal quarter (computed for the four (4) consecutive quarterly
periods then ending) based on the Duff & Phelps rating for the Borrower's senior
unsecured (non-credit enhanced) long-term debt, of not less than:
<TABLE>
<CAPTION>
Duff & Phelps Rating
<S> <C> <C>
BBB or above 2.50 to 1.0
below BBB 3.00 to 1.0
</TABLE>
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SECTION 5.21 Consolidated Senior Secured Debt to Consolidated Total
Capital Ratio. The ratio of Consolidated Senior Secured Debt to Consolidated
Total Capital shall not at any time exceed .20 to 1.0.
SECTION 5.22 Consolidated Unencumbered Realty to Consolidated Unsecured
Debt Ratio. The ratio of Consolidated Unencumbered Realty to Consolidated
Unsecured Debt shall not at any time be less than 2.1 to 1.0.
SECTION 5.23 Material Subsidiaries. The Borrower will give the Agent
prompt notice of any Subsidiary of the Borrower which to the Borrower's
knowledge becomes a Material Subsidiary subsequent to the Closing Date and will
take the following steps with respect to each such Material Subsidiary: (i) the
Borrower will cause each such Material Subsidiary to execute a guaranty in favor
of the Banks in the form of Schedule 5.09 attached hereto and (ii) the Borrower
will pay all reasonable costs and expenses incurred in connection with the
requirements set forth in this Section 5.23. The Borrower will satisfy the
foregoing requirements within thirty (30) days after any Subsidiary becomes a
Material Subsidiary.
SECTION 5.24 Specified Affiliates. The Borrower will take the following
steps with respect to each Specified Affiliate: (i) the Borrower will cause each
Specified Affiliate to execute a guaranty in favor of the Banks in the form of
Schedule 5.09 attached hereto and (ii) the Borrower will pay all reasonable
costs and expenses incurred in connection with the requirements set forth in
this Section 5.24. The Borrower will satisfy the foregoing requirements within
thirty (30) days after the creation of any Specified Affiliate.
SECTION 5.25 REIT Status. The Borrower will meet the requirements of
Section 857(a) of the Code and regulations thereunder.
SECTION 5.26 Leases. The Borrower will not modify or amend any lease
where the Borrower is the lessor thereunder if such modification or amendment
would have a material adverse effect on the Borrower.
SECTION 5.27 Year 2000 Compliance. The Borrower will promptly notify
the Bank in the event the Borrower discovers or determines that any computer
application (including those of its suppliers, vendors and customers) that is
material to its or any of its Subsidiaries' business and operations will not be
Year 2000 compliant, except to the extent that such failure could not reasonably
be expected to have a Material Adverse Effect.
SECTION 5.28 Construction and Development. The Borrower and its
Subsidiaries will not engage in construction and development projects in which
the total project costs of all such concurrent construction and development
projects exceed, in the aggregate at any one time, ten percent (10%) of the book
value of consolidated assets of the Borrower and its Subsidiaries (it being
understood and agreed for purposes of this Section that a project shall be
considered under construction and/or development until a certificate of
occupancy therefor, or other similar certificate, shall have been issued by
appropriate governmental authorities).
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ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01 Events of Default. The occurrence of any of the following
events shall constitute an event of default hereunder (individually, an "Event
of Default" and collectively the "Events of Default"):
(a) The Borrower shall fail to pay (i) when due any principal of any
Loan or any reimbursement obligation owing on account of a drawing under a
Letter of Credit or (ii) within five (5) days after the same shall become due,
any interest on any Obligation or any fees or any other amount payable
hereunder;
(b) The Borrower shall fail to observe or perform any covenant
contained in Section 5.01 hereof for thirty (30) days after the earlier of a
responsible officer of the Borrower becoming aware of such failure or written
notice of such failure shall have been given to the Borrower by the Agent or any
Bank;
(c) Default in the due performance or observance of any term, covenant
or agreement contained in Section 5.07 through 5.28, inclusive;
(d) Any Obligor shall fail to observe or perform any covenant or
agreement contained in any Financing Document (other than those covered by
clause (a), (b) or (c) above) for thirty (30) days after the earlier of a
responsible officer of the Borrower becoming aware of such failure or written
notice of such failure shall have been given to the Borrower by the Agent or any
Bank;
(e) Any representation, warranty, certification or statement made or
deemed made by any Obligor in any Financing Document or in any certificate,
financial statement or other document delivered pursuant thereto shall prove to
have been incorrect in any material respect when made (or deemed made) and such
representation, warranty, certification or statement shall remain incorrect for
thirty (30) days after the earlier of a responsible officer of the Borrower
becoming aware of such failure or written notice of such failure shall have been
given to the Borrower by the Agent or any Bank;
(f) The Borrower or any of its Subsidiaries shall fail to make any
payment in respect of any Debt in an aggregate amount in excess of $5,000,000
when due or within any applicable grace period;
(g) Any event or condition shall occur which would cause or permit the
acceleration of the maturity of any Debt of Borrower or any Subsidiary in an
aggregate amount in excess of $5,000,000 or enables the holder of such Debt or
any Person acting on such holder's behalf to accelerate the maturity thereof;
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(h) The Borrower or any Guarantor shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(i) An involuntary case or other proceeding shall be commenced against
the Borrower or any Guarantor seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of thirty (30) days; or an
order for relief shall be entered against the Borrower or any Guarantor under
the federal bankruptcy laws as now or hereafter in effect;
(j) The Borrower or any Guarantor shall admit in writing its inability
to pay its debts as and when they fall due;
(k) Except as previously disclosed to the Banks in writing prior to the
date hereof: any member of the ERISA Group shall fail to pay when due an amount
or amounts aggregating in excess of $1,000,000 which it shall have become liable
to pay under Title IV of ERISA; or notice of intent to terminate any Plan which
is then a Material Plan shall be filed under Title IV of ERISA by any member of
the ERISA Group, any plan administrator or any combination of the foregoing; or
the PBGC shall institute proceedings under Title IV of ERISA to terminate, to
impose liability (other than for premiums under Section 4007 of ERISA) in
respect of, or to cause a trustee to be appointed to administer any Plan which
is then a Material Plan; or a condition shall exist by reason of which the PBGC
would be entitled to obtain a decree adjudicating that any Plan which is then a
Material Plan must be terminated; or there shall occur a complete or partial
withdrawal from, or a default, within the meaning of Section 4219(c)(5) of
ERISA, with respect to, one or more Multiemployer Plans which could cause one or
more members of the ERISA Group to incur a current payment obligation, that is,
an obligation or series of obligations payable within twelve (12) months, in
excess of $1,000,000;
(l) An uninsured, final, unappealable judgment or order for the payment
of money in excess of $1,000,000 shall be rendered against the Borrower or any
of its Subsidiaries and such judgment or order shall continue unsatisfied and
unstayed for a period of thirty (30) days;
(m) (i) The voting interests in any Specified Affiliate shall be held
by a Person other than a director, officer or employee of the Borrower, (ii) the
Borrower shall fail to own substantially all of the economic interest in any
Specified Affiliate and the remainder of such economic interest shall be held by
a Person other than directors, officers and/or employees or (iii) a Specified
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Affiliate shall engage in any of the actions or activities that are limited or
restricted by Article 5 hereof;
(n) Except as to any which is dissolved, released or merged or
consolidated out of existence as the result of or in connection with a
dissolution, merger or consolidation permitted by Section 5.04, the guaranty
given by any Guarantor hereunder or any material provision thereof shall cease
to be in full force and effect, or any Guarantor hereunder or any Person acting
by or on behalf of such Guarantor shall deny or disaffirm such Guarantor's
obligations under such guaranty, or any Guarantor shall default in the due
performance or observance of any term, covenant or agreement on its part to be
performed or observed pursuant to any guaranty; or
(o) the occurrence of an Event of Default under the Term Loan
Agreement;
(p) the occurrence of a Change of Control;
then, and in every such event, the Agent shall during the continuance of such
Event of Default (i) if requested by the Majority Banks, by notice to the
Borrower terminate the Commitments, (ii) if requested by the Majority Banks, by
notice to the Borrower declare the Notes (together with accrued interest
thereon) and all other amounts payable by the Borrower hereunder to be, and such
Notes and amounts shall thereupon become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower, (iii) provide cash collateral in respect of the
LOC Obligations, and (iv) take such other actions as are directed by the
Majority Banks; provided that in the case of any Event of Acceleration, without
any notice to any Obligor or any other act by the Agent or any Bank, the
Commitments shall automatically terminate and the Notes (together with accrued
interest thereon) shall automatically become immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower ; and provided further that the Agent may
terminate commitments, declare the Loans and Obligations hereunder immediately
due and payable and demand cash collateral for the LOC Obligations without prior
notice to or the consent of the Banks where it determines such action is
warranted and appropriate based on the facts and circumstances. Subject to the
request or direction of the Majority Banks as provided above, Agent shall have
the exclusive right to enforce the remedies available under this Credit
Agreement during the continuance of any Event of Default hereunder.
ARTICLE VII
THE AGENT
SECTION 7.01 Appointment and Authorization. Each Bank appoints the
Agent to act as its agent in connection herewith and each of the other Financing
Documents.
SECTION 7.02 Agents and Affiliates. NationsBank shall have the same
rights and powers under this Credit Agreement as any other Bank and may exercise
or refrain from exercising the same as though it were not the Agent, and
NationsBank and each of its affiliates may accept deposits from, lend money to,
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and generally engage in any kind of business with the Borrower, any of its
Subsidiaries and any of its or their respective Affiliates as if it were not the
Agent.
SECTION 7.03 Action by Agent. The obligations of the Agent under the
Financing Documents are only those expressly set forth herein with respect to
it. Without limiting the generality of the foregoing the Agent shall not be
required to take any action with respect to any Default or Event of Default,
except as expressly provided in Article VI.
SECTION 7.04 Consultation with Experts. The Agent may consult with
legal counsel (who may be counsel for the Borrower), independent public
accountants and other experts selected by the Agent and shall not be liable for
any action taken or omitted to be taken by the Agent in good faith in accordance
with the advice of such counsel, accountants or experts.
SECTION 7.05 Liability of Agent. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
not taken by it in connection with the Financing Documents (a) with the consent
or at the request of the Majority Banks; or (b) in the absence of gross
negligence or willful misconduct of the Agent. In requests for consents and
direction from the Banks, the Agent may provide reasonable periods in which to
respond. Neither the Agent nor any of its directors, officers, agents or
employees shall be responsible for or have any duty to ascertain, inquire into
or verify (i) any statement, warranty or representation made in connection with
any Financing Document; (ii) the performance or observance of any of the
covenants or agreements of the Borrower, (iii) the satisfaction of any condition
specified in Article III, except receipt of items required to be delivered to
the Agent; or (iv) the validity, effectiveness or genuineness of any Financing
Document or any other instrument or writing furnished in connection therewith.
The Agent shall not incur any liability by acting in reliance upon any notice,
consent, certificate, statement or other writing (which may be a bank wire,
facsimile, telex or similar writing) believed by it to be genuine or to be
signed by the proper party or parties.
SECTION 7.06 Indemnification. Each Bank shall, ratably in accordance
with its Revolving Commitment, indemnify the Agent and NMS (to the extent not
reimbursed by the Borrower) against any cost, expense (including reasonable
counsel fees and disbursements), claim, demand, action, loss or liability
(except such as result from the Agent's or NMS's gross negligence or willful
misconduct) that the Agent may suffer or incur in connection with the Financing
Documents or any action taken or omitted by the Agent thereunder.
SECTION 7.07 Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Credit Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under the Financing Documents.
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SECTION 7.08 Successor Agent. The Agent may resign at any time by
giving thirty (30) days prior written notice thereof to the Banks and the
Borrower. The Majority Banks may remove the Agent for cause at any time by
giving thirty (30) days prior written notice to the Agent, the other Banks and
the Borrower. Upon any such resignation or removal of the Agent, the Majority
Banks shall have the right to appoint a successor Agent, with the consent of the
Borrower (which consent shall not unreasonably be withheld, but which may in any
event be withheld if (a) the Borrower in good faith concludes that the
appointment of such proposed successor Agent could result in a violation of any
law, rule, guideline or regulation, or a violation of, revocation of, failure to
renew or modification of any order, facility security clearance or permit or (b)
the credit standing of the proposed successor Agent is lower than that of the
preceding Agent); provided, however, such consent of the Borrower shall not be
required upon the occurrence and during the continuance of an Event of Default.
If no successor Agent shall have been so appointed by the Majority Banks, and
shall have accepted such appointment, within thirty (30) days after the retiring
Agent gives notice of resignation, then the retiring Agent may, on behalf of the
Banks and with the consent of the Borrower (which consent shall not be
unreasonably withheld except as aforesaid), appoint a successor Agent, which
shall have core capital of at least $500,000,000. Upon the acceptance of its
appointment as Agent hereunder by a successor Agent the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent. In the event of any successor agent to NationsBank, (i) all references
herein to NationsBank shall be deemed to refer to such successor agent and (ii)
all references to Charlotte, North Carolina shall be deemed to mean the city in
which the successor Agent's headquarters is located.
SECTION 7.09 Agent's Fee. The Borrower shall pay to the Agent for its
own account fees in the amounts and at the time previously agreed upon in
writing between the Borrower and the Agent (with appropriate credit for agency
fees paid in advance in respect of the credit facility replaced hereby).
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01 Basis for Determining Interest Rate Inadequate or Unfair.
If on or prior to the first day of any Interest Period for any Eurodollar Loan:
(a) the Agent is advised by the Eurodollar Reference Bank that deposits
in Dollars (in the applicable amounts) are not being offered to the Eurodollar
Reference Bank in the relevant market for such Interest Period, or
(b) the Majority Banks advise the Agent that the Adjusted Eurodollar
Rate as determined by the Agent will not adequately and fairly reflect the cost
to such Banks of funding their Eurodollar Loans for such Interest Period,
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the Agent shall forthwith give notice thereof to the Borrower and the Banks,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, (i) the obligations of the Banks to
make new Eurodollar Loans or to convert outstanding Loans into Eurodollar Loans
shall be suspended and (ii) each outstanding Eurodollar Loan, as the case may
be, shall be converted into a Base Rate Loan on the last day of the then current
Interest Period applicable thereto. Unless the Borrower notifies the Agent at
least one (1) Business Day before the date of any Eurodollar Borrowing for which
a Notice of Borrowing has previously been given that it elects not to borrow on
such date, such Borrowing shall instead be made as a Base Rate Borrowing.
SECTION 8.02 Illegality. If, on or after the date of this Credit
Agreement, the adoption of any applicable law, rule or regulation, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof or compliance by any Bank (or its
Eurodollar Lending Office) with any request or directive (whether or not having
the force of law) of any such authority, central bank or comparable agency shall
make it unlawful or impossible for any Bank (or its Eurodollar Lending Office)
to make, maintain or fund its Eurodollar Loans and such Bank shall so notify the
Agent, the Agent shall forthwith give notice thereof to the other Banks and the
Borrower, whereupon until such Bank notifies the Borrower and the Agent that the
circumstances giving rise to such suspension no longer exist, the obligation of
such Bank to make new Eurodollar Loans, or to convert outstanding Loans into
Eurodollar Loans, shall be suspended. Before giving any notice to the Agent
pursuant to this Section, such Bank shall designate a different Eurodollar
Lending Office if such designation will avoid the need for giving such notice
and will not, in the judgment of such Bank, be otherwise disadvantageous to such
Bank. If such notice is given, each Eurodollar Loan of such Bank then
outstanding shall be converted to a Base Rate Loan either (a) on the last day of
the then current Interest Period applicable to such Eurodollar Loan if such Bank
may lawfully continue to maintain and fund such Loan to such day or (b)
immediately if such Bank shall determine that it may not lawfully continue to
maintain and fund such Loan to such day.
SECTION 8.03 Increased Cost and Reduced Return.
(a) If on or after the date hereof, the adoption of any applicable law,
rule or regulation, or any change therein, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank (or its Eurodollar Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency:
(i) shall subject any Bank (or its Applicable Lending
Office) to any tax, duty or other charge with respect to its Eurodollar
Loans, or its obligation to make Eurodollar Loans, or shall change the
basis of taxation of payments to any Bank (or its Eurodollar Lending
Office) of the principal of or interest on its Eurodollar Loans or any
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other amounts due under this Credit Agreement in respect of its
Eurodollar Loans or its obligation to make Eurodollar Loans (except for
(i) Non-Excluded Taxes covered by Section 8.04 (including Non-Excluded
Taxes imposed solely by reason of any failure of such Bank to comply
with its obligations under Section 2.14 and (ii) changes in the rate of
tax imposed on, or contemplated with respect to, the income of such
Bank or its Eurodollar Lending Office or changes generally affecting
the manner in which the income of such Bank or its Applicable Lending
Office is subjected to taxation, by the jurisdiction in which such
Bank's principal executive office or Eurodollar Lending Office is
located or the jurisdiction under the laws of which such Bank is
organized); or
(ii) shall impose, modify or deem applicable any reserve,
special deposit or similar requirement (including, without limitation,
any such requirement imposed by the Board of Governors of the Federal
Reserve System, but excluding with respect to any Eurodollar Loan any
such requirement included in an applicable Eurodollar Reserve
Percentage) against assets of, deposits with or for the account of, or
credit extended by, any Bank (or its Applicable Lending Office) or
shall impose on any Bank (or its Applicable Lending Office) or on the
United States market for certificates of deposit or the London
interbank market any other condition affecting its Eurodollar Loans,
its Note or its obligation to make Eurodollar Loans;
and the result of any of the foregoing is to increase the cost to such Bank (or
its Eurodollar Lending Office) of making or maintaining any Eurodollar Loan, or
to reduce the amount of any sum received or receivable by such Bank (or its
Eurodollar Lending Office) under this Credit Agreement or under its Note with
respect thereto, by an amount deemed by such Bank to be material (except to the
extent that such increased cost or reduction of a sum received or receivable is
attributable to such Bank's failure to perform any of its obligations under
Section 2.14 or is otherwise attributable to any act or action of such Bank
other than the loaning of funds under this Credit Agreement), then, within
fifteen (15) days after demand by such Bank (with a copy to the Agent)
accompanied by a certificate setting forth in reasonable detail its calculation
of such increased cost or reduction, the Borrower shall pay to such Bank such
additional amount or amounts as will compensate such Bank for such increased
cost or reduction.
(b) If any Bank shall have determined that, after the date hereof, the
adoption or change of any applicable law, rule, guideline or regulation
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof or any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on capital
of such Bank (or its Parent) as a consequence of such Bank's obligations
hereunder to a level below that which such Bank (or its Parent) could have
achieved but for such adoption, change, request or directive (taking into
consideration its policies with respect to capital adequacy) by an amount deemed
by such Bank to be material then from time to time, within fifteen (15) days
after demand by such Bank (with a copy to the Agent) accompanied by a
certificate setting forth in reasonable detail its calculation of such
reduction, the Borrower shall pay such Bank such additional amount or amounts as
will compensate such Bank (or its Parent) for such reduction.
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(c) Each Bank will promptly notify the Borrower and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Bank to compensation pursuant to this Section and will designate a
different Applicable Lending Office if such designation will avoid the need for,
or reduce the amount of, such compensation and will not, in the judgment of such
Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank
claiming compensation under this Section and setting forth in reasonable detail
its calculation of the additional amount or amounts to be paid to it hereunder
shall be conclusive in the absence of manifest error. In determining such
amount, such Bank may use any reasonable averaging and attribution methods.
Failure on the part of any Bank to demand compensation under subsection (a) or
(b) with respect to any period shall not constitute a waiver of such Bank's
right to demand compensation with respect to such period or any other period;
provided, however, that no Bank shall be entitled to compensation for the period
which is more than thirty (30) days prior to the date the Borrower receives the
certificate described in this subsection (c) via facsimile. Each Bank agrees
that it will send the certificate described above via facsimile to insure
immediate receipt by the Borrower.
SECTION 8.04 Taxes.
(a) Except as provided below in this subsection, all payments made by
the Borrower under this Credit Agreement and any Notes shall be made free and
clear of, and without deduction or withholding for or on account of, any present
or future income, stamp or other taxes, levies, imposts, duties, charges, fees,
deductions or withholdings, now or hereafter imposed, levied, collected,
withheld or assessed by any court, or governmental body, agency or other
official, excluding taxes measured by or imposed upon the overall net income of
any Bank or its applicable lending office, or any branch or affiliate thereof,
and all franchise taxes, branch taxes, taxes on doing business or taxes on the
overall capital or net worth of any Bank or its applicable lending office, or
any branch or affiliate thereof, in each case imposed in lieu of net income
taxes, imposed: (i) by the jurisdiction under the laws of which such Bank,
applicable lending office, branch or affiliate is organized or is located, or in
which its principal executive office is located, or any nation within which such
jurisdiction is located or any political subdivision thereof; or (ii) by reason
of any connection between the jurisdiction imposing such tax and such Bank,
applicable lending office, branch or affiliate other than a connection arising
solely from such Bank having executed, delivered or performed its obligations,
or received payment under or enforced, this Credit Agreement or any Notes. If
any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions
or withholdings ("Non-Excluded Taxes") are required to be withheld from any
amounts payable to the Agent or any Bank hereunder or under any Notes, (A) the
amounts so payable to the Agent or such Bank shall be increased to the extent
necessary to yield to the Agent or such Bank (after payment of all Non-Excluded
Taxes) interest or any such other amounts payable hereunder at the rates or in
the amounts specified in this Credit Agreement and any Notes, provided, however,
that the Borrower shall be entitled to deduct and withhold any Non-Excluded
Taxes and shall not be required to increase any such amounts payable to any Bank
that is not organized under the laws of the United States of America or a state
thereof if such Bank fails to comply with the requirements of Section 2.14
whenever any Non-Excluded Taxes are payable by the Borrower, and (B) as promptly
as possible thereafter the Borrower shall send to the Agent for its own account
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or for the account of such Bank, as the case may be, a certified copy of an
original official receipt received by the Borrower showing payment thereof. If
the Borrower fails to pay any Non-Excluded Taxes when due to the appropriate
taxing authority or fails to remit to the Agent the required receipts or other
required documentary evidence, the Borrower shall indemnify the Agent and the
Banks for any incremental taxes, interest or penalties that may become payable
by the Agent or any Bank as a result of any such failure. The agreements in this
subsection shall survive the termination of this Credit Agreement and the
payment of the Loans and all other amounts payable hereunder.
SECTION 8.05 Base Rate Loans Substituted for Affected Eurodollar Loans.
If (i) the obligation of any Bank to make or maintain Eurodollar Loans has been
suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation
under Section 8.03 and the Borrower shall by at least five (5) Eurodollar
Business Days' prior notice to such Bank through the Agent have elected that the
provisions of this Section shall apply to such Bank, then, unless and until such
Bank notifies the Borrower that the circumstances giving rise to such suspension
or demand for compensation no longer apply:
(a) all Loans which would otherwise be made by such Bank as (or
continued as or converted into) Eurodollar Loans shall instead be Base Rate
Loans (on which interest and principal shall be payable contemporaneously with
the related Eurodollar Loans of the other Banks), and
(b) after each of its Eurodollar Loans has been repaid (or converted to
a Base Rate Loan), all payments of principal which would otherwise be applied to
repay such Eurodollar Loans shall be applied to repay its Base Rate Loans
instead.
If such Bank notifies the Borrower that the circumstances giving rise to such
notice no longer apply, unless Borrower elects otherwise, the principal amount
of each such Base Rate Loan shall be converted into a Eurodollar Loan on the
first day of the next succeeding Interest Period applicable to the related
Eurodollar Loan of the other Banks.
SECTION 8.06 Substitution of Bank. If (i) the obligation of any Bank to
make Eurodollar Loans has been suspended pursuant to Section 8.02 or (ii) any
Bank has demanded compensation under Section 8.03, the Borrower shall have the
right, with the assistance of the Agent, to seek a substitute bank or banks
reasonably satisfactory to the Agent and the Borrower (which may be one or more
of the Banks) to purchase the Note of such Bank and the interest of such Bank in
the Unused Fees and to assume the Commitment of such Bank for a purchase price
equal to all amounts payable to such Bank hereunder and under the Note, and the
Borrower, the Agent, such Bank and such substitute bank or banks shall execute
and deliver an appropriately completed Assignment and Assumption Agreement
pursuant to Section 9.06(c) hereof to effect the assignment of rights to and
assumption of obligations by such substitute bank or banks.
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ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, telex, facsimile
transmission or similar writing) and shall be given to such party: (a) in the
case of the Borrower and the Agent, at the address, facsimile number or telex
number set out below, and in the case of the Banks, at their respective address,
facsimile number or telex number set forth on the Schedule 9.1 hereto or (b) at
such other address, facsimile number or telex number as such party may hereafter
specify for the purpose of notice to the Agent and the Borrower:
<TABLE>
<CAPTION>
<S> <C> <C>
If to the Borrower: Healthcare Realty Trust Incorporated
3310 West End Avenue
Suite 700
Nashville, Tennessee 37203
Attn: Treasurer
Phone: (615) 269-8175
Fax: (615) 269-8122
If to the Agent: NationsBank, N.A.
One Independence Center
101 North Tryon Street, 15th Floor
Charlotte, North Carolina 28255
Attn: Mike Roof
Agency Services
Phone: (704) 388-3196
Fax: (704) 386-9923
with a copy to:
NationsBank, N.A.
One NationsBank Plaza
Seventh Floor
Nashville, Tennessee 37239
Attn: Ashley Crabtree
Phone: (615) 749-3524
Fax: (615) 749-4640
</TABLE>
Each such notice, request or other communication shall be effective (i) if given
by telex, when such telex is transmitted to the telex number specified in or
pursuant to this Section and the appropriate answerback is received, (ii) if
given by facsimile, when such facsimile is transmitted to the number specified
in or pursuant to this Section,(iii) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iv) if given by any other means, when delivered at
the address specified in or pursuant to this Section; provided that notices to
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the Agent or the Borrower or any Bank under Article II or Article VIII shall not
be effective until received.
SECTION 9.02 No Waivers. No failure or delay by the Agent or any Bank
in exercising any right, power or privilege hereunder or under any Note shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.03 Expenses.
(a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of
the Agent associated with the preparation and due diligence of the Loans,
including reasonable fees and disbursements of special counsel for the Agent
(but excluding administration and syndication costs), in connection with any
waiver or consent requested by Borrower hereunder or any amendment hereof
requested by Borrower or any Default hereunder, any waiver or consent hereunder
or any amendment hereof or any Default or alleged Default hereunder and (ii) if
an Event of Default occurs, all reasonable out-of-pocket expenses incurred by
the Agent and each Bank, including reasonable fees and disbursements of counsel
in connection with such Event of Default and work-out, collection, bankruptcy,
insolvency and other enforcement proceedings resulting therefrom.
(b) The Borrower shall indemnify and defend the Agent, NMS and each
other Bank and their respective directors, officers, agents, employees,
Subsidiaries and Affiliates (the "Indemnified Parties") from, and hold each of
them harmless against any and all losses, liabilities, claims, damages or
expenses incurred by any of them arising out of, by reason of or in connection
with this Credit Agreement (but excluding any such losses, liabilities, claims,
damages or expenses incurred by reason of (i) the gross negligence or willful
misconduct by the indemnitee, and/or (ii) any claim made by Agent, NMS or any
Bank against the other), including, but without limitation, amounts paid in
settlement, court costs, and fees and disbursements of no more than one separate
law firm acting as counsel for any or all of the parties indemnified hereunder,
in each case incurred in connection with any such investigation, litigation or
other proceedings; provided, that the Indemnified Parties shall be entitled to
reimbursement of the expenses of more than one separate law firm if the
Indemnified Parties, in their reasonable discretion, determine that a single law
firm would not be able to adequately represent the interests of the Indemnified
Parties in a matter. Notwithstanding the foregoing provisions of this paragraph
to the contrary, each Indemnified Party shall use its best efforts to mitigate
any losses, liabilities, claims, damages or expenses as to which it is entitled
to seek indemnity pursuant to the provisions hereof.
SECTION 9.04 Sharing of Set-Offs. Each Bank agrees that if it shall, by
exercising any right of set-off or counterclaim or otherwise, receive payment of
a proportion of the aggregate amount of principal and interest due with respect
to any Note held by it which is greater than the proportion received by any
other Bank in respect of the aggregate amount of principal and interest due with
respect to any Note held by such other Bank, the Bank receiving such
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proportionately greater payment shall purchase such participation in the Notes
held by the other Banks, and such other adjustments shall be made, as may be
required so that all such payments of principal and interest with respect to the
Notes held by the Banks shall be shared by the Banks pro rata. The Borrower
agrees, to the fullest extent it may effectively do so under applicable law,
that any holder of a participation in a Note, whether or not acquired pursuant
to the foregoing arrangements, may exercise rights of set-off or counterclaim
and other rights with respect to such participation as fully as if such holder
of a participation were a direct creditor of the Borrower in the amount of such
participation.
SECTION 9.05 Amendments and Waivers. Any provision of this Credit
Agreement or any of the other Financing Documents may be modified, amended or
waived if, but only if, such modification, amendment or waiver is in writing and
is signed by the Borrower and the Majority Banks (and, if the rights or duties
of the Agent are affected thereby, by the Agent); provided that no such
modification, amendment or waiver shall, unless signed by all the Banks, (a)
increase the Commitment of any Bank or subject any Bank to any additional
obligation, (b) reduce the principal of or rate of interest on any Loan or any
fees or other amounts payable to any Bank hereunder, (c) postpone the date fixed
for any scheduled payment of principal of or interest on any Loan or any fees
hereunder or for any scheduled reduction or termination of any Commitment, (d)
except as provided in Section 2.01(d), change the percentage of the Commitments
or of the aggregate unpaid principal amount of the Notes, or the number of
Banks, which shall be required for the Banks or any of them to take any action
under this Section or any other provision of this Credit Agreement or (e)
release all or substantially all of the Guarantors.
SECTION 9.06 Successors and Assigns.
(a) The provisions of this Credit Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that the Borrower may not assign or otherwise transfer any of
its rights or obligations under this Credit Agreement without the prior written
consent of all the Banks, and no Bank may assign or otherwise transfer any of
its rights or obligations under this Credit Agreement except in compliance with
this Section 9.06; provided that nothing contained herein shall prevent or
prohibit any Bank from (i) pledging its Loans and Obligations to a Federal
Reserve Bank in support of borrowings made by such Bank from such Federal
Reserve Bank, or (ii) granting assignments or selling participations in such
Bank's Obligations and/or Commitments hereunder to a parent company and/or an
Affiliate or Subsidiary of such Bank.
(b) Any Bank at any time may grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrower and the Agent, such Bank shall remain responsible for the performance
of its obligations hereunder, and the Borrower and the Agent shall continue to
deal solely and directly with such Bank in connection with such Bank's rights
and obligations under this Credit Agreement. Any agreement pursuant to which any
Bank may grant such a participating interest shall provide that such Bank shall
retain the sole right and responsibility to enforce the obligations of the
Borrower hereunder including, without limitation, the right to approve any
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amendment, modification or waiver of any provision of the Financing Documents;
provided that such participation agreement may provide that such Bank will not
agree to any modification, amendment or waiver of this Credit Agreement
described in clause (a), (b) or (c) of Section 9.05, without the consent of the
Participant. An assignment or other transfer which is not permitted by
subsection (c) or (d) below shall be given effect for purposes of this Credit
Agreement only to the extent of a participating interest granted in accordance
with this subsection (b).
(c) Each Bank may assign all or a portion of its rights, obligations,
or rights and obligations hereunder (including, without limitation, its loans
and commitments hereunder) pursuant to an assignment agreement substantially in
the form of Schedule 9.06(c), to (i) a Bank, (ii) an affiliate of a Bank or
(iii) any other Person (other than the Borrower or an Affiliate of the Borrower)
reasonably acceptable to the Agent and, so long as no Default or Event of
Default has occurred and is continuing, the Borrower, which consent shall not be
unreasonably withheld or delayed and which consent shall be deemed given if the
Borrower shall not make written objection within two Business Days after notice
of the proposed assignment; provided that (i) any such assignment (other than an
assignment to an existing Bank or affiliate of an existing Bank) shall be in a
minimum aggregate principal amount of $5,000,000 (or the remaining amount of
loans and commitments, if less) and integral multiples of $1,000,000 in excess
thereof, and (ii) each such assignment shall be in a constant, not varying,
percentage of all the Bank's rights and obligations under this Credit Agreement.
Any assignment hereunder shall be effective upon delivery to the Agent of
written notice of the assignment together with a transfer fee of $3,500 payable
to the Agent for its own account from and after the effective date specified in
the applicable assignment agreement. The assigning Bank will give prompt notice
to the Agent and the Borrower of any such assignment. Upon the effectiveness of
any such assignment (and after notice to, and (to the extent required pursuant
to the terms hereof), with the consent of, the Borrower as provided herein), the
assignee shall become a "Bank" for all purposes of this Credit Agreement and the
other Financing Documents and, to the extent of such assignment, the assigning
Bank shall be relieved of its obligations hereunder to the extent of the
Obligations and Commitment components being assigned. Along such lines the
Borrower agrees that upon notice of any such assignment and surrender of the
appropriate Note or Notes, it will promptly provide to the assigning Bank and to
the assignee separate promissory notes in the amount of their respective
interests substantially in the form of the original Note (but with notation
thereon that it is given in substitution for and replacement of the original
Note or any replacement notes thereof). By executing and delivering an
assignment agreement in accordance with this Section 11.3(b), the assigning Bank
thereunder and the assignee thereunder shall be deemed to confirm to and agree
with each other and the other parties hereto as follows: (i) such assigning Bank
warrants that it is the legal and beneficial owner of the interest being
assigned thereby free and clear of any adverse claim; (ii) except as set forth
in clause (i) above, such assigning Bank makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Credit Agreement, any of the
other Financing Documents or any other instrument or document furnished pursuant
hereto or thereto, or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Credit Agreement, any of the other
Financing Documents or any other instrument or document furnished pursuant
hereto or thereto or the financial condition of any Obligor or any of their
respective Affiliates or the performance or observance by any Obligor of any of
its obligations under this Credit Agreement, any of the other Financing
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<PAGE>
Documents or any other instrument or document furnished pursuant hereto or
thereto; (iii) such assignee represents and warrants that it is legally
authorized to enter into such assignment agreement; (iv) such assignee confirms
that it has received a copy of this Credit Agreement, the other Financing
Documents and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into such assignment
agreement; (v) such assignee will independently and without reliance upon the
Agent, such assigning Bank or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Credit Agreement and
the other Financing Documents; (vi) such assignee appoints and authorizes the
Agent to take such action on its behalf and to exercise such powers under this
Credit Agreement or any other Financing Document as are delegated to the Agent
by the terms hereof or thereof, together with such powers as are reasonably
incidental thereto; and (vii) such assignee agrees that it will perform in
accordance with their terms all the obligations which by the terms of this
Credit Agreement and the other Financing Documents are required to be performed
by it as a Bank. Any purported assignment which does not comply with the
requirements of this Section 9.06(c) shall be null and void.
(d) Any Bank may at any time assign all or any portion of its rights
under this Credit Agreement and its Notes to a Federal Reserve Bank. No such
assignment shall release the transferor Bank from its obligations hereunder.
(e) The Borrower agrees that each Participant shall to the extent
provided in its participation agreement, be entitled to the benefits of Section
8.03 and 2.15 with respect to its participating interest; provided that no
Participant or other transferee of any Bank's rights shall be entitled to
receive any greater payment under Section 8.03 or 2.12 (whether individually or
in aggregate with any such payments received by such Bank) than such Bank would
have been entitled to receive with respect to the rights transferred if such
rights had not been transferred.
(f) Borrower shall not be required to pay any costs or expenses in
connection with any participation, assignment or transfer described in this
Section 9.06. No such participation or, except as provided in Section 9.06(c)
above with respect to an assignment which is consented to by Borrower,
assignment or transfer shall release any Bank from liability for its obligations
hereunder.
SECTION 9.07 Collateral. Each of the Banks represents to the Borrower,
the Agent and each of the other Banks that it in good faith is not relying upon
any "Margin Stock" (as defined in Regulation U) as collateral in the extension
or maintenance of the credit provided for in the Financing Documents.
SECTION 9.08 Governing Law; Submission to Jurisdiction. This Credit
Agreement and each Note shall be governed by and construed in accordance with
the laws of the State of North Carolina. The Borrower, Agent and each Bank
hereby submits to the nonexclusive jurisdiction of the United States District
Court of the Western District of North Carolina and of any North Carolina State
court sitting in Charlotte for purposes of all legal proceedings arising out of
or relating to this Credit Agreement or the transactions contemplated hereby.
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The Borrower, Agent and each Bank irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
forum.
SECTION 9.09 Counterparts; Integration; Effectiveness. This Credit
Agreement may be signed in any number of counterparts, each of which shall be an
original with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Credit Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof. This Credit Agreement shall become effective when the Agent shall have
received counterparts hereof signed by all of the parties hereto.
SECTION 9.10 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT AND
EACH BANK HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT, ANY
FINANCING DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
HEALTHCARE REALTY TRUST INCORPORATED
By:_____________________________________________
Name:
Title:
NATIONSBANK, N.A., in its capacity as Agent and in
its individual capacity as a Bank
By:______________________________________________
Name:
Title:
FIRST UNION NATIONAL BANK
By:______________________________________________
Name:
Title:
SOCIETE GENERALE
By:______________________________________________
Name:
Title:
BANK AUSTRIA CREDITANSTALT CORPORATE
FINANCE, INC.
By:_____________________________________________
Name:
Title:
By:_____________________________________________
Name:
Title:
<PAGE>
AMSOUTH BANK
By:____________________________________________
Name:
Title:
SOUTHTRUST BANK, N.A.
By:____________________________________________
Name:
Title:
FIRST TENNESSEE BANK NATIONAL
ASSOCIATION
By:___________________________________________
Name:
Title:
BANK ONE, KENTUCKY, N.A.
By:__________________________________________
Name:
Title:
FIRST COMMERCIAL BANK
By:___________________________________________
Name:
Title:
CREDIT LYONNAIS, NEW YORK BRANCH
By:___________________________________________
Name:
Title:
<PAGE>
<TABLE>
<CAPTION>
Schedule 2.1(a)
Schedule of Commitments
Revolving Committed Revolving Letter of Credit
Lender Amount Percentage Commitment
- ------ ------ ---------- ----------
<S> <C> <C> <C>
NationsBank, N.A. $50,000,000 18.867924% $1,886,792.45
First Union National Bank $35,000,000 13.207547% $1,320,754.72
Societe Generale $35,000,000 13.207547% $1,320,754.72
Bank Austria Creditanstalt Corporate Finance, Inc. $35,000,000 13.207547% $1,320,754.72
AmSouth Bank $25,000,000 9.433962% $943,396.22
SouthTrust Bank, N.A. $20,000,000 7.547170% $754,716.98
First Tennessee Bank National Association $20,000,000 7.547170% $754,716.98
Bank One, Kentucky, N.A. $15,000,000 5.660377% $566,037.74
First Commercial Bank $15,000,000 5.660377% $566,037.74
Credit Lyonnais, New York Branch $15,000,000 5.660377% $566,037.74
----------- -------- -----------
$265,000,000 100.000000% $10,000,000.00
</TABLE>
<PAGE>
Schedule 2.02
FORM OF NOTICE OF BORROWING
<TABLE>
<CAPTION>
<S> <C>
NationsBank, N.A. NationsBank, N.A.,
as Agent for the Banks as Swingline Bank
101 N. Tryon Street 101 N. Tryon Street
Independence Center, 15th Floor Independence Center, 15th Floor
NC1-001-15-04 NC1-001-15-04
Charlotte, North Carolina 28255 Charlotte, North Carolina 28255
Attention: Agency Services Attention: Agency Services
</TABLE>
RE: Credit Agreement dated as of October 15, 1998 (as amended and
modified, the "Credit Agreement")among HEALTHCARE REALTY TRUST
INCORPORATED, the Banks identified therein and NationsBank,
N.A., as Agent.Terms used but not otherwise defined herein
shall have the meanings provided in the Credit Agreement.
Ladies and Gentlemen:
The undersigned hereby gives notice of a request for Revolving Loan pursuant to
Section 2.02 of the Credit Agreement or of a request for Swingline Loan pursuant
to Section 2.07 (b) of the Credit Agreement as follows:
Revolving Loan
Swingline Loan
<TABLE>
<CAPTION>
<S><C> <C>
(A) Date of Borrowing
(which is a Business Day)
(B) Principal Amount of
Borrowing
(C) Interest rate basis
(D) Interest Period and the
last day thereof
</TABLE>
In accordance with the requirements of Section 3.02 of the Credit Agreement, the
undersigned Borrower hereby certifies that:
(a) The representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all material
respects as of the date of this request, and will be true and correct after
giving effect to the requested Extension of Credit (except for those which
expressly related to an earlier date).
(b) No Default or Event of Default exists, or will exist after giving
effect to the requested Extension of Credit.
<PAGE>
(c) All conditions set forth in Section 2.02 as to the making of
Revolving Loans or in Section 2.07 as to the making of Swingline Loans, as
appropriate, have been satisfied.
Very truly yours,
HEALTHCARE REALTY TRUST INCORPORATED
By:_____________________________________
Name:
Title:
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<PAGE>
Schedule 2.03(a)
FORM OF REVOLVING NOTE
FOR VALUE RECEIVED, the undersigned Borrower hereby promises to pay to the
order of ____________, its successors and assigns, on or before the Termination
Date to the office of the Agent in immediately available funds as provided in
the Credit Agreement,
(i) in the case of Revolving Loans, such Bank's Revolving
Committed Amount or, if less, the aggregate unpaid principal amount of
all Revolving Loans owing to such Bank; and
(ii) in the case of Swingline Loans, if such lender is the
Swingline Bank, the aggregate Swingline Committed Amount or, if less,
the aggregate unpaid principal amount of all Swingline Loans owing to
such Swingline Bank; and
together with interest thereon at the rates and as provided in the Credit
Agreement.
This Note is one of the Revolving Notes referred to in the Credit
Agreement dated as of October 15, 1998 ( as amended and modified, the "Credit
Agreement") among HEALTHCARE REALTY TRUST INCORPORATED, a Maryland corporation,
the Banks identified therein and NationsBank, N.A., as Agent. Terms used but
not otherwise defined herein shall have the meanings provided in the Credit
Agreement.
The holder may endorse and attach a schedule to reflect borrowings
evidenced by this Note and all payments and prepayments thereon; provided that
any failure to endorse such information shall not affect the obligation of the
undersigned Borrower to pay amounts evidenced hereby.
Upon the occurrence of an Event of Default, all amounts evidenced by
this Note may, or shall, become immediately due and payable as provided in the
Credit Agreement without presentment, demand, protest or notice of any kind, all
of which are waived by the undersigned Borrower. In the event payment of amounts
evidenced by this Note is not made at any stated or accelerated maturity, the
undersigned Borrower agrees to pay, in addition to principal and interest, all
costs of collection, including reasonable attorneys' fees.
This Note and the Loans and amounts evidenced hereby may be transferred
only as provided in the Credit Agreement.
This Note shall be governed by, and construed and interpreted in
accordance with, the law of the State of North Carolina.
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<PAGE>
In WITNESS WHEREOF, the undersigned Borrower has caused this Note to be duly
executed as of the date first above written.
HEALTHCARE REALTY TRUST INCORPORATED,
a Maryland corporation
By: ____________________________________
Name:
Title:
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<PAGE>
Schedule 2.06(a)
Letters of Credit to be issued on the Closing Date
-5-
<PAGE>
Schedule 2.06(b)-1
Existing Letters of Credit
-6-
<PAGE>
Schedule 2.06(b)-2
Form of Notice of Request for Letter of Credit
[Date]
<TABLE>
<CAPTION>
<S><C> <C>
NationsBank, N.A. NationsBank, N.A.
as Issuing Bank under the as Agent under the
Credit Agreement referred to below Credit Agreement referred to below
101 N. Tryon Street 101 N. Tryon Street
Independence Center, 15th Floor Independence Center, 15th Floor
NC1-001-15-04 NC1-001-15-04
Charlotte, North Carolina 28255 Charlotte, North Carolina 28255
</TABLE>
Attention: Agency Services
Re: Credit Agreement dated as of October 15, 1998 (as amended and
modified, the "Credit Agreement") among HEALTHCARE REALTY
TRUST INCORPORATED, the Banks identified therein and
NationsBank, N.A., as Agent. Terms used but not otherwise
defined herein shall have the meanings provided in the Credit
Agreement.
Ladies and Gentlemen:
The undersigned, pursuant to Section 2.06(b) of the Credit Agreement,
hereby requests that the following Letters of Credit be issued on [Date] as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(1) Account Party:
(2) For use by:
(3) Beneficiary:
(4) Face Amount of Letter of Credit:
(5) Date of Issuance:
</TABLE>
Delivery of Letter of Credit should be made as follows:
In accordance with the requirements of Section 3.02 of the Credit
Agreement, the undersigned Borrower hereby certifies that:
(a) The representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all material
respects as of the date of this request, and will be true and correct after
giving effect to the requested Extension of Credit (except for those which
expressly relate to an earlier date).
(b) No Default or Event of Default exists, or will exist after
giving effect to the requested Extension of Credit.
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<PAGE>
(c) All conditions set forth in Section 2.06 as to the issuance of
a Letter of Credit have been satisfied.
Very truly yours,
HEALTHCARE REALTY TRUST INCORPORATED
By:_________________________________
Name:
Title:
-8-
<PAGE>
Schedule 2.10
Form of Notice of Interest Rate Election
NationsBank, N.A.,
as Agent for the Banks
101 N. Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Re: Credit Agreement dated as of October 15, 1998 ( as amended and
modified,the "Credit Agreement") among HEALTHCARE REALTY TRUST
INCORPORATED, the Banks identified therein and NationsBank,
N.A., as Agent. Terms used but not otherwise defined herein
shall have the meanings provided in the Credit Agreement.
Ladies and Gentlemen:
The undersigned hereby gives notice pursuant to Section 2.10 of the
Credit Agreement that it requests an extension or conversion of a Revolving Loan
outstanding under the Credit Agreement, and in connection therewith sets forth
below the terms on which such extension or conversion is requested to be made:
<TABLE>
<CAPTION>
<S> <C> <C>
(A) Date of Extension or Conversion
(which is the last day of the
applicable Interest Period) _______________________________
(B) Principal Amount of
Extension or Conversion _______________________________
(C) Interest rate basis _______________________________
(D) Interest Period and the
last day thereof _______________________________
</TABLE>
In accordance with the requirements of Section 3.02 of the Credit
Agreement, the undersigned Borrower hereby certifies that:
(a) The representations and warranties contained in the
Credit Agreement and the other Credit Documents are true and correct in
all material respects as of the date of this request, and will be true
and correct after giving effect to the requested Extension of Credit
(except for those which expressly relate to an earlier date).
(b) No Default or Event of Default exists, or will exist
after giving effect to the requested Extension of Credit.
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<PAGE>
(c) All conditions set forth in Section 2.02 as to the
making of Revolving Loans or in Section 2.07 as to the making of
Swingline Loans, as appropriate, have been satisfied.
Very truly yours,
HEALTHCARE REALTY TRUST INCORPORATED
By:__________________________________
Name:
Title:
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<PAGE>
Schedule 4.04
Legal Proceedings
-11-
<PAGE>
Schedule 4.05
ERISA Matters
-12-
<PAGE>
Schedule 4.06
Environmental Matters
-13-
<PAGE>
Schedule 4.07
Subsidiaries (including Material Subsidiaries and Specified Affiliates)
Material Subsidiaries:
Specified Affiliates:
Other Subsidiaries:
Other Affiliates:
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Schedule 4.10
Compliance with Laws
-15-
<PAGE>
Schedule 4.12
Debt
$300 million Revolving Loan Agreement dated as of the Closing Date with the
banks identified therein and NationsBank, N.A., as Agent.
$200 million Term Loan Agreement dated as of the Closing Date with the banks
identified therein and NationsBank, N.A., as Agent.
$90 million 7.41% Senior Notes of the Borrower due September 1, 2002.
-16-
<PAGE>
Schedule 4.13
Contingent Liabilities
Subsidiary Guarantee dated as of the Closing Date in respect of the Revolving
Credit Agreement referenced on Schedule 4.12 given by the Subsidiaries and
affiliates identified therein.
Subsidiary Guarantee dated as of the Closing Date in respect of the Term Loan
Agreement referenced on Schedule 4.12 given by the Subsidiaries and affiliates
identified therein.
-17-
<PAGE>
Schedule 4.14
Investments
-18-
<PAGE>
Schedule 5.08
Asset Sales
-19-
<PAGE>
Schedule 5.09
Form of Subsidiaries Guarantee
-20-
<PAGE>
Schedule 5.17
"White Paper" issued in March 1995 by the
National Association of Real Estate Investment Trusts
-21-
<PAGE>
<TABLE>
<CAPTION>
Schedule 9.01
Lender's Addresses
Address for Domestic Eurodollar
Lenders Notice Lending Office Lending Office
<S> <C> <C> <C>
NationsBank, N.A. NationsBank, N.A. NationsBank, N.A. NationsBank, N.A.
101 N. Tryon Street 101 N. Tryon Street 101 N. Tryon Street
Independence Center, 15th Floor Independence Center, 15th Floor Independence Center, 15th Floor
Charlotte, NC 28255 Charlotte, NC 28255 Charlotte, NC 28255
Attn: Mike Roof Attn: Mike Roof Attn: Mike Roof
Tel: 704-388-3916 Tel: 704-388-3916 Tel: 704-388-3916
Fax: 704-386-9923 Fax: 704-386-9923 Fax: 704-386-9923
with a copy to:
NationsBank, N.A.
One NationsBank Plaza, 5th Floor
Nashville, TN 37239
Attn: Ashley M. Crabtree
Tel: 615-749-3524
Fax: 615-749-4640
First Union First Union National Bank of Tennessee First Union National Bank First Union National Bank
National Bank 150 11th Avenue, 2nd Floor Capital Markets Service Dept. Capital Markets Service Dept.
Nashville, TN 37219 One First Union Center, TW-5 One First Union Center, TW-5
Attn: Carolyn Hannon 301 South College Street 301 South College Street
Tel: 615-251-9374 Charlotte, NC 28288-0785 Charlotte, NC 28288-0785
Fax: 615-251-9247 Attn: Sue Patterson Attn: Sue Patterson
Tel: 704-374-7121 Tel: 704-374-7121
Fax: 704-383-9144 Fax: 704-383-9144
AmSouth Bank AmSouth Bank AmSouth Bank AmSouth Bank
333 Union Street, Suite 200 Relationship Banking Assistant Relationship Banking Assistant
Nashville, TN 37203 333 Union Street, Suite 200 333 Union Street, Suite 200
Attn: Cathy M. Wind Nashville, TN 37203 Nashville, TN 37203
Tel: 615-291-5268 Attn: Amy Vandygriff Attn: Amy Vandygriff
Fax: 615-291-5257 Tel: 615-291-5269 Tel: 615-291-5269
Fax: 615-291-5257 Fax: 615-291-5257
-2-
<PAGE>
Societe Generale Societe Generale Societe Generale Societe Generale
2029 Century Park East, Suite 2900 2029 Century Park East, Suite 2900 2029 Century Park East, Ste 2900
Los Angeles, CA 90067 Los Angeles, CA 90067 Los Angeles, CA 90067
Attn: J. Staley Stewart Attn: Doris Fun Attn: Doris Fun
Tel: 310-788-7103 Tel: 310-788-7116 Tel: 310-788-7116
Fax: 310-551-1537 Fax: 310-203-0539 Fax: 310-203-0539
Creditanstalt Creditanstalt Corporate Finance, Inc. Creditanstalt Corporate Finance,Inc. Creditanstalt Corporate Finance
Corporate Two Greenwich Plaza Two Ravinia Drive, Suite 1680 Two Ravinia Drive, Suite 1680
Finance, Inc. Greenwich, CT 06830-6353 Atlanta, GA 30346 Atlanta, GA 30346
Attn: Lisa Bruno Attn: Scott Kray Attn: Scott Kray
Tel: 203-861-6464 Tel: 770-390-1858 Tel: 770-390-1858
Fax: 203-861-1475 Fax: 770-390-1851 Fax: 770-390-1851
SouthTrust Bank, SouthTrust Bank, N.A. SouthTrust Bank, N.A. SouthTrust Bank, N.A.
N.A. 420 North 20th Street 6434 1st Avenue, North 6434 1st Avenue, North
Birmingham, AL 35203 Birmingham, AL 35212 Birmingham, AL 35212
Attn: Keith Law Attn: Operations Specialist Attn: Operations Specialist
Tel: 205-254-4255 Tel: 205-599-5446 Tel: 205-599-5446
Fax: 205-254-5022 Fax: 205-599-4350 Fax: 205-599-4350
First Tennessee First Tennessee Bank National Association First Tennessee Bank National Assn. First Tennessee Bank Natl Assn
Bank National 511 Union Street 511 Union Street 511 Union Street
Association Nashville, TN 37219 Nashville, TN 37219 Nashville, TN 37219
Attn: J. Todd Carter Attn: Michelle Bull Attn: Michelle Bull
Tel: 615-734-6191 Tel: 615-734-6247 Tel: 615-734-6247
Fax: 615-734-6148 Fax: 615-734-6148 Fax: 615-734-6148
-3-
<PAGE>
Bank One, Bank One, Kentucky, NA Bank One, Kentucky, NA Bank One, Kentucky, NA
Kentucky, NA 416 West Jefferson Street 1 Riverfront Plaza 1 Riverfront Plaza
Louisville, KY 40202 KY1-4190 KY1-4190
Attn: Todd D. Munson Louisville, KY 40202 Louisville, KY 40202
Tel: 502-566-2640 Attn: Sarilas Offutt Attn: Sarilas Offutt
Fax: 502-566-8339 Tel: 502-566-8855 Tel: 502-566-8855
Fax: 502-566-8621 Fax: 502-566-8621
First Commercial First Commercial Bank First Commercial Bank First Commercial Bank
Bank 800 Shadown Creek Parkway 800 Shadow Creek Parkway 800 Shadow Creek Parkway
Birmingham, AL 35202 Birmingham, AL 35202 Birmingham, AL 35202
Attn: Fred R. Elliott Attn: Melinda McCullough Attn: Melinda McCullough
Tel: 205-868-4921 Tel: 205-868-4582 Tel: 205-868-4582
Fax: 205-868-4898 Fax: 205-868-4898 Fax: 205-868-4898
Credit Lyonnais Credit Lyonnais New York Branch Credit Lyonnais New York Branch Credit Lyonnais New York Branch
New York Branch 1301 Avenue of the Americas 1301 Avenue of the Americas 1301 Avenue of the Americas
New York, NY 10019 New York, NY 10019 New York, NY 10019
Attn: Scott Schimpf Attn: Kenia A. Perez Attn: Kenia A. Perez
Tel: 212-261-7788 Tel: 212-261-7313 Tel: 212-261-7313
Fax: 212-261-3440 Fax: 212-261-3440 Fax: 212-261-3440
</TABLE>
-4-
<PAGE>
Schedule 9.06(c)
Form of Assignment and Acceptance
THIS ASSIGNMENT AND ACCEPTANCE dated as of , 199_ is entered into between
THE BANK IDENTIFIED ON THE SIGNATURE PAGES AS THE "ASSIGNOR" (the "Assignor")
and THE PARTIES IDENTIFIED ON THE SIGNATURE PAGES AS "ASSIGNEES" ("Assignee").
Reference is made to that Credit Agreement dated as of October 15, 1998 (as
amended and modified, the "Credit Agreement") among HEALTHCARE REALTY TRUST
INCORPORATED, a Maryland corporation (the "Borrower"), the Banks identified
therein and NationsBank, N.A., as Agent. Terms defined in the Credit Agreement
are used herein with the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignees, and the Assignees hereby purchase and assume, without recourse, from
the Assignor, effective as of the Effective Date shown below, those rights and
interests of the Assignor under the Credit Agreement identified below (the
"Assigned Interests"), including the Obligations and Commitments relating
thereto, together with unpaid interest and fees relating thereto accruing from
the Effective Date. The Assignor represents and warrants that it owns interests
assigned hereby free and clear of liens, encumbrances or other claims. Each of
the Assignees represents that it is an assignee permitted under Section 9.06(c)
of the Credit Agreement. The Assignor and each of the Assignees hereby makes and
agrees to be bound by all the representations, warranties and agreements set
forth in Section 9.06 of the Credit Agreement, a copy of which has been received
by each such party. From and after the Effective Date (i) each Assignee, if it
is not already a Bank under the Credit Agreement, shall be a party to and be
bound by the provisions of the Credit Agreement and, to the extent of the
interests assigned by this Assignment and Acceptance, have the rights and
obligations of a Bank thereunder and (ii) each Assignor shall, to the extent of
the interests assigned by this Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Credit Agreement (other than the
rights of indemnification referenced in Section 9.03 of the Credit Agreement).
Schedule 2.1 is deemed modified and amended to the extent necessary to give
effect to this Assignment.
2. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of North Carolina.
3. Terms of Assignment
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(a) Date of Assignment: , 199__
(b) Legal Name of Assignor: SEE SIGNATURE PAGE
(c) Legal Name of Assignee: SEE SIGNATURE PAGE
(d) Effective Date of Assignment: , 199__
</TABLE>
See Schedule I attached for a description of the Loans, Obligations and
Commitments (and the percentage interests therein and relating thereto) which
are the subject of this Assignment and Acceptance.
4. The fee payable to the Agent in connection with this Assignment is
enclosed.
IN WITNESS WHEREOF, the parties hereto have caused the execution of this
instrument by their duly authorized officers as of the date first above written.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ASSIGNOR: ASSIGNEE:
By:__________________________ By: _________________________
Name: Name:
Title: Title:
Address for Notices:
</TABLE>
<TABLE>
<CAPTION>
ACKNOWLEDGMENT AND CONSENT
<S> <C>
NATIONSBANK, N.A. HEALTHCARE REALTY TRUST INCORPORATED
as Agent
By: By:
Name: Name:
Title: Title:
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
TO ASSIGNMENT AND ACCEPTANCE
HEALTHCARE REALTY TRUST INCORPORATED
REVOLVING LOANS AND LETTERS OF CREDIT PRIOR TO ASSIGNMENT
Revolving Revolving Revolving LOC LOC
Committed Commitment Loans Committed Obligations
Amount Percentage Outstanding Amount Outstanding
--------- ---------- ----------- --------- -----------
<S><C> <C> <C> <C> <C> <C>
ASSIGNOR
ASSIGNEES
--------- ---------- ----------- --------- ------------
$ % $ $ $
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REVOLVING LOANS AND LETTERS OF CREDIT INTERESTS SUBJECT TO THIS ASSIGNMENT
Revolving Revolving Revolving LOC LOC
Committed Commitment Loans Committed Obligations
Amount Percentage Outstanding Amount Outstanding
--------- ---------- ----------- --------- -----------
<S><C> <C> <C> <C> <C> <C>
ASSIGNOR
ASSIGNEES
--------- ---------- ----------- --------- ------------
$ % $ $ $
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
TO ASSIGNMENT AND ACCEPTANCE
REVOLVING LOANS AND LETTERS OF CREDIT AFTER ASSIGNMENT
Revolving Revolving Revolving LOC LOC
Committed Commitment Loans Committed Obligations
Amount Percentage Outstanding Amount Outstanding
--------- ---------- ----------- --------- -----------
<S><C> <C> <C> <C> <C> <C>
ASSIGNOR
ASSIGNEES
--------- ---------- ----------- --------- ------------
$ % $ $ $
</TABLE>
-3-
<PAGE>
TERM CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "Credit Agreement"), dated as of October 15,
1998, is by and among HEALTHCARE REALTY TRUST INCORPORATED, a Maryland
corporation, CAPSTONE CAPITAL CORPORATION, a Maryland corporation, the banks
listed on the signature pages hereof, and NATIONSBANK, N.A., as administrative
agent for such banks.
The parties hereto agree as follows:
ARTICLE I
DEFINITION
SECTION 1.01 Definitions. The following terms, as used herein, have the
following meanings:
"Adjusted Eurodollar Rate" means, for the Interest Period for
each Eurodollar Loan comprising part of the same borrowing (including
conversions, extensions and renewals), a per annum interest rate
determined pursuant to the following formula:
Adjusted Eurodollar Rate = Interbank Offered Rate
-------------------------------
1 - Eurodollar Reserve Percentage
"Administrative Questionnaire" means, with respect to each
Bank, an administrative questionnaire in the form prepared by the Agent
and submitted to the Agent duly completed by such Bank.
"Affiliate" means, with respect to any designated Person, (a)
any officers or directors of such Person or (b) any other Person (other
than a Subsidiary of such designated Person) that has a relationship
with the designated Person whereby either of such Persons directly or
indirectly controls or is controlled by or is under common control with
the other of such Persons. The term "control" means the possession,
directly or indirectly, of the power, whether or not exercised to
direct or cause the direction of the management or policies of any
Person, whether through ownership of voting securities, by contract or
otherwise.
"Agent" means NationsBank, in its capacity as administrative
agent for the Banks hereunder, and its successors in such capacity.
"Agent's Fee Letter" means that letter agreement dated as of
August 31, 1998 among NationsBank, N.A., NationsBanc Montgomery
Securities LLC and the Borrower, as amended, modified, supplemented or
replaced from time to time.
<PAGE>
"Applicable Lending Office" means, with respect to any Bank,
(a) in the case of its Base Rate Loans, its Domestic Lending Office and
(b) in the case of its Eurodollar Loans, its Eurodollar Lending Office.
"Applicable Percentage" means for any day, the rate per annum
set forth below opposite the applicable rating for the Borrower's
senior unsecured (non-credit enhanced) long term debt then in effect,
it being understood that the Applicable Percentage for (i) Base Rate
Loans shall be the percentage set forth under the column "Base Rate
Margin", (ii) Eurodollar Loans shall be the percentage set forth under
the column "Eurodollar Margin and Letter of Credit Fee", (iii) the
Letter of Credit Fee shall be the percentage set forth under the column
"Eurodollar Margin and Letter of Credit Fee", and (iv) the Unused Fee
shall be the percentage set forth under the column "Unused Fee":
<TABLE>
<CAPTION>
IF THERE IS NO RATING BY S&P OR MOODY'S:
Duff & Phelps Eurodollar Margin
Pricing and Fitch and Letter of Base Rate
Level Ratings Credit Fee Margin Unused Fee
----- ------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
I A- or above 0.750% 0% 0.1875%
II BBB+ 0.875% 0% 0.200%
III BBB 1.00% 0% 0.200%
IV BBB- 1.125% 0% 0.225%
V below BBB- 1.375% 0.25% 0.250%
or unrated
</TABLE>
The foregoing pricing matrix shall apply only if the
Borrower's senior unsecured (non-credit enhanced) long term debt is not
rated by either S&P or Moody's. If a such a rating is provided by
either or both of S&P or Moody's, the pricing matrix which follows
shall apply.
<TABLE>
<CAPTION>
IF A RATING IS PROVIDED BY EITHER OR BOTH OF S&P OR MOODY'S:
S&P,
Duff & Phelps Eurodollar Margin
Pricing and Fitch Moody's and Letter of Base Rate
Level Ratings Rating Credit Fee Margin Unused Fee
----- ------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
I A- or above A3 or above 0.675% 0% 0.1875%
II BBB+ Baa1 0.800% 0% 0.200%
III BBB Baa2 0.925% 0% 0.200%
IV BBB- Baa3 1.05% 0% 0.225%
V below BBB- below Baa3 1.30% 0.25% 0.250%
</TABLE>
The numerical classification set forth under the column
"Pricing Level" shall be established based on the ratings by S&P,
Moody's, Duff & Phelps and Fitch (collectively, the "Rating Services")
for the Borrower's senior unsecured (non-credit enhanced) long term
debt.
-2-
<PAGE>
Notwithstanding anything to the contrary contained herein, in
the event the Tranche A Maturity Date is extended beyond the original
maturity date as provided in Section 2.04(a), the Applicable
Percentages shall be increased by twenty-five basis points (0.25%), in
each case, from the date of election of extension by HRT.
Where such a rating is provided by Duff & Phelps and/or Fitch,
but not S&P or Moody's, the pricing shall be determined by reference to
the first pricing matrix shown above as hereafter provided. Where such
a rating is provided only by Duff & Phelps or Fitch, but not both, the
pricing shall be determined by reference to the rating so provided.
Where such a rating is provided by Duff & Phelps and Fitch, the pricing
shall be determined by reference to the lower of the two ratings if
they are not more than one Pricing Level apart, or by an average of the
applicable Pricing Levels (and applicable margins and fee percentages)
if they are more than one Pricing Level apart.
Where such a rating is provided by either or both of S&P or
Moody's, the pricing shall be determined by reference to the second
pricing matrix shown above as hereafter provided. Where such a rating
is provided only by S&P or Moody's, but not any other Ratings Service,
the pricing shall be determined by reference to such rating. Where such
a rating is provided by more than one such Ratings Service, pricing
shall be determined by reference to the lower of the two highest
ratings available, provided that at least one of the two such highest
ratings is S&P or Moody's (and the other is the highest of the other
ratings services), where the two such highest ratings are not more than
one Pricing Level apart, or by an average of the applicable Pricing
Levels (and applicable margins and fee percentages) if they are more
than one Pricing Level apart.
The Applicable Percentage shall be determined and adjusted on
the date five (5) Business Days after each change in debt rating.
Adjustments in the Applicable Percentage shall be effective as to all
Loans and Letters of Credit, existing and prospective, from the date of
adjustment. The Agent shall promptly notify the Lenders of changes in
the Applicable Percentage. Adjustments in the Applicable Percentage
shall be effective as to existing Extensions of Credit as well as new
Extensions of Credit made thereafter.
"Asset Sale" means any sale, lease or other disposition
(including any such transaction effected by way of merger, amalgamation
or consolidation) by the Borrower or any of its Subsidiaries or
Specified Affiliates subsequent to the date hereof of any asset
(including stock), including without limitation any sale-leaseback
transaction, whether or not involving a Capital Lease, but excluding
(a) any sale, lease or other disposition of real property in the
ordinary course of business of the Borrower or any of its Subsidiaries
or Specified Affiliates, (b) any sale, lease or other disposition of
raw materials, supplies or other nonfixed assets in the ordinary course
of business, (c) any sale, lease or other disposition of surplus,
obsolete or worn out machinery, equipment, molds or other manufacturing
equipment in the ordinary course of business to the extent that the
aggregate book value of all of such assets sold, leased or otherwise
-3-
<PAGE>
disposed of in a fiscal year does not exceed $250,000.00 (on a
non-cumulative basis), (d) any sale, lease or other disposition to the
Borrower or any Wholly-Owned Consolidated Subsidiary or Specified
Affiliate of the Borrower, (e) any sale or other disposition in the
ordinary course of business of readily marketable securities, (f) any
disposition of cash not prohibited hereunder, (g) any Securities
Transaction to the extent approved by the Majority Banks hereunder, and
(h) the issuance of any shares of stock in any Specified Affiliate to
any officer, director or employee of the Borrower.
"Assignee" shall have the meaning given to such term in
Section 9.06(c).
"Bank" means each bank listed on the signature pages hereof,
each Assignee which becomes a Bank pursuant to Section 9.06(c), and
their respective successors.
"Base Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest whole multiple of 1/100 of 1%)
equal to the greater of (a) the Federal Funds Rate in effect on such
day plus 1/2 of 1% or (b) the Prime Rate in effect on such day. If for
any reason the Agent shall have determined (which determination shall
be conclusive absent manifest error) that it is unable after due
inquiry to ascertain the Federal Funds Rate for any reason, including
the inability or failure of the Agent to obtain sufficient quotations
in accordance with the terms hereof, the Base Rate shall be determined
without regard to clause (a) of the first sentence of this definition
until the circumstances giving rise to such inability no longer exist.
Any change in the Base Rate due to a change in the Prime Rate or the
Federal Funds Rate shall be effective on the effective date of such
change in the Prime Rate or the Federal Funds Rate, respectively.
"Base Rate Borrowing" means a Borrowing consisting of Base
Rate Loans.
"Base Rate Loan" means a Loan hereunder which bears interest
at the Base Rate plus the Applicable Percentage pursuant to the
applicable Notice of Borrowing or Notice of Interest Rate Election or
the provisions of Article VIII.
"Benefit Arrangement" means at any time an employee benefit
plan within the meaning of Section 3(3) of ERISA which is not a Plan or
a Multiemployer Plan and which is maintained or otherwise contributed
to by any member of the ERISA Group.
"Borrower" or "Borrowers" means, as to the Tranche A Term
Loan, HRT and, as to the Tranche B Term Loan, CCT.
"Borrowing" means a Term Loan borrowing hereunder, including
extensions and conversions.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in Charlotte, North Carolina or New
York, New York are authorized or required by law to close.
-4-
<PAGE>
"Buy-Sell Agreement" means a written agreement between the
Borrower or any Subsidiary, as purchaser, and one or more third
parties, as seller, obligating the Borrower or such Subsidiary, upon
payment of a definitely determinable price, to acquire the real
property and improvements described therein without contingency, except
that the improvements are constructed in accordance with the conditions
set forth in the particular Buy-Sell Agreement.
"Capital Lease" means a lease that would be capitalized on a
balance sheet of the lessee prepared in accordance with generally
accepted accounting principles.
"Capital Lease Indebtedness" means indebtedness incurred
pursuant to a Capital Lease.
"CCT" means Capstone Capital Corporation, a Maryland
corporation, which immediately after the initial funding hereunder
shall be merged with and into HR Acquisition I Corporation, a Delaware
corporation, which shall be the surviving corporation.
"Change of Control" means the occurrence of any of the
following events: (i) any Person or two or more Persons acting in
concert shall have acquired beneficial ownership, directly or
indirectly, of, or shall have acquired by contract or otherwise, or
shall have entered into a contract or arrangement that, upon
consummation, will result in its or their acquisition of or control
over, voting stock of the HRT (or other securities convertible into
such voting stock) representing 35% or more of the combined voting
power of all voting stock of the HRT, or (ii) during any period of up
to 24 consecutive months, commencing after the Closing Date,
individuals who at the beginning of such 24 month period were directors
of the HRT (together with any new director whose election by the HRT's
Board of Directors or whose nomination for election by the HRT's
shareholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the directors of the HRT then in office. As used herein,
"beneficial ownership" shall have the meaning provided in Rule 13d-3 of
the Securities and Exchange Commission under the Securities Exchange
Act of 1934.
"Closing Date" means the date on which the conditions set
forth in Article III to the making of the initial Extension of Credit
hereunder shall have been fulfilled and on which such initial Extension
of Credit shall have been made.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.
"Commitment Percentages" means the respective Term Loan
Commitment Percentages.
-5-
<PAGE>
"Commitments" means the Term Loan Commitments.
"Consolidated EBIT" means, for any period, the sum of (a) the
consolidated net income of HRT and its Consolidated Subsidiaries for
such period plus (b) to the extent deducted in determining such
consolidated net income, Consolidated Interest Expense, plus (c) the
amount of any consolidated income taxes (or minus the amount of any
consolidated tax benefits) of HRT and its Consolidated Subsidiaries for
such period.
"Consolidated Funded Indebtedness" means, without duplication,
all obligations, liabilities and indebtedness of HRT and its
Subsidiaries of the types described in subsections (a) through (f),
inclusive, (i) and (j) of the definition of Debt.
"Consolidated Interest Expense" means, for any period, the
cash interest expense and letter of credit fee expense of HRT and its
Consolidated Subsidiaries determined on a consolidated basis for such
period.
"Consolidated Mortgage Debt" means the aggregate principal
amount of all Debt of HRT and its Subsidiaries secured by a Lien on any
real property owned or leased by them.
"Consolidated Senior Debt" means all Consolidated Funded
Indebtedness other than any amount thereof the repayment of which has
been subordinated to the repayment of any other Consolidated Funded
Indebtedness.
"Consolidated Senior Secured Debt" means at any date the sum
(without duplication) of (i) Consolidated Mortgage Debt plus (ii)
Consolidated Subsidiary Debt plus (iii) all preferred stock of
Subsidiaries not owned by HRT and/or one or more of its wholly-owned
Subsidiaries, valued at the higher of voluntary or involuntary
liquidation preference thereof.
"Consolidated Subsidiary" means at any date any Subsidiary or
other entity the accounts of which would be consolidated with those of
the Borrower in its consolidated financial statements if such
statements were prepared as of such date. For purposes of this Credit
Agreement, Specified Affiliates of the Borrower shall be classified as
Consolidated Subsidiaries.
"Consolidated Subsidiary Debt" means all Debt of Subsidiaries
of HRT (exclusive of Debt owed to the Borrower), determined in
accordance with generally accepted accounting principals on a
consolidated basis.
"Consolidated Tangible Net Worth" means, at any time,
consolidated stockholders' equity of HRT and its Consolidated
Subsidiaries determined as of such time in accordance with generally
accepted accounting principles applied on a consistent basis, with no
upward adjustments due to a revaluation of assets (other than in
-6-
<PAGE>
respect of assets purchased or acquired in connection with the
acquisition of CCT on or about the Closing Date), minus all Intangible
Assets.
"Consolidated Total Capital" means, at any time, the sum of
(a) Consolidated Tangible Net Worth plus (b) Consolidated Funded
Indebtedness.
"Consolidated Unencumbered Realty" means for HRT and its
Subsidiaries, the book value of all realty (prior to deduction of
accumulated depreciation) minus outstanding Consolidated Senior Secured
Debt minus the book value of all properties (prior to deduction of
accumulated depreciation) as to which associated leases or mortgage
indebtedness relating thereto is past due or otherwise in default more
than 30 days.
"Consolidated Unsecured Debt" means all unsecured Debt of the
Borrower and its Subsidiaries.
"Constitutional Documents" in relation to any corporate Person
means the Certificate of Incorporation and By-Laws or other
constitutional documents of such corporate Person.
"Credit Agreement" shall have the meaning given to such term
in the introductory paragraph hereof.
"Debt" of any Person means at any date, without duplication,
(a) all obligations of such Person for borrowed money, (b) all
obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments, (c) all unconditional obligations of such
Person to pay (as opposed to a contingent or conditional obligation of
such Person to pay) the deferred purchase price of property or
services, except security deposits, sums retained to secure
performance, reserves for capital improvements, trade accounts payable
and accrued expenses arising in the ordinary course of business, (d)
all Capitalized Lease Indebtedness, (e) all Debt of others secured by a
Lien on any asset of such Person, whether or not such Debt is assumed
by such Person (to the extent of the lesser of the amount of such Debt
and the book value of any assets subject to such Lien), (f) the maximum
amount of all letters of credit issued or acceptance facilities
established for the account of such Person and, without duplication,
all drafts drawn thereunder (other than letters of credit and
acceptance facilities supporting other Debt of such Person), (g)
obligations under Interest Rate Protection Agreements, (h) all
indebtedness relating to or arising from any Securities Transactions,
(i) all instruments, obligations or undertakings treated as
indebtedness in accordance with generally accepted accounting
principles, or otherwise treated as indebtedness by S&P, Moody's or any
other Ratings Service (whether or not treated as indebtedness for
purposes of generally accepted accounting principles) and (j) all Debt
of others Guaranteed by such Person (to the extent of the lesser of the
amount of such Debt Guaranteed or the amount of such Guarantee);
provided, however, Debt shall not include obligations under Buy-Sell
Agreements.
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"Default" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or
both would, unless cured or waived, become an Event of Default.
"Defaulting Bank" means, at any time, any Bank that, at such
time, (i) has failed to make an Extension of Credit required pursuant
to the terms of this Credit Agreement, (ii) has failed to pay to the
Agent or any Bank an amount owed by such Bank pursuant to the terms of
the Credit Agreement or any other of the Credit Documents, or (iii) has
been deemed insolvent or has become subject to a bankruptcy or
insolvency proceeding or to a receiver, trustee or similar proceeding.
"Dollars" and "$" means lawful money of the United States of
America.
"Dollar Amount" means, in relation to any Debt denominated in
Dollars, the amount of such Debt.
"Domestic Lending Office" means, as to each Bank, its office
located at its address set forth in its Administrative Questionnaire
(or identified in its Administrative Questionnaire as its Domestic
Lending Office) or such other office as such Bank may hereafter
designate as its Domestic Lending office by notice to the Borrower and
the Agent.
"Duff & Phelps" means Duff & Phelps Credit Rating Co., Inc.,
or any successor or assignee of the business of such company in the
business of rating securities.
"Environmental Laws" means any and all federal, state, local
and foreign statutes, laws, regulations, ordinances, rules, judgments,
orders, decrees, permits, grants, licenses, agreements or other
governmental restrictions including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act,
the Superfund Amendments and Reauthorization Act, the Resource
Conservation and Recovery Act, the Toxic Substances Control Act, the
Clean Air Act and the Clean Water Act relating to the environment or to
emissions, discharges or releases of pollutants, contaminants,
petroleum or petroleum products, chemicals or industrial, toxic or
hazardous substances or wastes into the environment (including, without
limitation, ambient air, surface water, ground water or land) or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, petroleum or petroleum products, chemicals or industrial,
toxic or hazardous substances or wastes or the clean-up or other
remediation thereof.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, or any successor statute.
"ERISA Group" means the Borrower and all members of a
controlled group of corporations and all trades or businesses (whether
or not incorporated) under common control which, together with the
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Borrower, are treated as a single employer under Section 414 of the
Code.
"Eurodollar Borrowing" means any Borrowing consisting of
Eurodollar Loans.
"Eurodollar Business Day" means any Business Day on which the
Agent and the Eurodollar Reference Bank are open for international
business (including dealings in Dollar deposits) in London.
"Eurodollar Lending Office" means, as to each Bank, its
office, branch or affiliate located at its address set forth in its
Administrative Questionnaire (or identified in its Administrative
Questionnaire as its Eurodollar Lending Office) or such other office,
branch or affiliate of such Bank as it may hereafter designate as its
Eurodollar Lending Office by notice to the Agent.
"Eurodollar Loan" means a Loan which bears interest at the
Adjusted Eurodollar Rate plus the Applicable Percentage pursuant to the
applicable Notice of Borrowing or Notice of Interest Rate Election.
"Eurodollar Reserve Percentage" means for any day, that
percentage (expressed as a decimal) which is in effect from time to
time under Regulation D of the Board of Governors of the Federal
Reserve System (or any successor), as such regulation may be amended
from time to time or any successor regulation, as the maximum reserve
requirement (including, without limitation, any basic, supplemental,
emergency, special, or marginal reserves) applicable with respect to
Eurocurrency liabilities as that term is defined in Regulation D (or
against any other category of liabilities that includes deposits by
reference to which the interest rate of Eurodollar Loans is
determined), whether or not Lender has any Eurocurrency liabilities
subject to such reserve requirement at that time. Eurodollar Loans
shall be deemed to constitute Eurocurrency liabilities and as such
shall be deemed subject to reserve requirements without benefits of
credits for proration, exceptions or offsets that may be available from
time to time to a Bank. The Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the
Eurodollar Reserve Percentage.
"Event of Acceleration" means any of the events or conditions
set forth in Sections 6.01(g) or (h) with respect to the Borrower.
"Event of Default" has the meaning set forth in Section 6.01.
"Extension of Credit" means, as to any Bank, the making
(including extensions and conversions) of, or participation in, a Loan
by such Bank.
"Federal Funds Rate" means, for any day, the rate of interest
per annum (rounded upwards, if necessary, to the nearest whole multiple
of 1/100 of 1%) equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System
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arranged by Federal funds brokers on such day, as published by the
Federal Reserve Bank of New York on the Business Day next succeeding
such day, provided that (A) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions
on the next preceding Business Day and (B) if no such rate is so
published on such next preceding Business Day, the Federal Funds Rate
for such day shall be the average rate quoted to the Agent on such day
on such transactions as determined by the Agent.
"Financing Documents" means the Credit Agreement, the Notes,
the Security Agreements and the Subsidiaries Guarantees, in each case
as amended and in effect from time to time.
"Fitch" means Fitch IBCA, Inc., or any successor or assignee
of the business of such company in the business of rating securities.
"Foreign Government" means any government other than that of
the United States of America or any political subdivision thereof.
"Foreign Person" means (a) any Foreign Government, (b) any
agency of a Foreign Government, (c) any form of business enterprise
organized under the laws of any country other than the United States of
America or its possessions or any political subdivision thereof or (d)
any form of business enterprise owned or controlled by any of the
Persons described in clauses (a), (b) or (c) of this definition.
"Funds From Operations" means the Borrower's net income
(loss), excluding gains (losses) from restructuring of indebtedness and
sales of property, plus depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures as
hereafter provided. Notwithstanding contrary treatment under generally
accepted accounting principles, for purposes hereof, "Funds From
Operations" shall include, and be adjusted to take into account, the
Borrower's interests in unconsolidated partnerships and joint ventures,
on the same basis as consolidated partnerships and subsidiaries, as
provided in the "white paper" issued in March 1995 by the National
Association of Real Estate Investment Trusts, a copy of which is
attached hereto as Schedule 5.17.
"Government" means the federal government of the United States
of America or any agency thereof.
"Governmental Authority" means any federal, state. local or
foreign court or governmental agency, authority, instrumentality o
regulatory body.
"Group" or "Group of Loans" means at any time a group of Loans
consisting of (a) all Base Rate Loans at such time or (b) all
Eurodollar Loans having the same Interest Period at such time; provided
that, if a Loan of any particular Bank is converted to or made as a
Base Rate Loan pursuant to Sections 8.02 or 8.04, such Loan shall be
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included in the same Group or Groups of Loans from time to time as if
it had not been so converted or made as a Base Rate Loan.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt
or other obligation of any other Person and, without limiting the
generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of such Person (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt or
other obligation (whether by virtue of partnership arrangements, by
agreement to keep-well, to purchase assets, goods, securities or
services, to take-or-pay, or to maintain financial statement conditions
or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the
payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part); provided that the term Guarantee shall
not include endorsement for collection or deposit in the ordinary
course of business.
"Guarantor" means any guarantor under a Subsidiaries Guarantee
"Hazardous Substance" means any toxic or hazardous substance,
including petroleum and its derivatives presently regulated under the
Environmental Laws.
"HRT" means Healthcare Realty Trust Incorporated, a Maryland
corporation, and a Borrower hereunder.
"Intangible Assets" shall mean, as of the date of any
determination thereof, the total amount of all assets of the Borrower
and its Subsidiaries consisting of goodwill patents, trade names,
trademarks, copyrights, franchises, experimental expense, organization
expense, unamortized debt discount and expense, deferred assets (other
than prepaid insurance and prepaid taxes), the excess of cost of shares
acquired over book value of related assets and such other assets as are
properly classified as "intangible assets" in accordance with generally
accepted accounting principles.
"Interbank Offered Rate" means, for the Interest Period for
each Eurodollar Loan comprising part of the same borrowing (including
conversions, extensions and renewals), a per annum interest rate
(rounded upwards, if necessary, to the nearest whole multiple of 1/100
of 1%) equal to the rate of interest, determined by the Agent on the
basis of the offered rates for deposits in dollars for a period of time
corresponding to such Interest Period (and commencing on the first day
of such Interest Period), appearing on Telerate Page 3750 (or, if, for
any reason, Telerate Page 3750 is not available, the Reuters Screen
LIBO Page) as of approximately 11:00 A.M. (London time) two (2)
Business Days before the first day of such Interest Period. As used
herein, "Telerate Page 3750" means the display designated as page 3750
by Dow Jones Markets, Inc. (or such other page as may replace such page
on that service for the purpose of displaying the British Bankers
Association London interbank offered rates) and "Reuters Screen LIBO
Page" means the display designated as page "LIBO" on the Reuters
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Monitor Money Rates Service (or such other page as may replace the LIBO
page on that service for the purpose of displaying London interbank
offered rates of major banks).
"Interest Period" means, with respect to each Eurodollar Loan,
a period commencing on the date of Borrowing specified in the
applicable Notice of Borrowing or on the date specified in the
applicable Notice of Interest Rate Election and ending, one, two,
three, six or twelve months thereafter, as the Borrower may elect in
the applicable Notice; provided that:
(i) any Interest Period which would otherwise
end on a day which is not a Eurodollar Business Day shall be
extended to the next succeeding Eurodollar Business Day unless
such Eurodollar Business Day falls in another calendar month,
in which case such Interest Period shall end on the next
preceding Eurodollar Business Day;
(ii) any Interest Period which begins on the
last Eurodollar Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end
on the last Eurodollar Business Day of a calendar month; and
(iii) no Interest Period shall extend beyond any
principal amortization payment date unless the portion of the
Term Loan comprised of Base Rate Loans together with the
portion of the Term Loan comprised of Eurodollar Loans with
Interest Periods expiring prior to the date of such principal
amortization payment, is at least equal to the amount of the
principal amortization payment then due.
"Interest Rate Protection Agreement" means interest rate swap
agreement or interest rate future, option, cap, collar or other hedging
arrangements.
"Investment" means any investment in any Person, whether by
means of share purchase, capital contribution (including, without
limitation, subordinated debt), loan, time deposit, warrant, option or
otherwise.
"Investment Policy" means the Borrower's investment policy
currently in effect as of the date hereof and as previously disclosed
in writing to the Banks, and as amended from time to time by Borrower
with the approval of Majority Banks, which approval shall not be
unreasonably delayed, it being agreed and understood that in the event
Agent does not notify in writing within ten (10) days following the
date of Agent's receipt of Borrower's request for approval of an
amendment to the Investment Policy that the Majority Banks have
disapproved the requested amendment, the Majority Banks shall be deemed
to have approved the amended investment Policy.
"Liens" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect
of such asset. For the purposes of this Credit Agreement, the Borrower
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or any Subsidiary of the Borrower shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest
of a vendor or lessor under any conditional sales agreement, capital
lease or other title retention agreement relating to such asset.
"Loan" or "Loans" means the Term Loans or a Eurodollar Loan
and/or Base Rate Loan, as appropriate.
"Long-Term Debt" shall mean, at any time, any senior unsecured
debt obligations outstanding at such time with a maturity more than one
(1) year after the date of any determination hereunder.
"Majority Banks" means, at any time, Banks having more than
sixty-six and two-thirds percent (66-2/3%) of the Term Loan
Commitments, or if the Term Loan Commitments have been terminated,
Banks having more than sixty-six and two-thirds percent (66-2/3%) of
the aggregate principal amount of the Obligations outstanding (taking
into account in each case Participation Interests or the obligation to
participate therein); provided that the Commitments of, and the
outstanding principal amount of Obligations (taking into account in
each case Participation Interests or the obligation to participate
therein) owing to, a Defaulting Bank shall be excluded for purposes
hereof in making a determination of Majority Banks.
"Margin Stock" has the meaning assigned to such term in
Regulation U (to the extent applicable).
"Material Adverse Effect" means a material adverse effect on
(i) the condition (financial or otherwise), operations, business,
assets, liabilities or prospects of the Borrower and its Subsidiaries
taken as a whole, (ii) the ability of the Borrower and the other
Obligors, taken as a whole, to perform any material obligation under
the Financing Documents, or (iii) the rights and remedies of the Agent
and the Banks under the Financing Documents.
"Material Plan" means a Plan or Plans having aggregate
Unfunded Liabilities in excess of $1,000,000.
"Material Subsidiaries" means (i) as to HRT, the Subsidiaries
of HRT identified on Schedule 4.07 attached hereto and any Subsidiary
of HRT which subsequent to the Closing Date owns assets (including
stock) having an aggregate market value in excess of $2,500,000, and
(ii) as to CCT, the Subsidiaries of CCT identified on Schedule 4.07
attached hereto and any Subsidiary of CCT which subsequent to the
Closing Date owns assets (including stock) having an aggregate market
value in excess of $2,500,000.
"Moody's" means Moody's Investors Service, Inc., or any
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successor or assignee of the business of such company in the business
of rating securities.
"Multiemployer Plan" means at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA to which
any member of the ERISA Group is then making or accruing an obligation
to make contributions or has within the preceding five (5) plan years
made contributions, including for these purposes any Person which
ceased to be a member of the ERISA Group during such five (5) year
period.
"NationsBank" means NationsBank, N.A., a national banking
association, and its successors.
"Net Sale Proceeds" means, with respect to any Asset Sale, (a)
the cash proceeds received by the Borrower or any of its Subsidiaries,
minus (b) the sum of (i) fees and expenses incurred by the Borrower or
such Subsidiary in connection with such Asset Sale, (ii) cash or
incremental taxes payable by the Borrower or such Subsidiary as a
result of and in connection with such Asset Sale, (iii) any Debt
secured by a Lien on any assets subject to such Asset Sale and required
or permitted to be repaid in connection with such Asset Sale, (iv) any
portion of such proceeds payable to any holder (other than the Borrower
or any of its Subsidiaries or any of its Affiliates) of any direct or
indirect minority interest in such assets, and (v) any portion of such
net proceeds required by the Code to be paid to shareholders to
maintain the Borrower's REIT status.
"NMS" means NationsBanc Montgomery Securities LLC, and its
successors and assigns.
"Note" or "Notes" means any of the Term Notes.
"Notice of Borrowing" has the meaning given to such term in
Section 2.02(a).
"Notice of Interest Rate Election" has the meaning given to
such term in Section 2.10(a).
"Obligations" means, collectively, the Term Loans.
"Obligor" means the Borrower and any of the Guarantors, and
their respective successors.
"Parent" means, with respect to any Bank, any Person as to
which such Bank is a Subsidiary.
"Participant" means a bank or other institution which assumes,
in accordance with Section 9.06(b), a participating interest with
respect to the Loans, the Notes and this Credit Agreement.
"Participation Interest" means the purchase by a Bank of a
participation in the Term Loans as provided in Section 9.04.
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"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Person" means an individual a corporation, a partnership, a
limited liability company, an association, a trust or any other entity
or organization, including a government or political subdivision or an
agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan as
defined in Subsection 3(2) of ERISA (other than a Multiemployer Plan)
which is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code and either (a) is maintained,
or contributed to, by any member of the ERISA Group for employees of
any member of the ERISA Group or (b) has at any time within the
preceding five (5) years been maintained or contributed to, by any
Person which was at such time a member of the ERISA Group for employees
of any Person which was at such time a member of the ERISA Group.
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by NationsBank as its prime rate in effect
at its principal office in Charlotte, North Carolina, with each change
in the Prime Rate being effective on the date such change is publicly
announced as effective (it being understood and agreed that the Prime
Rate is a reference rate used by NationsBank in determining interest
rates on certain loans and is not intended to be the lowest rate of
interest charged on any extension of credit by NationsBank to any
debtor).
"Quarterly Period" means a three month period ending on the
last Business Day of each March, June, September and December.
"Ratings Services" shall have the meaning provided in the
definition of "Applicable Percentage".
"REIT" means a real estate investment trust as defined in
Sections 856-860 of the Internal Revenue Code of 1986, as amended and
any successor provision.
"Regulation T" means Regulation T of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Regulation X" means Regulation X of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Release" has the meaning given to such term in Section
4.06(a) hereof.
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"Revolving Credit Agreement" means the $265 million Revolving
Credit Agreement dated as of the date hereof, as amended, modified,
supplemented and extended, among the Borrower, the banks identified
therein and NationsBank, N.A., as Agent.
"Revolving Loans" means the revolving loans made under the
Revolving Credit Agreement.
"Securities Transaction" means any purchase or other
acquisition (including any such transaction effected by way of
partnership formation, upreit, merger, amalgamation or consolidation)
by the Borrower or any of its Subsidiaries subsequent to the date
hereof of any real estate asset or any entity which has as its
principal assets, real estate, through which Borrower or any of its
Subsidiaries issue consideration comprised principally of its
respective stock or securities, including, without limitation, common
stock, preferred stock, bonds, and hybrid securities.
"Security Agreements" means those Assignments of Notes and
Liens given by CCT and its Subsidiaries of mortgage indebtedness owing
to them, as amended, modified and replaced
"S&P" means Standard & Poor's Ratings Group, a division of
McGraw Hill, Inc., or any successor or assignee of the business of such
division in the business of rating securities.
"Solvent" means, with respect to any person on a particular
date, that on such date (a) the fair value of the property of such
Person is greater than the total amount of liabilities, including,
without limitation, contingent liabilities, of such Person, (b) the
present fair saleable value of the assets of such Person is not less
than the amount that will be required to pay the probable liability of
such Person on its debts as they become absolute and matured, (c) such
Person is able to realize upon its assets and pay its debts and other
liabilities, contingent obligations and other commitments as they
mature, (d) such Person does not intend to, and does not believe that
it will, incur debts or liabilities beyond such Person's ability to pay
as such debts and liabilities mature, and (e) such Person is not
engaged in a business or a transaction, and is not about to engage in a
business or a transaction, for which such Person's property would
constitute unreasonably small capital after giving due consideration to
the prevailing practice in the industry in which such Person is
engaged. In computing the amount of contingent liabilities at any time,
it is intended that such liabilities will be computed at the amount
which, in light of all the facts and circumstances existing at such
time, represents the amount that can reasonably be expected to become
an actual or matured liability.
"Specified Affiliate" means any corporation, association or
other business entity formed for the purpose of earning income not
qualified as "rents from real property" under applicable provisions of
the Code, in which the Borrower owns substantially all of the economic
interest but less than 10% of the voting interests, and the remaining
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economic and voting interests are subject to restrictions requiring
that ownership of such interests be held by officers, directors or
employees of the Borrower.
"Subsidiaries Guarantee" means (i) with respect to the Tranche
A Term Loan, the Subsidiaries Guarantee to be executed and delivered by
each of the Material Subsidiaries of HRT, and (ii) with respect to the
Tranche B Term Loan, the Subsidiaries Guarantee to be executed and
delivered by each of the Material Subsidiaries of CCT, in each case
substantially in the form of Schedule 5.09 as the same may be amended,
supplemented or otherwise modified from time to time.
"Subsidiary" means, with respect to any Person, any
corporation or other entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board
of directors or other persons performing similar functions are at such
time directly or indirectly owned by such Person.
"Term Loans" means the Tranche A Term Loan and the Tranche B
Term Loan.
"Term Loan Commitments" means the Tranche A Term Loan
Commitment and the Tranche B Term Loan Commitment.
"Term Loan Commitment Percentage" means the Tranche A Term
Loan Commitment Percentage or the Tranche B Term Loan Commitment
Percentage, as appropriate.
"Term Note" or "Term Notes" means the Tranche A Term Notes and
the Tranche B Term Notes.
"Tranche A Maturity Date" means such term as defined in
Section 2.04(a).
"Tranche B Maturity Date" means such term as defined in
Section 2.04(b).
"Tranche A Term Loan" means such term as defined in Section
2.01(a).
"Tranche A Term Loan Commitment" means, with respect to each
Bank, the commitment of such Bank to make its portion of the Tranche A
Term Loan as specified in Schedule 2.01 (and for purposes of making
determinations of Majority Banks hereunder after the Closing Date and
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for purposes of calculations referred to in Section 9.05, the principal
amount outstanding on the Tranche A Term Loan).
"Tranche A Term Loan Commitment Percentage" means, for each
Bank, a fraction (expressed as a percentage) the numerator of which is
the Tranche A Term Loan Commitment (and after the Closing Date, the
outstanding principal amount of such Bank's Tranche A Term Loan) of
such Bank at such time and the denominator of which is the aggregate
amount of the Tranche A Term Loan Commitment (and after the Closing
Date, the aggregate principal amount of the Tranche A Term Loan) at
such time. The initial Tranche A Term Loan Commitment Percentages are
set out on Schedule 2.01.
"Tranche A Term Note" or "Tranche A Term Notes" means the
promissory notes of the Borrower in favor of each of the Banks
evidencing the Tranche A Term Loans in substantially the form attached
as Schedule 2.06(a), individually or collectively, as appropriate, as
such promissory notes may be amended, modified, supplemented, extended
or renewed from time to time.
"Tranche B Term Loan" means such term as defined in Section
2.01(a).
"Tranche B Term Loan Commitment" means, with respect to each
Bank, the commitment of such Bank to make its portion of the Tranche B
Term Loan as specified in Schedule 2.1 (and for purposes of making
determinations of Majority Banks hereunder after the Closing Date and
for purposes of calculations referred to in Section 9.05, the principal
amount outstanding on the Tranche B Term Loan).
"Tranche B Term Loan Commitment Percentage" means, for each
Bank, a fraction (expressed as a percentage) the numerator of which is
the Tranche B Term Loan Commitment (and after the Closing Date, the
outstanding principal amount of such Bank's Tranche B Term Loan) of
such Bank at such time and the denominator of which is the aggregate
amount of the Tranche B Term Loan Commitment (and after the Closing
Date, the aggregate principal amount of the Tranche B Term Loan) at
such time. The initial Tranche B Term Loan Commitment Percentages are
set out on Schedule 2.01.
"Tranche B Term Note" or "Tranche B Term Notes" means the
promissory notes of the Borrower in favor of each of the Banks
evidencing the Tranche B Term Loans in substantially the form attached
as Schedule 2.06(b), individually or collectively, as appropriate, as
such promissory notes may be amended, modified, supplemented, extended
or renewed from time to time.
"UCC" means, with respect to any jurisdiction, the Uniform
Commercial Code as then in effect in that jurisdiction.
"Unfunded Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (a) the present value of all
benefits under such Plan exceeds (b) the fair market value of all Plan
assets allocable to such benefits (excluding any accrued but unpaid
contributions), all determined as of the then most recent valuation
date for such Plan, but only to the extent that such excess represents
a potential liability of a member of the ERISA Group to the PBGC or any
other Person under Title IV of ERISA.
"Wholly-Owned Consolidated Subsidiary" means, with respect to
any Person, any Consolidated Subsidiary of such Person all of the
shares of capital stock or other ownership interests of which (except
directors' qualifying shares) are at the time directly or indirectly
owned by such Person.
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SECTION 1.02 Accounting Terms. Unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all accounting determinations
hereunder shall be made, and all financial statements and certificates required
to be delivered hereunder shall be prepared in accordance with generally
accepted accounting principles in effect as of the Closing Date consistently
applied; provided that, if the Borrower notifies the Agent that the Borrower
wishes to amend any covenant in Article V to eliminate the effect of any change
in generally accepted accounting principles on the operation of such covenant
(or if the Agent notifies the Borrower that the Majority Banks wish to amend
Article V for such purpose), then the Borrower's compliance with such covenant
shall be determined on the basis of generally accepted accounting principals in
effect immediately before the relevant change in generally accepted accounting
principles became effective, until either such notice is withdrawn or such
covenant is amended in a manner satisfactory to the Borrower and the Majority
Banks.
SECTION 1.03 Other Definitional Provisions. References to "Articles",
"Sections" "subsections", "Schedules" and "Exhibits" shall be to Articles,
Sections, subsections, Schedules and Exhibits, respectively, of this Credit
Agreement unless otherwise specifically provided. Any of the terms defined in
Section 1.01 or referred to in Section 1.02 may, unless the context otherwise
requires, be used in the singular or the plural depending on the reference. In
this Credit Agreement, the word "including" means "including without limitation"
and the word "includes" means "includes without limitation." Terms defined in
this Credit Agreement and used, but not otherwise defined in the Exhibits and
Schedules, shall have the meaning ascribed to such terms in this Credit
Agreement
ARTICLE II
THE LOANS
SECTION 2.01 Commitments.
(a) Tranche A Term Loan. Subject to the terms and conditions hereof,
each Bank severally agrees to make its Tranche A Term Loan Commitment Percentage
of a term loan (the "Tranche A Term Loan") in the aggregate principal amount of
ONE HUNDRED EIGHTY-SEVEN MILLION FOUR HUNDRED THOUSAND DOLLARS ($187,400,000) to
HRT on the Closing Date. The Tranche A Term Loan may consist of Base Rate Loans
or Eurodollar Loans, or a combination thereof, as the Borrower may request.
Amounts repaid on the Term Loan may not be reborrowed. The portion of the
Tranche A Term Loan consisting of Eurodollar Loans shall be in the minimum
aggregate principal amount of One Million Dollars ($1,000,000) and integral
multiples of One Hundred Thousand Dollars ($100,000) in excess thereof.
Notwithstanding anything contained herein to the contrary, HRT shall be limited
to a maximum number of four (4) Eurodollar Loans outstanding at any time.
(b) Tranche B Term Loan. Subject to the terms and conditions hereof,
each Bank severally agrees to make its Tranche B Term Loan Commitment Percentage
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of a term loan (the "Tranche B Term Loan") in the aggregate principal amount of
TWELVE MILLION SIX HUNDRED THOUSAND DOLLARS ($12,600,000) to CCT on the Closing
Date. The Term Loan may consist of Base Rate Loans or Eurodollar Loans, or a
combination thereof, as the Borrower may request. Amounts repaid on the Tranche
B Term Loan may not be reborrowed. The portion of the Tranche B Term Loan
consisting of Eurodollar Loans shall be in the minimum aggregate principal
amount of One Million Dollars ($1,000,000) and integral multiples of One Hundred
Thousand Dollars ($100,000) in excess thereof. Notwithstanding anything
contained herein to the contrary, CCT shall be limited to three (3) Eurodollar
Loans outstanding at any time.
SECTION 2.02 Method of Borrowing.
(a) The Borrower shall give the Agent and each Bank notice (a "Notice
of Borrowing") not later than (i) 11:00 A.M. (Charlotte, North Carolina time) on
the date of each Base Rate Borrowing and (ii) 11:00 A.M. (Charlotte, North
Carolina time) on the third (3rd) Eurodollar Business Day before each Eurodollar
Borrowing, specifying:
(i) the amount of the proposed Borrowing;
(ii) the date of such Borrowing, which shall be a
Business Day in the case of a Base Rate Borrowing or a Eurodollar
Business Day in the case of a Eurodollar Borrowing;
(iii) whether the Loans comprising such Borrowing are to
be Base Rate Loans or Eurodollar Loans, or a combination thereof, and
(iv) in the case of a Eurodollar Borrowing, the duration
of the initial Interest Period applicable thereto, subject to the
provisions of the definition of Interest Period.
(b) Upon receipt of a Notice of Borrowing, the Agent shall promptly
notify each Bank of the contents thereof and of such Banks ratable share of such
Borrowing and such Notice of Borrowing shall not thereafter be revocable by the
Borrower.
(c) Not later than (i) 2:00 P.M., (Charlotte, North Carolina time) on
the date of each Base Rate Borrowing, and (ii) 11:00 A.M. (Charlotte, North
Carolina time) on the date of each Eurodollar Borrowing, each Bank shall make
available its ratable share of such Borrowing, in federal or other funds
immediately available in Charlotte, North Carolina, to the Agent at its address
specified in or pursuant to Section 9.01. Unless any applicable condition
specified in Article III has not been satisfied, the Agent will make the funds
so received from the Banks available to the Borrower at an account of the
Borrower with the Agent immediately after being made available to the Agent at
the Agent's aforesaid address in immediately available funds.
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SECTION 2.03 Notes.
(a) The Term Loans shall be evidenced by a duly executed Term Note in
favor of each Bank.
(b) Upon receipt of each Bank's Note pursuant to Section 3.01(b), the
Agent shall forward such Note to such Bank via overnight courier service. Each
Bank shall record on its Note the date, amount and maturity of each Loan made by
it and the date and amount of each payment of principal made by the Borrower
with respect thereto, and prior to any transfer of its Note shall endorse on the
schedule forming a part thereof appropriate notations to evidence the foregoing
information with respect to each such Loan then outstanding; provided that the
failure of any Bank to make any such recordation or endorsement shall not affect
the obligations of the Borrower hereunder or under such Note. Each Bank is
hereby irrevocably authorized by the Borrower so to endorse its Note and to
attach to and make a part of its Note a continuation of any such schedule as and
when required.
SECTION 2.04 Maturity of Loans.
(a) The Tranche A Term Loan, together with accrued interest, fees and
other amounts owing hereunder, is due and payable in full on April 15, 1999
(being the date six months following the Closing Date) (the "Tranche A Maturity
Date"); provided that the Tranche A Maturity Date may be extended at the
election of the Borrower on written notice to the Agent for an additional period
of six months to the anniversary date of the Closing Date upon payment of a
non-refundable extension fee of thirty basis points (30 bps) on the outstanding
principal amount of the Tranche A Term Loan to the Agent for the ratable benefit
of the Banks. Payment of the Tranche A Term Loan will be applied ratably to
payment of the Tranche A Term Loan held by the Banks in accordance with their
respective Tranche A Term Loan Commitment Percentages.
(b) The Tranche B Term Loan, together with accrued interest, fees and
other amounts owing hereunder, is due and payable in full on April 15, 1999
(being the date six months following the Closing Date) (the "Tranche B Maturity
Date"). Payment of the Tranche B Term Loan will be applied ratably to payment of
the Tranche B Term Loan held by the Banks in accordance with their respective
Tranche B Term Loan Commitment Percentages.
(c) Within the foregoing limits of this Section 2.04, each required
payment or prepayment shall be applied to the outstanding Group or Groups of
Loans as the Borrower may designate to the Agent not less than five (5) Business
Days or five (5) Eurodollar Business Days, as the case may be, prior to the date
required for such payment or prepayment or failing such designation by the
Borrower, as the Agent may specify by notice to the Borrower and the Banks.
SECTION 2.05 Interest Rates.
(a) Each Base Rate Loan shall bear interest on the outstanding
principal amount thereof, for each day from the date such Loan is made until it
becomes due, at a rate equal to the Base Rate for such day plus the Applicable
Percentage. Such interest shall be payable quarterly in arrears on the last day
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of each Quarterly Period and on each date a Base Rate Loan is converted to a
Eurodollar Loan. Any overdue principal of or interest on any Base Rate Loan
shall bear interest, payable on demand, for each day until paid at a rate per
annum equal to the sum of 2.000% plus the rate otherwise applicable to Base Rate
Loans for such day.
(b) Each Eurodollar Loan shall bear interest on the outstanding
principal amount thereof, for the Interest Period applicable thereto, at a rate
equal to the Adjusted Eurodollar Rate for such Interest Period plus the
Applicable Percentage. Such interest shall be payable for each Interest Period
on the last day thereof and, if such Interest Period is longer than 3 months, at
intervals of 3 months after the first day thereof. Any overdue principal of or
interest on any Eurodollar Loan shall bear interest, payable on demand for each
day until paid at a rate per annum equal to the sum of 2.000% plus (i) for each
day during any Interest Period applicable to such Eurodollar Loan, the rate
applicable to such Eurodollar Loan for such day, and (ii) for each day after the
end of such Interest Period, the sum of 2.000% plus the rate applicable to Base
Rate Loans for such day.
(c) The Agent shall determine each interest rate applicable to the
Loans hereunder. The Agent shall give prompt notice to the Borrower and the
Banks by facsimile, telex or cable of each rate of interest so determined, and
its determination thereof shall be conclusive in the absence of manifest error.
(d) The Eurodollar Reference Bank agrees to use its best efforts to
furnish quotations to the Agent as contemplated by this Section 2.05. If the
Eurodollar Reference Bank does not a timely quotation, the provisions of Section
8.01 shall apply.
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 2.06 INTENTIONALLY OMITTED
SECTION 2.07 INTENTIONALLY OMITTED
SECTION 2.08 INTENTIONALLY OMITTED
SECTION 2.09 Prepayments.
</TABLE>
(a) Optional Prepayments.
(i) The Borrower may, upon written notice delivered to
the Agent not later than 2:00 P.M. (Charlotte, North Carolina time) on
the first Business Day prior to the date of such prepayment, prepay a
Group of Base Rate Loans in whole at any time, or from time to time in
part in amounts aggregating $500,000.00 or any larger multiple of
$100,000.00 by paying (in Dollars) the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment. Each
such optional prepayment shall be applied to prepay ratably the Base
Rate Loans of the several Banks included in such Group.
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(ii) The Borrower may, upon at least three (3) Eurodollar
Business Days' notice to the Agent, prepay a Group of Eurodollar Loans
in whole at any time, or from time to time in part in amounts
aggregating $1,000,000.00 or any larger multiple of $100,000.00, by
paying the principal amount to be prepaid together with accrued
interest thereon to the date of prepayment, as designated by Borrower
pursuant to Section 2.04(b); provided that the Borrower shall reimburse
each Bank for any loss or expense incurred by it as a result of any
such prepayment in accordance with Section 2.12. Each such optional
prepayment shall be applied to prepay ratably the Loans of the several
Banks included in such Group.
(iii) Upon receipt of a notice of prepayment pursuant to
this Section, the Agent shall promptly notify each Bank of the contents
thereof and of such Bank's ratable share of such prepayment and such
notice shall not thereafter be revocable by the Borrower. Amounts
prepaid on the Term Loan may not be reborrowed.
(b) Mandatory Prepayments.
(i) Mandatory Prepayments from Asset Sales. Within five (5)
Business Days (or such longer period of time agreed to by the Banks
hereunder) of each receipt by a Borrower or any of its Subsidiaries or
Specified Affiliates of any Net Sale Proceeds from any Asset Sale, such
Borrower shall prepay, or cause such Subsidiary or Specified Affiliate
to prepay on behalf of such Borrower, to the Agent hereunder for the
account of the Banks hereunder an amount equal to 100% of all Net Sale
Proceeds from all such Asset Sales. Prepayments in respect of Asset
Sales by HRT and its Subsidiaries (other than CCT and its Subsidiaries)
pursuant to this subsection (b)(i) shall be applied to prepay the
Tranche A Term Loan until paid in full, including accrued interest and
fees and other amounts owing thereunder, together with interest accrued
thereon to the date of prepayment, and prepayments in respect of Asset
Sales by CCT and its Subsidiaries pursuant to this subsection (b)(i)
shall be applied to prepay the Tranche B Term Loan until paid in full,
including accrued interest and fees and other amounts owing thereunder,
together with interest accrued thereon to the date of prepayment;
provided, however, that in the event of any such prepayment of a
Eurodollar Loan other than on the last day of the Interest Period
therefor, the Borrowers shall be obligated to reimburse the Banks in
respect thereof pursuant to Section 2.12.
(ii) Mandatory Prepayment from the Proceeds of Equity
Contributions or the Issuance of Stock. Within five (5) Business Days
(or such longer period of time agreed to by the Banks hereunder) of
each date on which a Borrower or any of its Subsidiaries receives cash
proceeds from any equity contributions or cash proceeds from the
issuance of stock, such Borrower shall make payment, or shall cause any
such Subsidiary to make payment, of such cash proceeds less any actual
out of pocket expenses, fees and other sums paid or incurred by such
Borrower or its Subsidiary in connection therewith on the Term Loans as
hereafter provided. Prepayments in respect of equity contributions to
or the issuance of stock by HRT and its Subsidiaries (other than CCT
and its Subsidiaries) pursuant to this subsection (b)(ii) shall be
applied to prepay the Tranche A Term Loan until paid in full, including
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accrued interest and fees and other amounts owing thereunder, and
prepayments in respect of equity contributions to or the issuance of
stock by CCT and its Subsidiaries pursuant to this subsection (b)(ii)
shall be applied to prepay the Tranche B Term Loan until paid in full,
including accrued interest and fees and other amounts owing thereunder;
provided however, that (A) the foregoing provisions shall not apply to
any Dividend Reinvestment Plan or any successor or similar plan of HRT
and (B) in the event of any such prepayment of a Eurodollar Loan other
than on the last day of the Interest Period therefor, the Borrowers
shall be obligated to reimburse the Banks in respect thereof pursuant
to Section 2.12.
(iii) Mandatory Prepayment from the Proceeds of Debt. Within
five (5) Business Days (or such longer period of time agreed to by the
Banks hereunder) of each date on which a Borrower or any of its
Subsidiaries receives cash proceeds from the issuance of Debt after the
Closing Date (other than (i) borrowings under the Revolving Credit
Agreement, or (ii) mortgage indebtedness assumed in connection with
purchases and acquisitions otherwise permitted hereunder), such
Borrower shall make payment, or shall cause any such Subsidiary to make
payment, of such cash proceeds less any actual out of pocket expenses,
fees and other sums paid or incurred by such Borrower or its Subsidiary
in connection therewith on the Term Loans as hereafter provided.
Prepayments in respect of the issuance of Debt by HRT and its
Subsidiaries (other than CCT and its Subsidiaries) pursuant to this
subsection (b)(ii) shall be applied to prepay the Tranche A Term Loan
until paid in full, including accrued interest and fees and other
amounts owing thereunder, and prepayments in respect of the issuance of
stock by Debt and its Subsidiaries pursuant to this subsection (b)(ii)
shall be applied to prepay the Tranche B Term Loan until paid in full,
including accrued interest and fees and other amounts owing thereunder;
provided however, that in the event of any such prepayment of a
Eurodollar Loan other than on the last day of the Interest Period
therefor, the Borrowers shall be obligated to reimburse the Banks in
respect thereof pursuant to Section 2.12.
(iv) Notice of Mandatory Prepayment. The applicable Borrower
shall notify the Agent of any prepayment pursuant to this Section 2.09
at least two (2) Business Days prior to the date on which such
prepayment is required to be made and deliver a compliance certificate
with the prepayment in form and substance satisfactory to the Agent;
provided, however, that the failure to give such notice shall not
affect the obligation of the Borrower to make such prepayment on such
date.
SECTION 2.10 Method of Electing Interest Rates.
(a) The Loans included in each Borrowing shall bear interest initially
at the type of rate specified by the Borrower in the applicable Notice of
Borrowing. Thereafter, the Borrower may from time to time elect to change or
continue the type of interest rate borne by each Group of Loans (subject in each
case to the provisions of Article VIII), as follows:
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(i) if such Loans are Base Rate Loans, the Borrower may
elect to convert such Loans to Eurodollar Loans as of any Eurodollar
Business Day; and
(ii) if such Loans are Eurodollar Loans, the Borrower may
elect to convert such Loans to Base Rate Loans or elect to continue
such Loans as Eurodollar Loans for an additional Interest Period, in
each case effective on the last day of the then current Interest Period
applicable to such Loans;
provided, that the Borrower may not elect to continue any Eurodollar Loan or
convert any Loan into a Eurodollar Loan after the occurrence and during the
continuation of a Default. Each such election shall be made by delivering a
notice in substantially the form of Schedule 2.10 (a "Notice of Interest Rate
Election") to the Agent no later than 11:00 A.M. (Charlotte, North Carolina
time) (x) if the relevant Loans are to be converted to Base Rate Loans, the
second Business Day before such conversion or continuation is to be effective
and (y) if the relevant Loans are to be converted to Eurodollar Loans or
continued as Eurodollar Loans for an additional Interest Period, the third
Eurodollar Business Day before such conversion or continuation is to be
effective. A Notice of Interest Rate Election may, if it so specifies, apply to
only a portion of the aggregate principal amount of the relevant Group of Loans;
provided that (i) such portion is allocated ratably among the Loans comprising
such Group and (ii) the portion to which such Notice applies, and the remaining
portion to which it does not apply, are each at least $500,000.00 and no more
than one of such portions is other than a multiple of $100,000.00.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which
such notice applies;
(ii) the date on which the conversion or continuation
selected in such notice is to be effective, which shall comply with
subsection (a) above;
(iii) if the Loans comprising such Group are to be
converted, the new type of Loans and, if such new Loans are Eurodollar
Loans, the duration of the initial Interest Period applicable thereto;
and
(iv) if such Loans are to be continued as Eurodollar
Loans for an additional Interest Period, the duration of such
additional Interest Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period. No more than
four (4) Groups of Loans shall be outstanding at any time in respect of the
Tranche A Term Loan, and no more than three (3) Groups of Loans shall be
outstanding at any time in respect of the Tranche B Term Loan.
(c) Upon receipt of a Notice of Interest Rate Election from the
Borrower pursuant to Section 2.10(a) above, the Agent shall promptly notify each
Bank of the contents thereof and such notice shall not thereafter be revocable
by the Borrower. If the Borrower fails to deliver a timely Notice of Interest
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Rate Election to the Agent for any Group of Eurodollar Loans, such Loans shall
be converted into Base Rate Loans on the last day of the then current Interest
Period applicable thereto.
SECTION 2.11 General Provisions as to Payments.
(a) The Borrower shall make each payment of principal of, and interest
on, the Loans and of fees hereunder, without setoff, deduction counterclaim or
withholding of any kind, not later than 3:00 p.m. (Charlotte, North Carolina
time) on the date when due, in federal or other funds immediately available in
Charlotte, North Carolina, to the Agent at its address referred to in Section
9.01 and any of such payments received after 3:00 p.m. on the required due date
shall be deemed to have been paid by the Borrower on the next succeeding
Business Day. Any such payment with respect to a Loan shall be made in Dollars.
The Agent will promptly distribute to each Bank its ratable share of each such
payment received by the Agent for the account of the Banks. Whenever any payment
of principal of, or interest on, the Base Rate Loans or of fees shall be due on
a day which is not a Business Day, the date for payment thereof shall be
extended to the next succeeding Business Day. Whenever any payment of principal
of, or interest on, the Eurodollar Loans shall be due on a day which is not a
Eurodollar Business Day, the date for payment thereof shall be extended to the
next succeeding Eurodollar Business Day unless such Eurodollar Business Day
falls in another calendar month, in which case the date for payment thereof
shall be the next preceding Eurodollar Business Day. If the date for any payment
of principal is extended by operation of law or otherwise, interest thereon
shall be payable for such extended time.
(b) Unless the Agent shall have received notice from the Borrower prior
to the date on which any payment is due to the Banks hereunder that the Borrower
will not make such payment in full, the Agent may assume that the Borrower has
made such payments in full to the Agent, on such date and the Agent may, in
reliance upon such assumption, cause to be distributed to each Bank on such due
date an amount equal to the amount then due such Bank. If and to the extent that
the Borrower shall not have so made such payments, each Bank shall repay to the
Agent forthwith on demand such amount distributed to such Bank together with
interest thereon, for each day from the date such amount is distributed to such
Bank until the date such Bank repays such amount to the Agent, at the Federal
Funds Rate.
SECTION 2.12 Funding Losses. If the Borrower makes any payments of
principal with respect to any Eurodollar Loan or any Eurodollar Loan is
converted to another type of Loan (pursuant to Articles II, VI, VIII, or
otherwise) on any day other than the last day of an Interest Period applicable
thereto, or if the Borrower fails to borrow or prepay any Eurodollar Loans after
notice has been given to any Bank in accordance with the terms hereof, the
Borrower shall reimburse each applicable Bank on demand for any resulting
reasonable out of pocket loss or expense incurred by it (or any existing
Participant in the related Loan, provided that the amount collected by a Bank
and its Participant shall not exceed the amount which the Bank would have been
entitled to collect absent such participation), including (without limitation)
any such loss incurred in obtaining, liquidating or employing deposits from
third parties to fund or maintain such Loan or proposed Loan, but excluding loss
of margin for the period after any such payment or conversion or failure to
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borrow or prepay, provided that such Bank shall have delivered to the Borrower
(with a copy to the Agent) a certificate prior to requesting reimbursement
setting forth in reasonable detail its calculation of the amount of such loss or
expense, which certificate shall be conclusive in the absence of manifest error.
NOTWITHSTANDING THE FOREGOING PROVISIONS OF THIS SECTION 2.12 TO THE CONTRARY,
THE TERM "LOSS" SHALL NOT INCLUDE AND BORROWER SHALL NOT BE RESPONSIBLE FOR THE
PAYMENT OF ANY LOST PROFITS (IN EXCESS OF THE AMOUNTS OTHERWISE PAYABLE BY
BORROWER HEREUNDER AS A PART OF THE ADJUSTED EURODOLLAR RATE) OR ANY
CONSEQUENTIAL, SPECULATIVE, PUNITIVE OR OTHER DAMAGES.
SECTION 2.13 Computation of Interest and Fees. All interest and fees
hereunder shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.14 Withholding Tax Exemption. At least five (5) Business Days
prior to the first date on which interest or fees are payable hereunder for the
account of any Bank, each Bank that is not incorporated under the laws of the
United States of America or a state thereof agrees that it will deliver to the
Borrower and the Agent two duly and properly completed copies of United States
Internal Revenue Service Form 1001 or 4224 (or any successor form, in either
case), certifying in either case that such Bank is entitled to receive payments
under this Credit Agreement and the Notes without deduction or withholding of
any United States federal income taxes. Each Bank which so delivers a Form 1001
or 4224 (or any successor form, in either case) further undertakes to deliver to
the Borrower and the Agent two (2) additional copies of such form (or a
successor form) on or before the date that such form expires or becomes obsolete
or after the occurrence of any event requiring a change in the most recent form
so delivered by it, and such amendments thereto or extensions or renewals
thereof as may be reasonably requested by the Borrower or the Agent, in each
case certifying that such Bank is entitled to receive payments under this Credit
Agreement and the Notes without deduction or withholding of any United States
federal income taxes, unless an event (including without limitation any change
in treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Bank from duly completing and delivering any such
form with respect to it and such Bank advises the Borrower and the Agent that it
is not capable of receiving payments without any deductions or withholding of
United States federal income tax, in which case such Bank shall have appropriate
amounts withheld pursuant to applicable law. Notwithstanding any provision
contained in this Credit Agreement to the contrary, if the Borrower, on advice
of counsel, reasonably believes that the Borrower should withhold an amount with
respect to any Bank on account of any applicable Government requirement, the
Borrower shall be entitled to withhold such sum in accordance with the
applicable Government requirement.
SECTION 2.15 Fees.
(a) Upfront and Other Fees. The Borrower agrees to pay to the Agent for
the benefit of the Banks the upfront and other fees provided in the Agent's Fee
Letter.
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(b) Agent's Fees. The Borrower agrees to pay the Agent such fees as may
be agreed upon by the Agent and the Borrower from time to time.
ARTICLE III
CONDITIONS
SECTION 3.01 Conditions to Initial Extensions of Credit. The obligation
of the Banks to make initial Extensions of Credit hereunder is subject to the
satisfaction of such of the following conditions in all material respects on or
prior to the Closing Date as shall not have been expressly waived in accordance
with Section 9.05:
(a) The Agent shall have received counterparts hereof signed by each of
the parties hereto (or, in the case of any party (other than the Borrower) as to
which an executed counterpart shall not have been received, receipt by the Agent
in form satisfactory to it of telegraphic, facsimile, telex or other written
confirmation from such party of execution of a counterpart hereof by such
party); provided, however, in any event, the Agent shall distribute to each Bank
promptly after the Closing Date an original Credit Agreement executed by the
Borrowers, the Banks and the Agent;
(b) The Agent shall have received a duly executed Term Note for the
account of each Bank, complying with Section 2.03;
(c) The Agent shall have received the duly executed Subsidiaries
Guarantees and the Security Agreements;
(d) The Agent and each Bank shall have received legal opinions of
counsel to the Borrowers and the other Obligors, in form and substance
satisfactory to the Agent and the Banks;
(e) The Agent shall have received all documents it may reasonably
request relating to the existence of the Borrowers and each Obligor, the
corporate authority for and the validity of each of the Financing Documents, and
any other matters relevant hereto, all in form and substance satisfactory to the
Agent;
(f) No Default shall have occurred and be continuing immediately before
the making of such Extension of Credit and no Default shall exist immediately
thereafter;
(g) The representations and warranties of the Borrowers and the
Obligors made in or pursuant to the Financing Documents to which it is a party
shall be true in all material respects as of the date of the making of such
Extensions of Credit;
(h) The Extension of Credit will be extended in compliance with all
applicable governmental laws and regulations (including without limitation
Regulations U, T and X);
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(i) The Agent shall have received a certificate of each of the
Borrowers, signed on behalf of each Borrower by the Borrower's chief executive
officer or chief financial officer, confirming to the knowledge of such officer
that no Default is continuing, the Borrower is Solvent and all other conditions
precedent to the initial borrowing hereunder have been satisfied in all material
respects;
(j) No litigation shall be pending or to the knowledge of Borrowers
threatened against the Borrowers, any Material Subsidiary or any Specified
Affiliate which would be likely to materially and adversely affect the assets,
operations, business or condition, financial or otherwise, of the Borrowers, any
Material Subsidiary or any Specified Affiliate, or which could reasonably be
expected to affect materially and adversely the ability of the Borrowers to
fulfill their obligations hereunder;
(k) There shall not have occurred or become known any material adverse
change with respect to the condition (financial or otherwise), operations,
business or assets of the Borrowers and their Subsidiaries taken as a whole,
since December 31, 1997;
(l) The Agent shall have received a certified copy of the definitive
Agreement and Plan of Merger dated as of June 8, 1998, among the Borrower, HR
Acquisition I Corporation and Capstone Capital Corporation, including exhibits,
schedules, amendments and modifications thereto, and related documentation;
(m) certification that the conditions to effectiveness of the merger,
but for payment of the purchase price, have been satisfied and evidence that
immediately upon funding of the Tranche B Term Loan hereunder the merger will be
consummated in accordance with the foregoing Agreement and Plan of Merger;
(n) delivery within three (3) Business Days following the Closing Date,
a preliminary pro forma balance sheet, together with a statement of sources and
uses of funds in connection with the acquisition of CCT and the initial
Extensions of Credit hereunder, in form and detail satisfactory to the Agent
(subject to final adjustments, including reallocation of purchase
consideration);
(o) confirmation of the execution and effectiveness of the Revolving
Credit Agreement and the other credit documents relating thereto.
The certificates and opinions referred to in this Section shall be
dated not earlier than the date hereof and not later than the date of such
initial Extensions of Credit.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Each of the Borrowers, respectively, represents and warrants, for itself and its
respective subsidiaries (except that with respect to CCT, the representation and
warranties made hereunder, other than those contained in Sections 4.01, 4.02 and
4.03, shall be made to the best of its knowledge based on due inquiry) that:
SECTION 4.01 Corporate Existence and Power. The Borrower and each of
its Subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation, has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted and is
duly qualified as a foreign entity and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of property or the conduct
of its business requires such qualification, other than in such jurisdictions
where the failure to be so qualified and in good standing would not, in the
aggregate, have a Material Adverse Effect.
SECTION 4.02 Corporate and Governmental Authorization; No
Contravention. The execution and delivery by the Obligors of the Financing
Documents and the performance by the Obligors of their respective obligations
thereunder are within the corporate power of the Obligors, have been duly
authorized by all necessary corporate action, require no action by or in respect
of, or filing with, any governmental body, agency or official (except for any
such action or filing that has been taken and is in full force and effect) and
do not contravene, or constitute a default under, any provision of applicable
law or regulation or of the Constitutional Documents of any Obligor or of any
material agreement, judgment, injunction, order, decree or other material
instrument binding upon any Obligor or result in the creation or imposition of
any Lien on any asset of any Obligor other than Liens created pursuant to the
Financing Documents.
SECTION 4.03 Binding Effect. The Financing Documents constitute valid
and binding agreements of the Obligors enforceable against the Obligors in
accordance with their terms.
SECTION 4.04 Litigation. Except as set forth on Schedule 4.04 attached
hereto, there is no action, suit or proceeding pending against, or to the
knowledge of the Borrower threatened against or affecting, the Borrower or any
of its Subsidiaries before any court or arbitrator or any governmental body,
agency or official in which there is a reasonable possibility of an adverse
decision which would materially adversely affect the business or the
consolidated results of operations of the Borrower and its Subsidiaries, or
which in any manner draws into question the validity of any Financing Document.
SECTION 4.05 Compliance with ERISA. Except as set forth on Schedule
4.05 attached hereto, each member of the ERISA Group has fulfilled its
obligations in all material aspects under the minimum funding standards of ERISA
and the Code with respect to each Plan and is in compliance in all material
respects with the presently applicable provisions of ERISA and the Code with
respect to each Plan. Except as previously disclosed to the Banks in writing
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prior to the date hereof, no member of the ERISA Group has (i) sought a waiver
of the minimum funding standard under Section 412 of the Code in respect of any
Plan, (ii) failed to make any contribution or payment to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement, or made any
amendment to any Plan or Benefit Arrangement, which in either event has resulted
or could reasonably be expected to result in the imposition of a Lien or the
posting of a bond or other security under ERISA or the Code or (iii) incurred
any liability under Title IV of ERISA other than a liability to the PBGC for
premiums or similar items under Section 4007 of ERISA.
SECTION 4.06 Environmental Matters. Except as set forth on Schedule
4.06 hereto:
(a) No written notice, notification, demand, request for information,
citation, summons, complaint or order has been received by the Borrower and to
the knowledge of the Borrower, no penalty has been assessed and no investigation
or review is pending or threatened by any governmental or other entity, (i) with
respect to any alleged violation of any Environmental Laws in connection with
the conduct of the Borrower and relating to a Hazardous Substance or (ii) with
respect to any alleged failure to have any permit, certificate, license,
approval, registration or authorization required in connection with the conduct
of the Borrower relating to a Hazardous Substance or (iii) with respect to any
generation, treatment, storage, recycling, transportation, disposal or release
(including a release as defined in 42 U.S.C. Section 9601(22)) ("Release") of
any Hazardous Substance used by the Borrower, which alleged violation, alleged
failure to have any required permit, certificate, license, approval, or
registration, or generation, treatment, storage, recycling, transportation,
disposal or release, is reasonably likely to result in liability to the Borrower
in excess of $1,000,000 in any instance or $5,000,000 in the aggregate.
(b) (i) To the Borrower's knowledge, there has been no Release of a
Hazardous Substance at, on or under any property used by the Borrower or for
which the Borrower or any of its Subsidiaries would be liable, which Release is
reasonably likely to result in liability to the Borrower in excess of $1,000,000
in any instance or $5,000,000 in the aggregate; (ii) to the Borrower's
knowledge, neither the Borrower nor any of its Subsidiaries has, other than as a
generator or in a manner not regulated or prohibited under the Environmental
Laws, stored or treated any "hazardous waste" (as defined in 42 U.S.C Section
6903(5)) on any property used by the Borrower or for which the Borrower or any
of its Subsidiaries would be liable, except for such storage or treatment which
is not reasonably likely to result in liability to the Borrower or any of its
Subsidiaries in excess of $1,000,000 in any instance or $5,000,000 in the
aggregate; and (iii) to the Borrower's knowledge no polychlorinated biphenyl
("PCB") in concentrations greater than 50 parts per million, friable asbestos,
or underground storage tank (in use or abandoned) is at any property used by the
Borrower or for which the Borrower or any of its Subsidiaries would be liable,
except for such PCBs, friable asbestos or underground storage tanks that are not
reasonably likely to result in liability to the Borrower or any of its
Subsidiaries in excess of $1,000,000 in any instance or $5,000,000 in the
aggregate.
(c) To the knowledge of the Borrower, neither the Borrower nor any of
its Subsidiaries has transported or arranged for the transportation (directly or
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indirectly) of any Hazardous Substance to any location which is listed under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), on the Comprehensive Environmental Response, Compensation
and Liability Information System, as amended ("CERCLIS"), or on any similar
state list or which is the subject of any federal state or local enforcement
action or other investigation which may lead to claims for clean-up costs,
remedial work, damages to natural resources or for personal injury claims,
including, but not limited to, claims under CERCLA, that are reasonably likely
to result in liability to the Borrower or any of its Subsidiaries in excess of
$1,000,000 in any instance or $5,000,000 in the aggregate.
(d) No written notification of a Release of a Hazardous Substance has
been filed by or on behalf of the Borrower or any of its Subsidiaries, which
individually or in combination with other such Releases, is reasonably likely to
result in liability for the Borrower or any of its Subsidiaries in excess of
$1,000,000 in any instance or $5,000,000 in the aggregate.
(e) There have been no environmental audits or similar investigations
conducted by or which are in the possession of the Borrower or any of its
Subsidiaries in relation to any property used by the Borrower or for which the
Borrower or any of its Subsidiaries would be liable, which identify one or more
environmental liabilities of the Borrower or any of its Subsidiaries which are
reasonably likely to exceed $1,000,000 in any instance or $5,000,000 in the
aggregate.
SECTION 4.07 Subsidiaries. Set forth on Schedule 4.07 hereto is a
complete and accurate list of all of the Subsidiaries of the Borrower, showing
as to each such Subsidiary the jurisdiction of its organization, the number of
shares of each class of capital stock or other equity interests outstanding and
the percentage of the outstanding shares of each such class owned (directly or
indirectly) by the Borrower or any other Subsidiary of the Borrower and the
number of shares covered by all outstanding options, warrants, rights of
conversion or purchase, and similar rights. All of the outstanding capital stock
or other equity interests of all of such Subsidiaries identified in such
Schedule 4.07 as being owned by the Borrower or any of its Subsidiaries has been
validly issued, is fully paid and nonassessable and is owned directly or
indirectly by the Borrower or any of its Subsidiaries, as the case may be, free
and clear of all Liens other than a Lien described in and permitted by Section
5.07 hereof. Each corporate Subsidiary of the Borrower is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted.
SECTION 4.08 Not an Investment Company. Neither the Borrower nor any of
its Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
SECTION 4.09 Margin Stock. No proceeds of any Loan will be used to
purchase or carry any Margin Stock or to extend credit to others for the purpose
of purchasing or carrying any Margin Stock in violation of Regulations U, T or
X.
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SECTION 4.10 Compliance With Laws. Except as set forth on Schedule 4.10
attached hereto and made a part hereof or as previously disclosed in writing to
the Banks prior to the date hereof, the Borrower and each of its Subsidiaries is
in compliance in all material respects with all applicable laws, rules and
regulations (including, without limitation, environmental laws, rules and
regulations), and is not in violation of, or in default under, any term or
provision of any charter, bylaw, mortgage, indenture, agreement, instrument,
statute, rule, regulation, judgment, decree, order, writ or injunction
applicable to it, except for any such non-compliance, violation, default or
failure to comply which would not be reasonably expected, individually or in the
aggregate, to have a material adverse effect on the business, financial position
or results of operations of the Borrower or any of its Subsidiaries, or on the
ability of the Borrower or any of its Subsidiaries to perform its obligations
under the Financing Documents.
SECTION 4.11 Absence of Liens. There are no liens of any nature
whatsoever on any properties or assets of the Borrower or any of its
Subsidiaries, except as otherwise permitted under Section 5.07 hereof.
SECTION 4.12 Debt. Other than as set forth on Schedule 4.12 hereto,
there is no material Debt of the Borrower and its Subsidiaries outstanding as of
the date hereof.
SECTION 4.13 Contingent Liabilities. As of the Closing Date, other than
as set on Schedule 4.13 there are no material contingent liabilities (other than
contingent liabilities that constitute Debt and material contingent liabilities
arising out of customary indemnifications given by the Borrower or its
Subsidiaries to its officers and directors, its underwriters or its lenders) of
the Borrower or its Subsidiaries as of the date hereof.
SECTION 4.14 Investments. Set forth on Schedule 4.14 is a complete and
accurate list, in all material respects, as of the date hereof of all
investments by the Borrower or any of its Subsidiaries in any Person, other than
investments by the Borrower or any of its Subsidiaries in a Subsidiary or
Specified Affiliate.
SECTION 4.15 Solvency. Each Obligor is Solvent after giving effect to
the transactions contemplated by the Financing Documents.
SECTION 4.16 Taxes. The Borrower and its Subsidiaries have filed, or
caused to be filed, all tax returns (federal, state, local and foreign) required
to be filed and paid all amounts of taxes shown thereon to be due (including
interest and penalties) and have paid all other taxes, fees, assessments and
other governmental charges owing by them, except for such taxes (i) which are
not yet delinquent or (ii) as are being contested in good faith and by proper
proceedings, and against which adequate reserves are being maintained in
accordance with generally accepted accounting principles. The Borrower is not
aware of any proposed material tax assessments against it or any of its
Subsidiaries.
SECTION 4.17 REIT Status. The Borrower is taxed as a "real estate
investment trust" within the meaning of Section 856 (a) of the Code.
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SECTION 4.18 Specified Affiliates. Except as set forth on Schedule
4.07, there are no Specified Affiliates as of the date hereof.
SECTION 4.19 Financial Condition. Each of the financial statements
described below (copies of which have been provided to the Agent and the
Lenders), have been prepared in accordance with generally accepted accounting
principles applied on consistent basis throughout the periods covered thereby,
present fairly the financial condition and results from operations of the
entities and for the periods specified, subject in the case of interim
company-prepared statements to normal year-end adjustments:
(i) annual audited consolidated balance sheet of HRT and its
consolidated subsidiaries dated as of December 31, 1997, together with
related statements of income and cash flows certified by Ernst & Young,
certified public accountants;
(ii) annual audited consolidated balance sheet of CCT dated as
of December 31, 1997, together with related statements of income and
cash flows certified by KPMG Peat Marwick, certified public
accountants;
(iii) interim company-prepared consolidated balance sheet of
HRT and its consolidated subsidiaries dated as of June 30, 1998,
together with related company-prepared statements of income and cash
flows;
(iv) interim company-prepared consolidated balance sheet of
CCT and its consolidated subsidiaries dated as of June 30, 1998,
together with related company-prepared statements of income and cash
flows.
SECTION 4.20 No Material Adverse Effect. Since the date of the annual
audited financial statements referenced in Section 4.19, other than the
acquisition of CCT by HRT, there has been no circumstance, development or event
relating to or affecting the Borrower and its Subsidiaries which has had or
would reasonably be expected to have a Material Adverse Effect.
SECTION 4.21 Year 2000 Compliance. The Borrower has (i) initiated a
review and assessment of all areas within its and each of its Subsidiaries'
business and operations (including those affected by suppliers, vendors and
customers) that could be adversely affected by the "Year 2000 Problem" (that is,
the risk that computer applications used by the Borrower or any of its
Subsidiaries (or suppliers, vendors and customers) may be unable to recognize
and perform properly date-sensitive functions involving certain dates prior to
and any date after December 31, 1999), (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (iii) to date,
implemented that plan in accordance with that timetable. Based on the foregoing,
the Borrower believes that all computer applications (including those of its
suppliers, vendors and customers) that are material to its or any of its
Subsidiaries' business and operations are reasonably expected by no later than
December 31, 1999 to be able to perform properly date-sensitive functions for
all dates before and after January 1, 2000 (that is, be "Year 2000 compliant"),
except to the extent that a failure to do so could not reasonably be expected to
have a Material Adverse Effect.
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ARTICLE V
COVENANTS
Each of the Borrowers, respectively, hereby covenants and agrees that
until the Obligations owing by it, together with interest, fees and other
obligations hereunder, have been paid in full and the Commitments hereunder
relating thereto shall have terminated, the Borrower shall, and shall cause its
respective Subsidiaries to, perform and comply with the following covenants:
SECTION 5.01 Information. The Borrower will deliver to Agent and the
Banks:
(a) as soon as available and in any event within ninety (90) days after
the end of each fiscal year of HRT, a consolidated and consolidating balance
sheet of HRT and its Subsidiaries as of the end of such fiscal year and the
related consolidated and consolidating statements of income and consolidated
statement of cash flows for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, and, with respect to
such financial information for HRT, such consolidated statements shall be
audited statements by Ernst & Young or other independent public accountants of
nationally recognized standing and containing an opinion of such accountants,
which opinion shall be without exception, qualification or limitation on scope
of audit;
(b) as soon as available and in any event within forty-five (45) days
after the end of each of the first three (3) fiscal quarters of each fiscal year
of HRT, a consolidated and consolidating balance sheet of HRT and its
Subsidiaries as of the end of such quarter and the related consolidated and
consolidating statements of income and consolidated statement of cash flows for
such quarter and for the portion of HRT's fiscal year ended at the end of such
quarter, setting forth in each case in comparative form the figures for the
corresponding quarter and the corresponding portion of the previous fiscal year,
all certified (subject to normal year-end adjustments) as to fairness of
presentation, generally accepted accounting principles and consistency by the
chief financial officer of HRT;
(c) simultaneously with the delivery of each set of financial
statements referred to in subsections (a) and (b) of this Section, a certificate
of HRT, signed on behalf of HRT by the chief financial officer of HRT (i)
stating whether, to such officer's knowledge, there exists on the date of such
certificate any Default and, if any Default then exists, setting forth the
details thereof and the action that HRT is taking or proposes to take with
respect thereto, (ii) stating whether, since the date of the most recent
financial statements previously delivered pursuant to subsection (a) or (b) of
this Section, there has been a change in the generally accepted accounting
principles applied in preparing the financial statements then being delivered
from those applied in preparing the most recent audited financial statements so
delivered which is material to the financial statements then being delivered,
(iii) stating how much of the outstanding principal balance of the Loans as of
the end of the applicable fiscal quarter has been used for the general corporate
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purposes of HRT and its Subsidiaries, (iv) furnishing calculations demonstrating
the compliance by HRT of the covenants contained in Sections 5.18, 5.19, 5.20,
5.21 and 5.22 hereof, and (v) attaching management's summary of the results
contained in such financial statements;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement (addressed to the Agent
for the benefit of the Banks) of the firm of independent public accountants
which reported on such statements whether anything has come to their attention
to cause them to believe that any Default existed on the date of such
statements;
(e) within five (5) Business Days after any officer obtains knowledge
of any Default, if such Default is then continuing, a certificate of HRT, signed
on behalf of HRT by the chief financial officer of HRT, setting forth the
details thereof and the action which the Borrower is taking or proposes to take
with respect thereto;
(f) promptly upon the mailing thereof to the shareholders of HRT
generally, copies of all financial statements, reports and proxy statements so
mailed;
(g) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) which HRT shall have filed with the Securities and Exchange
Commission;
(h) if and when any member of the ERISA Group (i) gives or is required
to give notice to the PBGC of any "reportable event" (as defined in Section 4043
of ERISA) with respect to any Plan which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability with respect to any Multiemployer Plan under Title IV of
ERISA or notice that any Multiemployer Plan is in reorganization, is not Solvent
or has been terminated, a copy of such notice; (iii) receives notice from the
PBGC under Title IV of ERISA of its intent to terminate, impose liability (other
than for premiums under Section 4007 of ERISA) in respect of, or appoint a
trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver
of the minimum funding standard under Section 412 of the Code, a copy of such
application; (v) gives notice of intent to terminate any Plan under Section
4041(c) of ERISA, a copy of such notice and other information filed with the
PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of
ERISA, a copy of such notice; or (vii) except as previously disclosed to the
Banks in writing prior to the date hereof, fails to make any payment or
contribution to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement or makes any amendment to any Plan or Benefit Arrangement which has
resulted or could result in the imposition of a lien or the posting of a bond or
other security under ERISA or the Code, a certificate of HRT, signed on behalf
of HRT by the chief financial officer, the chief accounting officer or the
treasurer of HRT, setting forth details as to such occurrence and the action, if
any, which HRT or any applicable member of the ERISA Group is required or
proposes;
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(i) as soon as possible after any officer of the Borrower obtains
knowledge of the commencement of, or of a material threat of the commencement
of, an action, suit or proceeding against the Borrower or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency or
official in which there is a reasonable likelihood of an adverse decision which
would after the application of applicable insurance materially and adversely
affect the business, financial position or results of operations of the Borrower
and its Consolidated Subsidiaries, in each case considered as a whole, or which
in any manner questions the validity of any Financing Document, a written report
informing the Banks in reasonable detail of the nature of such pending or
threatened action, suit or proceeding;
(j) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries, as the
Agent or any Bank may reasonably request; and
For purposes of the foregoing:
(i) during any period when generally accepted accounting
principles or related auditing standards require that a Specified
Affiliate of the Borrower be accounted for as a Subsidiary for purposes
of the consolidated financial statements of the Borrower and its
Subsidiaries, the term "Subsidiary" shall include a Specified Affiliate
of the Borrower for purposes of paragraphs (a) and (b) above; and
(ii) during any period when generally accepted accounting
principles or related auditing standards do not require that a
Specified Affiliate of the Borrower be accounted for as a Subsidiary
for purposes of the consolidated financial statements of the Borrower
and its Subsidiaries, the terms "Subsidiary" shall not include a
Specified Affiliate of the Borrower for purposes of paragraphs (a) and
(b) above and, if the Borrower shall have any Specified Affiliates
during any period covered by the financial statements delivered
pursuant to paragraphs (a) or (b) above, the Borrower shall deliver (A)
financial statements of the character specified in paragraphs (a) and
(b) above for such Specified Affiliates within the time periods set
forth in paragraphs (a) and (b) above, and (B) on a combined basis,
financial statements of the character specified in paragraphs (a) and
(b) above for the Borrower, its Subsidiaries and such Specified
Affiliates accompanied by the opinions and certificates specified in
paragraphs (b) and (c) above within the time periods set forth in
paragraphs (a), (b) and (c) above.
SECTION 5.02 Payment of Obligations. The Borrower will pay and
discharge, and will cause each of its Subsidiaries to pay and discharge, at or
before maturity, or prior to expiration of applicable notice, grace and curative
periods, all their respective material obligations and liabilities, including,
without limitation, tax liabilities, except where the same may be contested in
good faith by appropriate proceedings, and will maintain, and will cause each of
its Subsidiaries to maintain, in accordance with generally accepted accounting
principles, appropriate reserves for the accrual of any of the same.
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SECTION 5.03 Maintenance of Property; Insurance.
(a) The Borrower will keep, and will cause each of its Subsidiaries to
keep, or will in the ordinary course of business cause the tenants of respective
properties to keep, all property materially useful and necessary in its business
in good working order and condition, ordinary wear and tear excepted.
(b) The Borrower will maintain, and will cause each of its Subsidiaries
to maintain, with financially sound and responsible insurance companies,
insurance on all their respective properties in at least such amounts and
against such risks (and with such risk retention) as are usually insured against
in the same general area by companies of established repute engaged in the same
or a similar business, and will furnish to the Banks, upon request from the
Agent, information presented in reasonable detail as to the insurance so
carried. The insurance described in this Section 5.03 may be carried by the
tenants under the respective tenant leases of such properties in lieu of by
Borrower or its Subsidiaries so long as the Borrower or its respective
Subsidiary is named as loss payee and additional insured with respect to such
insurance.
SECTION 5.04 Conduct of Business and Maintenance of Existence. Except
as contemplated otherwise by the Investment Policy, the Borrower will continue,
and will cause each Subsidiary to continue, to engage in business of the same
general type as now conducted by the Borrower and each of its Subsidiaries, and
will preserve, renew and keep in full force and effect, and will cause each of
its Subsidiaries to preserve, renew and keep in full force and effect their
respective corporate existences and, except for any such rights, privileges and
franchises the failure to preserve which would not in the aggregate have a
material adverse effect on the Borrower and its Subsidiaries or the ability of
the Borrower or any Subsidiary to perform any of their respective obligations
under any Financing Document, their respective rights, privileges and franchises
necessary or desirable in the normal conduct of business; provided that nothing
in this Section 5.04 shall prohibit (a) the merger of Capstone Capital
Corporation with and into HR Acquisition I Corporation, a Delaware corporation,
which will be the surviving corporation, pursuant to the terms of the Agreement
and Plan of Merger and related agreements referenced in Section 3.01(n), (b) the
merger of a Subsidiary of the Borrower into the Borrower or the merger or
consolidation of any Subsidiary of the Borrower with or into another Person if
the corporation surviving such consolidation or merger is a Wholly-Owned
Consolidated Subsidiary of the Borrower and if, in each case, after giving
effect thereto, no Default shall have occurred and be continuing and a
responsible officer of HRT shall deliver to the Agent an officer's certificate,
in form and substance satisfactory to the Agent, indicating compliance with the
terms hereof, including specifically, the financial covenants hereunder, on a
pro forma basis after giving effect thereto or (c) the termination of the
corporate existence of any Subsidiary of the Borrower or the discontinuation of
any line of business of the Borrower or any of its Subsidiaries if the Borrower
in good faith determines that such termination is in the best interest of the
Borrower or such Subsidiary, as the case may be, and is not materially
disadvantageous to the Banks.
SECTION 5.05 Compliance with Laws. The Borrower will comply, and cause
each of its Subsidiaries to comply, in all material respects with all applicable
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laws, ordinances, rules, regulations, and requirements of governmental
authorities (including, without limitation, Environmental Laws and ERISA and the
rules and regulations thereunder) the failure to comply with which would have a
material adverse effect on the Borrower and its Subsidiaries or their ability to
perform any of its obligations under any Financing Document, except where the
necessity of compliance therewith is contested in good faith by appropriate
proceedings.
SECTION 5.06 Inspection of Property, Books and Records. The Borrower
will keep, and will cause each of its Subsidiaries to keep, proper books of
record and account in which full, true and correct entries shall be made of all
material dealings and transactions in relation to its business and activities;
and, except to the extent prohibited by applicable law, rule, regulations or
orders, will permit, and will cause each of its Subsidiaries to permit,
representatives of any Bank at such Bank's expense (which expense shall not be
subject to reimbursement by Borrower hereunder) to visit and inspect any of
their respective properties (subject to the rights of tenants in possession
thereof and to any limitations on the inspection rights of Borrower in
connection therewith), to examine and make abstracts from any of their
respective books and records and to discuss their respective affairs, finances
and accounts with their respective officers, employees and independent public
accountants, upon reasonable prior written notice to Borrower, all at such
reasonable times and as often as may reasonably be desired.
SECTION 5.07 Negative Pledge. The Borrower will not nor will it permit
any of its Subsidiaries to create, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired by it, except:
(a) (i) Liens securing up to $12.6 million of the Tranche B Term Loan
under the Term Loan Agreement, (ii) Liens created by and existing under the
Financing Documents hereunder, and (iii) other mortgage Liens to the extent not
prohibited, both before and after giving effect thereto, by the provisions of
Sections 5.21 (Consolidated Senior Secured Debt to Consolidated Total Capital
Ratio) and Section 5.22 (Consolidated Unencumbered Realty to Consolidated
Unsecured Debt Ratio);
(b) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's, statutory banker's or other like Liens arising in the ordinary
course of business and which are not overdue for a period of more than thirty
(30) days or which are being contested in good faith by appropriate proceedings;
(c) Liens for taxes, assessments or other governmental charges not yet
due or which are being contested in good faith and by appropriate proceedings
and for which adequate reserves are taken in accordance with generally accepted
accounting principals;
(d) Liens imposed by law on pledges or deposits in connection with
workmen's compensation, unemployment insurance and other social security
legislation which do not interfere with or adversely affect in any material
respect the ordinary conduct of the business of the Borrower or any of its
Subsidiaries;
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(e) deposits to secure the performance of bids, tenders, trade or
government contracts (other than for borrowed money), leases, licenses,
statutory obligations, surety bonds (other than in relation to judgments),
performance bonds, reserves for capital improvements and other obligations of a
like nature incurred in the ordinary course of business;
(f) easements, rights-of-way, zoning and similar restrictions and other
encumbrances or title defects incurred, or leases or subleases granted to others
which are in existence as of the date hereof, or if not in existence as of the
date hereof, do not interfere with or adversely affect in any material respect
the ordinary conduct of the business, or detract from the value of the property,
of the Borrower or any of its Subsidiaries;
(g) Liens securing reimbursement obligations with respect to trade
letters of credit issued in the ordinary course of business; provided that such
Liens only attach to the assets being acquired with the proceeds of such letters
of credit;
(h) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien, to the extent such Lien is permitted
by any of the foregoing clauses of this Section; provided that such Debt is not
increased and is not secured by any additional assets;
(i) Liens on properties securing security deposits of tenants, provided
that the aggregate amount of such security deposits secured by such Liens shall
not exceed 5% of Consolidated Total Capital at any time outstanding; and
(j) Liens securing Debt of any Subsidiary or Specified Affiliate owing
to the Borrower, any Subsidiary or Specified Affiliate.
SECTION 5.08 Consolidations, Mergers and Sales of Assets.
(a) The Borrower will not, nor will it permit any of its Subsidiaries
to, consolidate or merge with or into any other Person except as permitted in
accordance with Section 5.04.
(b) The Borrower will not, nor will it permit any of its Subsidiaries
to, make any Asset Sale except the sale of any asset listed in Schedule 5.08
hereof, unless in connection with such Asset Sale, Borrower or such Subsidiary
makes provision for the Mandatory Prepayments described in Section 2.07.
SECTION 5.09 Creation of Subsidiaries. The Borrower will not, nor will
it permit any of its Subsidiaries to, create any Subsidiary except for the
creation of a wholly owned Subsidiary of the Borrower or a Specified Affiliate
provided that (i) such Subsidiary or Specified Affiliate is organized under the
laws of a jurisdiction within the United States of America, (ii) such Specified
Affiliate and such Subsidiary, if such Subsidiary is a Material Subsidiary,
executes at the time of its creation a guaranty in favor of the Banks in the
form of Schedule 5.09 attached hereto, and (iii) no Default exists immediately
prior to or after the creation of such Subsidiary or Specified Affiliate.
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SECTION 5.10 Incurrence of Debt. The Borrower will not incur, nor will
it permit any of its Subsidiaries to incur, Debt except as follows:
(i) in the case of publicly issued or privately placed Debt,
the final maturity of such Debt shall not be prior to the Termination
Date hereunder, nor prior to the final maturity of the Term Loan;
(ii) in the case of Debt secured by mortgage liens, such Debt
shall be non-recourse to the Borrower and its Subsidiaries except to
the extent of the property pledged to secure such Debt; and
(iii) in all cases, Debt of the Borrower, provided that, after
giving effect to the incurrence thereof, the Borrower and its
Subsidiaries shall be in compliance with the terms of this Credit
Agreement, including the financial covenants hereunder.
SECTION 5.11 Transactions with Affiliates. The Borrower will not and
will not permit any Subsidiary to enter into directly or indirectly any material
transaction or material group of related transactions (including without
limitation the purchase, lease, sale or exchange of properties of any kind or
the rendering of any service) with any Affiliate (other than the Borrower, or
any Guarantor), except in the ordinary course and pursuant to the reasonable
requirements of the Borrower's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to the Borrower or such Subsidiary than would
be obtainable in a comparable arm's-length transaction with a Person not an
Affiliate.
SECTION 5.12 Use of Proceeds. The Extensions of Credit hereunder will
be used (i) to finance the acquisition of Capstone Capital Corporation, (ii) to
refinance existing indebtedness for borrowed money, and (iii) to finance the
acquisition of healthcare real estate properties by the Borrower and its
Subsidiaries.
SECTION 5.13 Constitutional Documents. Subject to changes, including
any dissolutions permitted pursuant to this Credit Agreement: (i) the Borrower
will not, nor will it permit any of its Subsidiaries to, amend its
Constitutional Documents in any manner which could materially adversely affect
the rights of the Banks under the Financing Documents or their ability to
enforce the same; (ii) the Borrower will not amend its Constitutional Documents
in a manner which would permit a single shareholder (as determined for purposes
hereof pursuant to the attribution provisions of Section 544 of the Code as
modified by Section 856 of the Code) to own more than thirty percent (30%) of
the outstanding stock in Borrower; and (iii) the Borrower will not consent to
any material amendment, modification, supplement or waiver to the Agreement and
Plan of Merger (including, but not limited to, any material amendment,
modification supplement or waiver relating to any disclosure schedule or
exhibit) without the prior written consent of the Agent and the Majority Banks.
SECTION 5.14 Investments. The Borrower shall not make, nor shall it
permit any of its Subsidiaries to make, any Investment in any other Person
except for Investments made in accordance with the Borrower's Investment Policy,
except that the Borrower may make and own Investments in (i) marketable direct
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obligations issued or unconditionally guaranteed by the Government or issued by
any agency thereof and backed by the full faith and credit of the United States
of America, in each case maturing within one (1) year from the date of
acquisition thereof, (ii) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one (1) year from the date of
acquisition thereof and, at the time of acquisition, having the highest rating
obtainable from either S&P or Moody's, (iii) commercial paper maturing no more
than one (1) year from the date of creation thereof and, at the time of
acquisition, having a rating in one of the two highest rating categories of S&P
or Moody's, (iv) certificates of deposit, bankers acceptances or time deposits
maturing within one (1) year from the date of acquisition thereof issued by any
of the Banks, (v) certificates of deposit or bankers acceptances maturing within
one (1) year from the date of acquisition thereof or time deposits maturing
within thirty (30) days from the date of acquisition thereof issued by other
commercial banks organized under the laws of the United States of America or any
state thereof or the District of Columbia, each having shareholders' equity of
not less than $600,000,000, (vi) repurchase agreements with commercial banks or
with securities dealers, in any case fully secured as to principal and interests
by obligations described in clauses (i)-(v) of this Section, or (vii) joint
ventures or other non-Subsidiary enterprises in the same or closely related
lines of business in an aggregate amount up to ten percent (10%) of the book
value of consolidated assets of the Borrower and its Subsidiaries.
SECTION 5.15 Prepayments of Debt. The Borrower shall not, nor shall it
permit any of its Subsidiaries to, prepay, redeem, defease (whether actually or
in substance) or purchase in any manner (or deposit or set aside funds for the
purpose of any of the foregoing), make any payment in respect of principal of,
or make any payment in respect of interest on, or permit any of its Subsidiaries
to prepay, redeem, or purchase in an manner, make any payment in respect of
principal of, or make any payment in respect of interest on, any Debt of the
Borrower or any of its Subsidiaries except for (i) payments of principal,
interest or other sums required or permitted in accordance with the terms of the
instruments governing such Debt, (ii) payments with respect to Debt under this
Credit Agreement or any of the Financing Documents hereunder or under the
Revolving Credit Agreement or any of the Financing Documents thereunder, (iii)
payments with respect to Debt assumed or taken subject to in connection with any
Securities Transaction or asset purchase after the date hereof, (iv) payments
with respect to Debt of any Subsidiary to the Borrower and (v) payments and
prepayments on up to $60 million in principal amount of mortgage indebtedness
assumed in connection with the acquisition of Capstone Capital Corporation.
SECTION 5.16 Capital Expenditures. HRT shall not, nor shall it permit
any of its Subsidiaries to, make any capital expenditures in an aggregate amount
in excess of FIVE MILLION DOLLARS ($5,000,000) per fiscal year; provided,
however (i) capital expenditures incurred to acquire, expand or improve
facilities shall not be deemed to be capital expenditures for purposes of the
foregoing requirement, and (ii) capital expenditures required pursuant to any
lease or other contract shall not be deemed to be capital expenditures for
purposes of the foregoing requirement.
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SECTION 5.17 Repurchase, Retirement or Redemption of Capital Stock;
Dividends. HRT will not, nor will it permit any of its Subsidiaries (other than
its wholly-owned Subsidiaries or the Specified Affiliates) to, repurchase,
retire or redeem any of its capital stock. HRT will not pay dividends on any of
its stock in any fiscal year in excess of ninety five percent (95%) of Funds
From Operations for such fiscal year; provided that (I) any wholly-owned
Subsidiary may pay dividends or make distributions to its parent company and
(ii) the Borrower may pay such dividends as are necessary to maintain its status
as a REIT.
SECTION 5.18 Ratio of Consolidated Funded Indebtedness to Consolidated
Total Capital. HRT will not permit its ratio of Consolidated Funded Indebtedness
to Consolidated Total Capital to exceed (i) .42 to 1.0 as of the last day of
each fiscal quarter ending prior to December 31, 1999, and (ii) .40 to 1.0 as of
the last day of each fiscal quarter ending as of December 31, 1999 and
thereafter.
SECTION 5.19 Consolidated Tangible Net Worth. HRT shall maintain
Consolidated Tangible Net Worth at all times of at least $800,000,000.00;
provided, however, such amount shall be increased by an amount equal to (a)
ninety-five percent (95%) of the net proceeds received by HRT on account of any
additional equity offerings made subsequent to the Closing Date; and (b)
ninety-five percent (95%) of the net proceeds received by HRT on account of any
Securities Transaction completed subsequent to the Closing Date.
SECTION 5.20 Consolidated Interest Coverage Ratio. HRT will maintain a
ratio of Consolidated EBIT to Consolidated Interest Expense as of the last day
of each fiscal quarter (computed for the four (4) consecutive quarterly periods
then ending) based on the Duff & Phelps rating for the Borrower's senior
unsecured (non-credit enhanced) long-term debt, of not less than:
<TABLE>
<CAPTION>
<S> <C> <C>
Duff & Phelps Rating
BBB or above 2.50 to 1.0
below BBB 3.00 to 1.0
</TABLE>
SECTION 5.21 Consolidated Senior Secured Debt to Consolidated Total
Capital Ratio. The ratio of Consolidated Senior Secured Debt to Consolidated
Total Capital shall not at any time exceed .20 to 1.0.
SECTION 5.22 Consolidated Unencumbered Realty to Consolidated Unsecured
Debt Ratio. The ratio of Consolidated Unencumbered Realty to Consolidated
Unsecured Debt shall not at any time be less than 2.1 to 1.0.
SECTION 5.23 Material Subsidiaries. The Borrower will give the Agent
prompt notice of any Subsidiary of the Borrower which to the Borrower's
knowledge becomes a Material Subsidiary subsequent to the Closing Date and will
take the following steps with respect to each such Material Subsidiary: (i) the
Borrower will cause each such Material Subsidiary to execute a guaranty in favor
of the Banks in respect of the Tranche A Term Loan or the Tranche B Term Loan,
or both, as appropriate, in the form of Schedule 5.09 attached hereto and (ii)
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the Borrower will pay all reasonable costs and expenses incurred in connection
with the requirements set forth in this Section 5.23. The Borrower will satisfy
the foregoing requirements within thirty (30) days after any Subsidiary becomes
a Material Subsidiary.
SECTION 5.24 Specified Affiliates. The Borrower will take the following
steps with respect to each Specified Affiliate: (i) the Borrower will cause each
Specified Affiliate to execute a guaranty in favor of the Banks in the form of
Schedule 5.09 attached hereto and (ii) the Borrower will pay all reasonable
costs and expenses incurred in connection with the requirements set forth in
this Section 5.24. The Borrower will satisfy the foregoing requirements within
thirty (30) days after the creation of any Specified Affiliate.
SECTION 5.25 REIT Status. HRT will meet the requirements of Section
857(a) of the Code and regulations thereunder.
SECTION 5.26 Leases. HRT will not modify or amend any lease where the
Borrower is the lessor thereunder if such modification or amendment would have a
material adverse effect on the Borrower.
SECTION 5.27 Year 2000 Compliance. The Borrower will promptly notify
the Bank in the event the Borrower discovers or determines that any computer
application (including those of its suppliers, vendors and customers) that is
material to its or any of its Subsidiaries' business and operations will not be
Year 2000 compliant, except to the extent that such failure could not reasonably
be expected to have a Material Adverse Effect.
SECTION 5.28 Construction and Development. HRT and its Subsidiaries
will not engage in construction and development projects in which the total
project costs of all such concurrent construction and development projects
exceed, in the aggregate at any one time, ten percent (10%) of the book value of
consolidated assets of the Borrower and its Subsidiaries (it being understood
and agreed for purposes of this Section that a project shall be considered under
construction and/or development until a certificate of occupancy therefor, or
other similar certificate, shall have been issued by appropriate governmental
authorities).
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01 Events of Default. The occurrence of any of the following
events shall constitute an event of default hereunder (individually, an "Event
of Default" and collectively the "Events of Default"):
(a) The Borrowers shall fail to pay (i) when due any principal of any
Loan or (ii) within five (5) days after the same shall become due, any interest
on any Obligation or any fees or any other amount payable hereunder;
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(b) The Borrowers shall fail to observe or perform any covenant
contained in Section 5.01 hereof for thirty (30) days after the earlier of a
responsible officer of the Borrower becoming aware of such failure or written
notice of such failure shall have been given to the Borrower by the Agent or any
Bank;
(c) Default in the due performance or observance of any term, covenant
or agreement contained in Section 5.07 through 5.28, inclusive;
(d) Any Obligor shall fail to observe or perform any covenant or
agreement contained in any Financing Document (other than those covered by
clause (a), (b) or (c) above) for thirty (30) days after the earlier of a
responsible officer of the Borrower becoming aware of such failure or written
notice of such failure shall have been given to the Borrower by the Agent or any
Bank;
(e) Any representation, warranty, certification or statement made or
deemed made by any Obligor in any Financing Document or in any certificate,
financial statement or other document delivered pursuant thereto shall prove to
have been incorrect in any material respect when made (or deemed made) and such
representation, warranty, certification or statement shall remain incorrect for
thirty (30) days after written notice of such failure shall have been given to
the Borrower by the Agent or any Bank;
(f) Either of the Borrowers or any of their Subsidiaries shall fail to
make any payment in respect of any Debt in an aggregate amount in excess of
$5,000,000 when due or within any applicable grace period;
(g) Any event or condition shall occur which would cause or permit the
acceleration of the maturity of any Debt of either of the Borrowers or any
Subsidiary in an aggregate amount in excess of $5,000,000 or enables the holder
of such Debt or any Person acting on such holder's behalf to accelerate the
maturity thereof;
(h) Either of the Borrowers or any Guarantor shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(i) An involuntary case or other proceeding shall be commenced against
either of the Borrowers or any Guarantor seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of thirty (30) days; or an
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order for relief shall be entered against either of the Borrowers or any
Guarantor under the federal bankruptcy laws as now or hereafter in effect;
(j) Either of the Borrowers or any Guarantor shall admit in writing its
inability to pay its debts as and when they fall due;
(k) Except as previously disclosed to the Banks in writing prior to the
date hereof: any member of the ERISA Group shall fail to pay when due an amount
or amounts aggregating in excess of $1,000,000 which it shall have become liable
to pay under Title IV of ERISA; or notice of intent to terminate any Plan which
is then a Material Plan shall be filed under Title IV of ERISA by any member of
the ERISA Group, any plan administrator or any combination of the foregoing; or
the PBGC shall institute proceedings under Title IV of ERISA to terminate, to
impose liability (other than for premiums under Section 4007 of ERISA) in
respect of, or to cause a trustee to be appointed to administer any Plan which
is then a Material Plan; or a condition shall exist by reason of which the PBGC
would be entitled to obtain a decree adjudicating that any Plan which is then a
Material Plan must be terminated; or there shall occur a complete or partial
withdrawal from, or a default, within the meaning of Section 4219(c)(5) of
ERISA, with respect to, one or more Multiemployer Plans which could cause one or
more members of the ERISA Group to incur a current payment obligation, that is,
an obligation or series of obligations payable within twelve (12) months, in
excess of $1,000,000;
(k) An uninsured, final, unappealable judgment or order for the payment
of money in excess of $1,000,000 shall be rendered against either of the
Borrowers or any of their Subsidiaries and such judgment or order shall continue
unsatisfied and unstayed for a period of thirty (30) days;
(l) (i) The voting interests in any Specified Affiliate shall be held
by a Person other than a director, officer or employee of HRT, (ii) HRT shall
fail to own substantially all of the economic interest in any Specified
Affiliate and the remainder of such economic interest shall be held by a Person
other than directors, officers and/or employees or (iii) a Specified Affiliate
shall engage in any of the actions or activities that are limited or restricted
by Article 5 hereof;
(m) Except as to any which is dissolved, released or merged or
consolidated out of existence as the result of or in connection with a
dissolution, merger or consolidation permitted by Section 5.04, the guaranty
given by any Guarantor hereunder or any material provision thereof shall cease
to be in full force and effect, or any Guarantor hereunder or any Person acting
by or on behalf of such Guarantor shall deny or disaffirm such Guarantor's
obligations under such guaranty, or any Guarantor shall default in the due
performance or observance of any term, covenant or agreement on its part to be
performed or observed pursuant to any guaranty; or
(n) the occurrence of an Event of Default under the Revolving Credit
Agreement;
(o) the occurrence of a Change of Control;
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then, and in every such event, the Agent shall during the continuance of such
Event of Default (i) if requested by the Majority Banks, by notice to the
Borrowers terminate the Commitments, (ii) if requested by the Majority Banks, by
notice to the Borrowers declare the Notes (together with accrued interest
thereon) and all other amounts payable by the Borrower hereunder to be, and such
Notes and amounts shall thereupon become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrowers, (iii) provide cash collateral in respect of the
LOC Obligations, and (iv) take such other actions as are directed by the
Majority Banks; provided that in the case of any Event of Acceleration, without
any notice to any Obligor or any other act by the Agent or any Bank, the
Commitments shall automatically terminate and the Notes (together with accrued
interest thereon) shall automatically become immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrowers; and provided further that the Agent may
terminate commitments and declare the Loans and Obligations hereunder
immediately due and payable without prior notice to or the consent of the Banks
where it determines such action is warranted and appropriate based on the facts
and circumstances. Subject to the request or direction of the Majority Banks as
provided above, Agent shall have the exclusive right to enforce the remedies
available under this Credit Agreement during the continuance of any Event of
Default hereunder
ARTICLE VII
THE AGENT
SECTION 7.01 Appointment and Authorization. Each Bank appoints the
Agent to act as its agent in connection herewith and each of the other Financing
Documents.
SECTION 7.02 Agents and Affiliates. NationsBank shall have the same
rights and powers under this Credit Agreement as any other Bank and may exercise
or refrain from exercising the same as though it were not the Agent, and
NationsBank and each of its affiliates may accept deposits from, lend money to,
and generally engage in any kind of business with the Borrowers, any of their
Subsidiaries and any of their respective Affiliates as if it were not the Agent.
SECTION 7.03 Action by Agent. The obligations of the Agent under the
Financing Documents are only those expressly set forth herein with respect to
it. Without limiting the generality of the foregoing the Agent shall not be
required to take any action with respect to any Default or Event of Default,
except as expressly provided in Article VI.
SECTION 7.04 Consultation with Experts. The Agent may consult with
legal counsel (who may be counsel for the Borrower), independent public
accountants and other experts selected by the Agent and shall not be liable for
any action taken or omitted to be taken by the Agent in good faith in accordance
with the advice of such counsel, accountants or experts.
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SECTION 7.05 Liability of Agent. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
not taken by it in connection with the Financing Documents (a) with the consent
or at the request of the Majority Banks; or (b) in the absence of gross
negligence or willful misconduct of the Agent. In requests for consents and
direction from the Banks the Agent may provide reasonable periods in which to
respond. Neither the Agent nor any of its directors, officers, agents or
employees shall be responsible for or have any duty to ascertain, inquire into
or verify (i) any statement, warranty or representation made in connection with
any Financing Document; (ii) the performance or observance of any of the
covenants or agreements of the Borrower, (iii) the satisfaction of any condition
specified in Article III, except receipt of items required to be delivered to
the Agent; or (iv) the validity, effectiveness or genuineness of any Financing
Document or any other instrument or writing furnished in connection therewith.
The Agent shall not incur any liability by acting in reliance upon any notice,
consent, certificate, statement or other writing (which may be a bank wire,
facsimile, telex or similar writing) believed by it to be genuine or to be
signed by the proper party or parties.
SECTION 7.06 Indemnification. Each Bank shall, ratably in accordance
with its Commitment, indemnify the Agent and NMS (to the extent not reimbursed
by the Borrower) against any cost, expense (including reasonable counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from the Agent's or NMS's gross negligence or willful misconduct) that
the Agent may suffer or incur in connection with the Financing Documents or any
action taken or omitted by the Agent thereunder.
SECTION 7.07 Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Credit Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under the Financing Documents.
SECTION 7.08 Successor Agent. The Agent may resign at any time by
giving thirty (30) days prior written notice thereof to the Banks and the
Borrowers. The Majority Banks may remove the Agent for cause at any time by
giving thirty (30) days prior written notice to the Agent, the other Banks and
the Borrowers. Upon any such resignation or removal of the Agent, the Majority
Banks shall have the right to appoint a successor Agent, with the consent of the
Borrowers (which consent shall not unreasonably be withheld, but which may in
any event be withheld if (a) the Borrowers in good faith conclude that the
appointment of such proposed successor Agent could result in a violation of any
law, rule, guideline or regulation, or a violation of, revocation of, failure to
renew or modification of any order, facility security clearance or permit or (b)
the credit standing of the proposed successor Agent is lower than that of the
preceding Agent); provided, however, such consent of the Borrowers shall not be
required upon the occurrence and during the continuance of an Event of Default.
If no successor Agent shall have been so appointed by the Majority Banks, and
shall have accepted such appointment, within thirty (30) days after the retiring
Agent gives notice of resignation, then the retiring Agent may, on behalf of the
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Banks and with the consent of the Borrowers (which consent shall not be
unreasonably withheld except as aforesaid), appoint a successor Agent, which
shall have core capital of at least $500,000,000. Upon the acceptance of its
appointment as Agent hereunder by a successor Agent the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent. In the event of any successor agent to NationsBank, (i) all references
herein to NationsBank shall be deemed to refer to such successor agent and (ii)
all references to Charlotte, North Carolina shall be deemed to mean the city in
which the successor Agent's headquarters is located.
SECTION 7.09 Agent's Fee. The Borrowers shall pay to the Agent for its
own account fees in the amounts and at the time previously agreed upon in
writing between the Borrowers and the Agent (with appropriate credit for agency
fees paid in advance in respect of the credit facility replaced hereby).
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01 Basis for Determining Interest Rate Inadequate or Unfair.
If on or prior to the first day of any Interest Period for any Eurodollar Loan:
(a) the Agent is advised by the Eurodollar Reference Bank that deposits
in Dollars (in the applicable amounts) are not being offered to the Eurodollar
Reference Bank in the relevant market for such Interest Period, or
(b) the Majority Banks advise the Agent that the Adjusted Eurodollar
Rate as determined by the Agent will not adequately and fairly reflect the cost
to such Banks of funding their Eurodollar Loans for such Interest Period, the
Agent shall forthwith give notice thereof to the Borrower and the Banks,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, (i) the obligations of the Banks to
make new Eurodollar Loans or to convert outstanding Loans into Eurodollar Loans
shall be suspended and (ii) each outstanding Eurodollar Loan, as the case may
be, shall be converted into a Base Rate Loan on the last day of the then current
Interest Period applicable thereto. Unless the Borrower notifies the Agent at
least one (1) Business Day before the date of any Eurodollar Borrowing for which
a Notice of Borrowing has previously been given that it elects not to borrow on
such date, such Borrowing shall instead be made as a Base Rate Borrowing.
SECTION 8.02 Illegality. If, on or after the date of this Credit
Agreement, the adoption of any applicable law, rule or regulation, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof or compliance by any Bank (or its
Eurodollar Lending Office) with any request or directive (whether or not having
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the force of law) of any such authority, central bank or comparable agency shall
make it unlawful or impossible for any Bank (or its Eurodollar Lending Office)
to make, maintain or fund its Eurodollar Loans and such Bank shall so notify the
Agent, the Agent shall forthwith give notice thereof to the other Banks and the
Borrower, whereupon until such Bank notifies the Borrower and the Agent that the
circumstances giving rise to such suspension no longer exist, the obligation of
such Bank to make new Eurodollar Loans, or to convert outstanding Loans into
Eurodollar Loans, shall be suspended. Before giving any notice to the Agent
pursuant to this Section, such Bank shall designate a different Eurodollar
Lending Office if such designation will avoid the need for giving such notice
and will not, in the judgment of such Bank, be otherwise disadvantageous to such
Bank. If such notice is given, each Eurodollar Loan of such Bank then
outstanding shall be converted to a Base Rate Loan either (a) on the last day of
the then current Interest Period applicable to such Eurodollar Loan if such Bank
may lawfully continue to maintain and fund such Loan to such day or (b)
immediately if such Bank shall determine that it may not lawfully continue to
maintain and fund such Loan to such day.
SECTION 8.03 Increased Cost and Reduced Return.
(a) If on or after the date hereof, the adoption of any applicable law,
rule or regulation, or any change therein, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank (or its Eurodollar Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency:
(i) shall subject any Bank (or its Applicable Lending
Office) to any tax, duty or other charge with respect to its Eurodollar
Loans, or its obligation to make Eurodollar Loans, or shall change the
basis of taxation of payments to any Bank (or its Eurodollar Lending
Office) of the principal of or interest on its Eurodollar Loans or any
other amounts due under this Credit Agreement in respect of its
Eurodollar Loans or its obligation to make Eurodollar Loans (except for
(i) Non-Excluded Taxes covered by Section 8.04 (Including Non-Excluded
Taxes imposed solely by reason of any failure of such banks to comply
with its obligations under Section 2.14) and (ii) changes in the rate
of tax imposed on, or contemplated with respect to, the income of such
Bank or its Eurodollar Lending Office or changes generally affecting
the manner in which the income of such Bank or its Applicable Lending
Office is subjected to taxation, by the jurisdiction in which such
Bank's principal executive office or Eurodollar Lending Office is
located or the jurisdiction under the laws of which such Bank is
organized); or
(ii) shall impose, modify or deem applicable any reserve,
special deposit or similar requirement (including, without limitation,
any such requirement imposed by the Board of Governors of the Federal
Reserve System, but excluding with respect to any Eurodollar Loan any
such requirement included in an applicable Eurodollar Reserve
Percentage) against assets of, deposits with or for the account of, or
credit extended by, any Bank (or its Applicable Lending Office) or
shall impose on any Bank (or its Applicable Lending Office) or on the
United States market for certificates of deposit or the London
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<PAGE>
interbank market any other condition affecting its Eurodollar Loans,
its Note or its obligation to make Eurodollar Loans;
and the result of any of the foregoing is to increase the cost to such Bank (or
its Eurodollar Lending Office) of making or maintaining any Eurodollar Loan, or
to reduce the amount of any sum received or receivable by such Bank (or its
Eurodollar Lending Office) under this Credit Agreement or under its Note with
respect thereto, by an amount deemed by such Bank to be material (except to the
extent that such increased cost or reduction of a sum received or receivable is
attributable to such Bank's failure to perform any of its obligations under
Section 2.14 or is otherwise attributable to any act or action of such Bank
other than the loaning of funds under this Credit Agreement), then, within
fifteen (15) days after demand by such Bank (with a copy to the Agent)
accompanied by a certificate setting forth in reasonable detail its calculation
of such increased cost or reduction, the Borrower shall pay to such Bank such
additional amount or amounts as will compensate such Bank for such increased
cost or reduction.
(b) If any Bank shall have determined that, after the date hereof, the
adoption or change of any applicable law, rule, guideline or regulation
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof or any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on capital
of such Bank (or its Parent) as a consequence of such Bank's obligations
hereunder to a level below that which such Bank (or its Parent) could have
achieved but for such adoption, change, request or directive (taking into
consideration its policies with respect to capital adequacy) by an amount deemed
by such Bank to be material then from time to time, within fifteen (15) days
after demand by such Bank (with a copy to the Agent) accompanied by a
certificate setting forth in reasonable detail its calculation of such
reduction, the Borrower shall pay such Bank such additional amount or amounts as
will compensate such Bank (or its Parent) for such reduction.
(c) Each Bank will promptly notify the Borrower and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Bank to compensation pursuant to this Section and will designate a
different Applicable Lending Office if such designation will avoid the need for,
or reduce the amount of, such compensation and will not, in the judgment of such
Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank
claiming compensation under this Section and setting forth in reasonable detail
its calculation of the additional amount or amounts to be paid to it hereunder
shall be conclusive in the absence of manifest error. In determining such
amount, such Bank may use any reasonable averaging and attribution methods.
Failure on the part of any Bank to demand compensation under subsection (a) or
(b) with respect to any period shall not constitute a waiver of such Bank's
right to demand compensation with respect to such period or any other period;
provided, however, that no Bank shall be entitled to compensation for the period
which is more than thirty (30) days prior to the date the Borrower receives the
certificate described in this subsection (c) via facsimile. Each Bank agrees
that it will send the certificate described above via facsimile to insure
immediate receipt by the Borrower.
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<PAGE>
SECTION 8.04 Taxes.
(a) Except as provided below in this subsection, all payments made by
the Borrower under this Credit Agreement and any Notes shall be made free and
clear of, and without deduction or withholding for or on account of, any present
or future income, stamp or other taxes, levies, imposts, duties, charges, fees,
deductions or withholdings, now or hereafter imposed, levied, collected,
withheld or assessed by any court, or governmental body, agency or other
official, excluding taxes measured by or imposed upon the overall net income of
any Bank or its applicable lending office, or any branch or affiliate thereof,
and all franchise taxes, branch taxes, taxes on doing business or taxes on the
overall capital or net worth of any Bank or its applicable lending office, or
any branch or affiliate thereof, in each case imposed in lieu of net income
taxes, imposed: (i) by the jurisdiction under the laws of which such Bank,
applicable lending office, branch or affiliate is organized or is located, or in
which its principal executive office is located, or any nation within which such
jurisdiction is located or any political subdivision thereof; or (ii) by reason
of any connection between the jurisdiction imposing such tax and such Bank,
applicable lending office, branch or affiliate other than a connection arising
solely from such Bank having executed, delivered or performed its obligations,
or received payment under or enforced, this Credit Agreement or any Notes. If
any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions
or withholdings ("Non-Excluded Taxes") are required to be withheld from any
amounts payable to the Agent or any Bank hereunder or under any Notes, (A) the
amounts so payable to the Agent or such Bank shall be increased to the extent
necessary to yield to the Agent or such Bank (after payment of all Non-Excluded
Taxes) interest or any such other amounts payable hereunder at the rates or in
the amounts specified in this Credit Agreement and any Notes, provided, however,
that the Borrower shall be entitled to deduct and withhold any Non-Excluded
Taxes and shall not be required to increase any such amounts payable to any Bank
that is not organized under the laws of the United States of America or a state
thereof if such Bank fails to comply with the requirements of Section 2.14
whenever any Non-Excluded Taxes are payable by the Borrower, and (B) as promptly
as possible thereafter the Borrower shall send to the Agent for its own account
or for the account of such Bank, as the case may be, a certified copy of an
original official receipt received by the Borrower showing payment thereof. If
the Borrower fails to pay any Non-Excluded Taxes when due to the appropriate
taxing authority or fails to remit to the Agent the required receipts or other
required documentary evidence, the Borrower shall indemnify the Agent and the
Banks for any incremental taxes, interest or penalties that may become payable
by the Agent or any Bank as a result of any such failure. The agreements in this
subsection shall survive the termination of this Credit Agreement and the
payment of the Loans and all other amounts payable hereunder.
SECTION 8.05 Base Rate Loans Substituted for Affected Eurodollar Loans.
If (i) the obligation of any Bank to make or maintain Eurodollar Loans has been
suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation
under Section 8.03 and the Borrower shall by at least five (5) Eurodollar
Business Days' prior notice to such Bank through the Agent have elected that the
provisions of this Section shall apply to such Bank, then, unless and until such
Bank notifies the Borrower that the circumstances giving rise to such suspension
or demand for compensation no longer apply:
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<PAGE>
(a) all Loans which would otherwise be made by such Bank as (or
continued as or converted into) Eurodollar Loans shall instead be Base Rate
Loans (on which interest and principal shall be payable contemporaneously with
the related Eurodollar Loans of the other Banks), and
(b) after each of its Eurodollar Loans has been repaid (or converted to
a Base Rate Loan), all payments of principal which would otherwise be applied to
repay such Eurodollar Loans shall be applied to repay its Base Rate Loans
instead.
If such Bank notifies the Borrower that the circumstances giving rise to such
notice no longer apply, unless Borrower elects otherwise, the principal amount
of each such Base Rate Loan shall be converted into a Eurodollar Loan on the
first day of the next succeeding Interest Period applicable to the related
Eurodollar Loan of the other Banks.
SECTION 8.06 Substitution of Bank. If (i) the obligation of any Bank to
make Eurodollar Loans has been suspended pursuant to Section 8.02 or (ii) any
Bank has demanded compensation under Section 8.03, the Borrower shall have the
right, with the assistance of the Agent, to seek a substitute bank or banks
reasonably satisfactory to the Agent and the Borrower (which may be one or more
of the Banks) to purchase the Note of such Bank and the interest of such Bank in
the Unused Fees and to assume the Commitment of such Bank for a purchase price
equal to all amounts payable to such Bank hereunder and under the Note, and the
Borrower, the Agent, such Bank and such substitute bank or banks shall execute
and deliver an appropriately completed Assignment and Assumption Agreement
pursuant to Section 9.06(c) hereof to effect the assignment of rights to and
assumption of obligations by such substitute bank or banks.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, telex, facsimile
transmission or similar writing) and shall be given to such party: (a) in the
case of the Borrower and the Agent, at the address, facsimile number or telex
number set out below, and in the case of the Banks, at their respective address,
facsimile number or telex number set forth on Schedule 9.1 hereto or (b) at such
other address, facsimile number or telex number as such party may hereafter
specify for the purpose of notice to the Agent and the Borrower:
<TABLE>
<CAPTION>
<S> <C> <C>
If to the Borrowers: Healthcare Realty Trust Incorporated
3310 West End Avenue
Suite 700
Nashville, Tennessee 37203
Attn: Treasurer
Phone: (615) 269-8175
Fax: (615) 269-8122
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<PAGE>
Capstone Capital Corporation
3310 West End Avenue
Suite 700
Nashville, Tennessee 37203
Attn: Vice President Finance
Phone: (615) 269-8175
Fax: (615) 269-8122
If to the Agent: NationsBank, N.A.
One Independence Center
101 North Tryon Street, 15th Floor
Charlotte, North Carolina 28255
Attn: Mike Roof
Agency Services
Phone: (704) 388-3196
Fax: (704) 386-9923
with a copy to:
NationsBank, N.A.
One NationsBank Plaza
Seventh Floor
Nashville, Tennessee 37239
Attn: Ashley Crabtree
Phone: (615) 749-3524
Fax: (615) 749-4640
</TABLE>
Each such notice, request or other communication shall be effective (i) if given
by telex, when such telex is transmitted to the telex number specified in or
pursuant to this Section and the appropriate answerback is received, (ii) if
given by facsimile, when such facsimile is transmitted to the number specified
in or pursuant to this section, (iii) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iv) if given by any other means, when delivered at
the address specified in or pursuant to this Section; provided that notices to
the Agent or the Borrower or any Bank under Article II or Article VIII shall not
be effective until received.
SECTION 9.02 No Waivers. No failure or delay by the Agent or any Bank
in exercising any right, power or privilege hereunder or under any Note shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
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<PAGE>
SECTION 9.03 Expenses.
(a) The Borrowers shall pay (i) all reasonable out-of-pocket expenses
of the Agent associated with the preparation and due diligence of the Loans,
including reasonable fees and disbursements of special counsel for the Agent
(but excluding administration and syndication costs), in connection with any
waiver or consent requested by Borrowers hereunder or any amendment hereof
requested by Borrowers or any Default hereunder, any waiver or consent hereunder
or any amendment hereof or any Default or alleged Default hereunder and (ii) if
an Event of Default occurs, all reasonable out-of-pocket expenses incurred by
the Agent and each Bank, including reasonable fees and disbursements of counsel
in connection with such Event of Default and work-out collection, bankruptcy,
insolvency and other enforcement proceedings resulting therefrom.
(b) The Borrowers shall indemnify and defend the Agent, NMS and each
other Bank and their respective directors, officers, agents, employees,
Subsidiaries and Affiliates (the "Indemnified Parties") from, and hold each of
them harmless against any and all losses, liabilities, claims, damages or
expenses incurred by any of them arising out of, by reason of or in connection
with this Credit Agreement (but excluding any such losses, liabilities, claims,
damages or expenses incurred by reason of (i) the gross negligence or willful
misconduct by the indemnitee, and/or (ii) any claim made by Agent, NMS or any
Bank against the other), including, but without limitation, amounts paid in
settlement, court costs, and fees and disbursements of no more than one separate
law firm acting as counsel for any or all of the parties indemnified hereunder,
in each case incurred in connection with any such investigation, litigation or
other proceedings; provided, that the Indemnified Parties shall be entitled to
reimbursement of the expenses of more than one separate law firm if the
Indemnified Parties, in their reasonable discretion, determine that a single law
firm would not be able to adequately represent the interests of the Indemnified
Parties in a matter. Notwithstanding the foregoing provisions of this paragraph
to the contrary, each Indemnified Party shall use its best efforts to mitigate
any losses, liabilities, claims, damages or expenses as to which it is entitled
to seek indemnity pursuant to the provisions hereof.
SECTION 9.04 Sharing of Set-Offs. Each Bank agrees that if it shall, by
exercising any right of set-off or counterclaim or otherwise, receive payment of
a proportion of the aggregate amount of principal and interest due with respect
to any Note held by it which is greater than the proportion received by any
other Bank in respect of the aggregate amount of principal and interest due with
respect to any Note held by such other Bank, the Bank receiving such
proportionately greater payment shall purchase such participation in the Notes
held by the other Banks, and such other adjustments shall be made, as may be
required so that all such payments of principal and interest with respect to the
Notes held by the Banks shall be shared by the Banks pro rata. The Borrowers
agree, to the fullest extent they may effectively do so under applicable law,
that any holder of a participation in a Note, whether or not acquired pursuant
to the foregoing arrangements, may exercise rights of set-off or counterclaim
and other rights with respect to such participation as fully as if such holder
of a participation were a direct creditor of the Borrower in the amount of such
participation.
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<PAGE>
SECTION 9.05 Amendments and Waivers. Any provision of this Credit
Agreement or any of the other Financing Documents may be modified, amended or
waived if, but only if, such modification, amendment or waiver is in writing and
is signed by the Borrowers and the Majority Banks (and, if the rights or duties
of the Agent are affected thereby, by the Agent); provided that no such
modification, amendment or waiver shall, unless signed by all the Banks, (a)
increase the Commitment of any Bank or subject any Bank to any additional
obligation, (b) reduce the principal of or rate of interest on any Loan or any
fees or other amounts payable to any Bank hereunder, (c) postpone the date fixed
for any scheduled payment of principal of or interest on any Loan or any fees
hereunder or for any scheduled reduction or termination of any Commitment, (d)
except as provided in Section 2.01(d), change the percentage of the Commitments
or of the aggregate unpaid principal amount of the Notes, or the number of
Banks, which shall be required for the Banks or any of them to take any action
under this Section or any other provision of this Credit Agreement or (e)
release all or substantially all of the Guarantors.
SECTION 9.06 Successors and Assigns.
(a) The provisions of this Credit Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that the Borrowers may not assign or otherwise transfer any of
their rights or obligations under this Credit Agreement without the prior
written consent of all the Banks, and no Bank may assign or otherwise transfer
any of its rights or obligations under this Credit Agreement except in
compliance with this Section 9.06; provided that nothing contained herein shall
prevent or prohibit any Bank from (i) pledging its Loans and Obligations to a
Federal Reserve Bank in support of borrowings made by such Bank from such
Federal Reserve Bank, or (ii) granting assignments or selling participations in
such Bank's Obligations and/or Commitments hereunder to a parent company and/or
an Affiliate or Subsidiary of such Bank.
(b) Any Bank at any time may grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrowers and the Agent, such Bank shall remain responsible for the performance
of its obligations hereunder, and the Borrower and the Agent shall continue to
deal solely and directly with such Bank in connection with such Bank's rights
and obligations under this Credit Agreement. Any agreement pursuant to which any
Bank may grant such a participating interest shall provide that such Bank shall
retain the sole right and responsibility to enforce the obligations of the
Borrowers hereunder including, without limitation, the right to approve any
amendment, modification or waiver of any provision of the Financing Documents;
provided that such participation agreement may provide that such Bank will not
agree to any modification, amendment or waiver of this Credit Agreement
described in clause (a), (b) or (c) of Section 9.05, without the consent of the
Participant. An assignment or other transfer which is not permitted by
subsection (c) or (d) below shall be given effect for purposes of this Credit
Agreement only to the extent of a participating interest granted in accordance
with this subsection (b).
(c) Each Bank may assign all or a portion of its rights, obligations,
or rights and obligations hereunder (including, without limitation, its loans
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<PAGE>
and commitments hereunder) pursuant to an assignment agreement substantially in
the form of Schedule 9.06(c), to (i) a Bank, (ii) an affiliate of a Bank or
(iii) any other Person (other than the Borrowers or an Affiliate of the
Borrowers) reasonably acceptable to the Agent and, so long as no Default or
Event of Default has occurred and is continuing, the Borrowers, which consent
shall not be unreasonably withheld or delayed and which consent shall be deemed
given if the Borrower shall not make written objection within two Business Days
after notice of the proposed assignment; provided that (i) any such assignment
(other than an assignment to an existing Bank or affiliate of an existing Bank)
shall be in a minimum aggregate principal amount of $5,000,000 (or the remaining
amount of loans and commitments, if less) and integral multiples of $1,000,000
in excess thereof, and (ii) each such assignment shall be in a constant, not
varying, percentage of all the Bank's rights and obligations under this Credit
Agreement. Any assignment hereunder shall be effective upon delivery to the
Agent of written notice of the assignment together with a transfer fee of $3,500
payable to the Agent for its own account from and after the effective date
specified in the applicable assignment agreement. The assigning Bank will give
prompt notice to the Agent and the Borrower of any such assignment. Upon the
effectiveness of any such assignment (and after notice to, and (to the extent
required pursuant to the terms hereof), with the consent of, the Borrowers as
provided herein), the assignee shall become a "Bank" for all purposes of this
Credit Agreement and the other Financing Documents and, to the extent of such
assignment, the assigning Bank shall be relieved of its obligations hereunder to
the extent of the Obligations and Commitment components being assigned. Along
such lines the Borrowers agree that upon notice of any such assignment and
surrender of the appropriate Note or Notes, it will promptly provide to the
assigning Bank and to the assignee separate promissory notes in the amount of
their respective interests substantially in the form of the original Note (but
with notation thereon that it is given in substitution for and replacement of
the original Note or any replacement notes thereof). By executing and delivering
an assignment agreement in accordance with this Section 9.06(c), the assigning
Bank thereunder and the assignee thereunder shall be deemed to confirm to and
agree with each other and the other parties hereto as follows: (i) such
assigning Bank warrants that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim; (ii) except
as set forth in clause (i) above, such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Credit
Agreement, any of the other Financing Documents or any other instrument or
document furnished pursuant hereto or thereto, or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Credit
Agreement, any of the other Financing Documents or any other instrument or
document furnished pursuant hereto or thereto or the financial condition of any
Obligor or any of their respective Affiliates or the performance or observance
by any Obligor of any of its obligations under this Credit Agreement, any of the
other Financing Documents or any other instrument or document furnished pursuant
hereto or thereto; (iii) such assignee represents and warrants that it is
legally authorized to enter into such assignment agreement; (iv) such assignee
confirms that it has received a copy of this Credit Agreement, the other
Financing Documents and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
assignment agreement; (v) such assignee will independently and without reliance
upon the Agent, such assigning Bank or any other Bank, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this Credit
Agreement and the other Financing Documents; (vi) such assignee appoints and
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<PAGE>
authorizes the Agent to take such action on its behalf and to exercise such
powers under this Credit Agreement or any other Financing Document as are
delegated to the Agent by the terms hereof or thereof, together with such powers
as are reasonably incidental thereto; and (vii) such assignee agrees that it
will perform in accordance with their terms all the obligations which by the
terms of this Credit Agreement and the other Financing Documents are required to
be performed by it as a Bank.
(d) Any Bank may at any time assign all or any portion of its rights
under this Credit Agreement and its Notes to a Federal Reserve Bank. No such
assignment shall release the transferor Bank from its obligations hereunder.
(e) The Borrowers agree that each Participant shall to the extent
provided in its participation agreement, be entitled to the benefits of Section
8.03 and 2.15 with respect to its participating interest; provided that no
Participant or other transferee of any Bank's rights shall be entitled to
receive any greater payment under Section 8.03 or 2.12 (whether individually or
in aggregate with any such payments received by such Bank) than such Bank would
have been entitled to receive with respect to the rights transferred if such
rights had not been transferred.
(f) The Borrowers shall not be required to pay any costs or expenses in
connection with any participation, assignment or transfer described in this
Section 9.06. No such participation or, except as provided in Section 9.06(c)
above with respect to an assignment which is consented to by Borrowers,
assignment or transfer shall release any Bank from liability for its obligations
hereunder.
SECTION 9.07 Collateral. Each of the Banks represents to the Borrowers,
the Agent and each of the other Banks that it in good faith is not relying upon
any "Margin Stock" (as defined in Regulation U) as collateral in the extension
or maintenance of the credit provided for in the Financing Documents.
SECTION 9.08 Governing Law; Submission to Jurisdiction. This Credit
Agreement and each Note shall be governed by and construed in accordance with
the laws of the State of North Carolina. The Borrowers, Agent and each Bank
hereby submit to the nonexclusive jurisdiction of the United States District
Court of the Western District of North Carolina and of any North Carolina State
court sitting in Charlotte for purposes of all legal proceedings arising out of
or relating to this Credit Agreement or the transactions contemplated hereby.
The Borrowers, Agent and each Bank irrevocably waive, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
forum.
SECTION 9.09 Counterparts; Integration; Effectiveness. This Credit
Agreement may be signed in any number of counterparts, each of which shall be an
original with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Credit Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject matter
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<PAGE>
hereof. This Credit Agreement shall become effective when the Agent shall have
received counterparts hereof signed by all of the parties hereto.
SECTION 9.10 WAIVER OF JURY TRIAL. EACH OF THE BORROWERS, THE AGENT AND
EACH BANK HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT, ANY
FINANCING DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
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IN WITNESS WHEREOF, the parties hereto have caused this Term Loan
Credit Agreement to be duly executed by their respective authorized officers as
of the day and year first above written.
<TABLE>
<CAPTION>
<S> <C>
BORROWERS: HEALTHCARE REALTY TRUST
INCORPORATED, a Maryland
corporation
By:
Name:
Title:
CAPSTONE CAPITAL CORPORATION,
a Maryland corporation
By:
Name:
Title:
NATIONSBANK, N.A., in its capacit
as Agent and in its individual
capacity as a Bank
By:
Name:
Title:
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule 2.1
Schedule of Commitments
Tranche A Term Loan Tranche A Term Loan Tranche B Term Loan Tranche B Term Loan
Lender Committed Amount Commitment Percentage Committed Amount Commitment Percentage
------ ---------------- --------------------- ---------------- ---------------------
<S> <C> <C> <C> <C> <C>
NationsBank, N.A.
$187,400,000 100.0000% $12,600,000 $100.0000%
</TABLE>
<PAGE>
Schedule 2.06(a)
FORM OF TRANCHE A TERM NOTE
October 15, 1998
FOR VALUE RECEIVED, the undersigned Borrower hereby promises to pay to
the order of ______________________, its successors and assigns, to the office
of the Agent in immediately available funds as provided in the Credit Agreement,
the principal amount of such Bank's Tranche A Term Loan in such amounts and on
such dates as provided in the Credit Agreement, together with interest thereon
at the rates and as provided in the Credit Agreement.
This Note is one of the Tranche A Term Notes referred to in the Term
Loan Credit Agreement dated as of October 15, 1998 (as amended and modified, the
"Credit Agreement") among HEALTHCARE REALTY TRUST INCORPORATED, a Maryland
corporation, CAPSTONE CAPITAL CORPORATION, a Maryland corporation, the Banks
identified therein and NationsBank, N.A., as Agent. Terms used but not otherwise
defined herein shall have the meanings provided in the Credit Agreement.
The holder may endorse and attach a schedule to reflect borrowings
evidenced by this Note and all payments and prepayments thereon; provided that
any failure to endorse such information shall not affect the obligation of the
undersigned Borrower to pay amounts evidenced hereby.
Upon the occurrence of an Event of Default, all amounts evidenced by
this Note may, or shall, become immediately due and payable as provided in the
Credit Agreement without presentment, demand, protest or notice of any kind, all
of which are waived by the undersigned Borrower. In the event payment of amounts
evidenced by this Note is not made at any stated or accelerated maturity, the
undersigned Borrower agrees to pay, in addition to principal and interest, all
costs of collection, including reasonable attorneys' fees.
This Note and the Loans and amounts evidenced hereby may be transferred
only as provided in the Credit Agreement.
This Note shall be governed by, and construed and interpreted in
accordance with, the law of the State of North Carolina.
In WITNESS WHEREOF, the undersigned Borrower has caused this Note to be
duly executed as of the date first above written.
HEALTHCARE REALTY TRUST INCORPORATED,
a Maryland corporation
By:______________________________
Name:
Title:
<PAGE>
Schedule 2.06(b)
FORM OF TRANCHE B TERM NOTE
October 15, 1998
FOR VALUE RECEIVED, the undersigned Borrower hereby promises to pay to
the order of ______________________, its successors and assigns, to the office
of the Agent in immediately available funds as provided in the Credit Agreement,
the principal amount of such Bank's Tranche B Term Loan in such amounts and on
such dates as provided in the Credit Agreement, together with interest thereon
at the rates and as provided in the Credit Agreement.
This Note is one of the Tranche B Term Notes referred to in the Term
Loan Credit Agreement dated as of October 15, 1998 (as amended and modified, the
"Credit Agreement") among HEALTHCARE REALTY TRUST INCORPORATED, a Maryland
corporation, CAPSTONE CAPITAL CORPORATION, a Maryland corporation, the Banks
identified therein and NationsBank, N.A., as Agent. Terms used but not otherwise
defined herein shall have the meanings provided in the Credit Agreement.
The holder may endorse and attach a schedule to reflect borrowings
evidenced by this Note and all payments and prepayments thereon; provided that
any failure to endorse such information shall not affect the obligation of the
undersigned Borrower to pay amounts evidenced hereby.
Upon the occurrence of an Event of Default, all amounts evidenced by
this Note may, or shall, become immediately due and payable as provided in the
Credit Agreement without presentment, demand, protest or notice of any kind, all
of which are waived by the undersigned Borrower. In the event payment of amounts
evidenced by this Note is not made at any stated or accelerated maturity, the
undersigned Borrower agrees to pay, in addition to principal and interest, all
costs of collection, including reasonable attorneys' fees.
This Note and the Loans and amounts evidenced hereby may be transferred
only as provided in the Credit Agreement.
This Note shall be governed by, and construed and interpreted in
accordance with, the law of the State of North Carolina.
In WITNESS WHEREOF, the undersigned Borrower has caused this Note to be
duly executed as of the date first above written.
CAPSTONE CAPITAL CORPORATION,
a Maryland corporation
By: _______________________
Name:
Title:
-2-
<PAGE>
Schedule 2.10
Form of Notice of Interest Rate Election
NationsBank, N.A.,
as Agent for the Banks
101 N. Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Re: Term Loan Credit Agreement dated as of October 15, 1998 (as
amended and modified, the "Credit Agreement") among HEALTHCARE
REALTY TRUST INCORPORATED, and CAPSTONE CAPITAL CORPORATION,
the Banks identified therein and NationsBank, N.A., as Agent.
Terms used but not otherwise defined herein shall have the
meanings provided in the Credit Agreement.
Ladies and Gentlemen:
The undersigned hereby gives notice pursuant to Section 2.10 of the
Credit Agreement that it requests an extension or conversion of an existing loan
comprising a portion of the Term Loans outstanding under the Credit Agreement,
and in connection therewith sets forth below the terms on which such extension
or conversion is requested to be made:
<TABLE>
<CAPTION>
<S><C> <C> <C>
________ Tranche A Term Loan
________ Tranche B Term Loan
(A) Date of Extension or Conversion
(which is the last day of the
applicable Interest Period) _______________________________
(B) Principal Amount of
Extension or Conversion _______________________________
(C) Interest rate basis _______________________________
(D) Interest Period and the
last day thereof _______________________________
</TABLE>
In accordance with the requirements of the Credit Agreement, the
undersigned Borrower hereby certifies that:
(a) The representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all
material respects as of the date of this request, and will be true and
correct after giving effect to the requested Extension of Credit
(except for those which expressly relate to an earlier date).
(b) No Default or Event of Default exists, or will exist after
giving effect to the requested Extension of Credit.
<PAGE>
(c) All conditions set forth in Section 2.01 as to the making
of the Term Loan have been satisfied.
Very truly yours,
HEALTHCARE REALTY TRUST INCORPORATED
By:________________________________
Name:
Title:
CAPSTONE CAPITAL CORPORATION
By:________________________________
Name:
Title:
-2-
<PAGE>
Schedule 4.04
Legal Proceedings
-3-
<PAGE>
Schedule 4.05
ERISA Matters
-4-
<PAGE>
Schedule 4.06
Environmental Matters
-5-
<PAGE>
Schedule 4.07
Subsidiaries (including Material Subsidiaries and Specified Affiliates)
Material Subsidiaries:
Specified Affiliates:
Other Subsidiaries:
Other Affiliates:
-6-
<PAGE>
Schedule 4.10
Compliance with Laws
-7-
<PAGE>
Schedule 4.12
Debt
$300 million Revolving Loan Agreement dated as of the Closing Date with the
banks identified therein and NationsBank, N.A., as Agent.
$200 million Term Loan Agreement dated as of the Closing Date with the banks
identified therein and NationsBank, N.A., as Agent.
$90 million 7.41% Senior Notes of HRT due September 1, 2002.
-8-
<PAGE>
Schedule 4.13
Contingent Liabilities
Subsidiary Guarantee dated as of the Closing Date in respect of the Revolving
Credit Agreement referenced on Schedule 4.12 given by the Subsidiaries and
affiliates identified therein.
Subsidiary Guarantee dated as of the Closing Date in respect of the Term Loan
Agreement referenced on Schedule 4.12 given by the Subsidiaries and affiliates
identified therein.
-9-
<PAGE>
Schedule 4.14
Investments
-10-
<PAGE>
Schedule 5.07
Liens
-11-
<PAGE>
Schedule 5.08
Form of Subsidiary Guarantee
-12-
<PAGE>
<TABLE>
<CAPTION>
Schedule 9.01
Lender's Addresses
Address for Domestic Eurodollar
Lenders Notice Lending Office Lending Office
<S> <C> <C> <C>
NationsBank, N.A. NationsBank, N.A. NationsBank, N.A. NationsBank, N.A.
101 N. Tryon Street 101 N. Tryon Street 101 N. Tryon Street
Independence Center, 15th Floor Independence Center, 15th Floor Independence Center, 15th Floor
Charlotte, NC 28255 Charlotte, NC 28255 Charlotte, NC 28255
Attn: Mike Roof Attn: Mike Roof Attn: Mike Roof
Tel: 704-388-3916 Tel: 704-388-3916 Tel: 704-388-3916
Fax: 704-386-9923 Fax: 704-386-9923 Fax: 704-386-9923
with a copy to:
NationsBank, N.A.
One NationsBank Plaza, 5th Floor
Nashville, TN 37239
Attn: Ashley M. Crabtree
Tel: 615-749-3524
Fax: 615-749-4640
First Union First Union National Bank of Tennessee First Union National Bank First Union National Bank
National Bank 150 11th Avenue, 2nd Floor Capital Markets Service Dept. Capital Markets Service Dept.
Nashville, TN 37219 One First Union Center, TW-5 One First Union Center, TW-5
Attn: Carolyn Hannon 301 South College Street 301 South College Street
Tel: 615-251-9374 Charlotte, NC 28288-0785 Charlotte, NC 28288-0785
Fax: 615-251-9247 Attn: Sue Patterson Attn: Sue Patterson
Tel: 704-374-7121 Tel: 704-374-7121
Fax: 704-383-9144 Fax: 704-383-9144
<PAGE>
AmSouth Bank AmSouth Bank AmSouth Bank AmSouth Bank
333 Union Street, Suite 200 Relationship Banking Assistant Relationship Banking Assistant
Nashville, TN 37203 333 Union Street, Suite 200 333 Union Street, Suite 200
Attn: Cathy M. Wind Nashville, TN 37203 Nashville, TN 37203
Tel: 615-291-5268 Attn: Amy Vandygriff Attn: Amy Vandygriff
Fax: 615-291-5257 Tel: 615-291-5269 Tel: 615-291-5269
Fax: 615-291-5257 Fax: 615-291-5257
Societe Generale Societe Generale Societe Generale Societe Generale
2029 Century Park East, Suite 2900 2029 Century Park East, Suite 2900 2029 Century Park East, Ste 2900
Los Angeles, CA 90067 Los Angeles, CA 90067 Los Angeles, CA 90067
Attn: J. Staley Stewart Attn: Doris Fun Attn: Doris Fun
Tel: 310-788-7103 Tel: 310-788-7116 Tel: 310-788-7116
Fax: 310-551-1537 Fax: 310-203-0539 Fax: 310-203-0539
Creditanstalt Creditanstalt Corporate Finance, Inc. Creditanstalt Corporate Finance,Inc. Creditanstalt Corporate Finance
Corporate Two Greenwich Plaza Two Ravinia Drive, Suite 1680 Two Ravinia Drive, Suite 1680
Finance, Inc. Greenwich, CT 06830-6353 Atlanta, GA 30346 Atlanta, GA 30346
Attn: Lisa Bruno Attn: Scott Kray Attn: Scott Kray
Tel: 203-861-6464 Tel: 770-390-1858 Tel: 770-390-1858
Fax: 203-861-1475 Fax: 770-390-1851 Fax: 770-390-1851
SouthTrust Bank, SouthTrust Bank, N.A. SouthTrust Bank, N.A. SouthTrust Bank, N.A.
N.A. 420 North 20th Street 6434 1st Avenue, North 6434 1st Avenue, North
Birmingham, AL 35203 Birmingham, AL 35212 Birmingham, AL 35212
Attn: Keith Law Attn: Operations Specialist Attn: Operations Specialist
Tel: 205-254-4255 Tel: 205-599-5446 Tel: 205-599-5446
Fax: 205-254-5022 Fax: 205-599-4350 Fax: 205-599-4350
First Tennessee First Tennessee Bank National Association First Tennessee Bank National Assn. First Tennessee Bank Natl Assn
Bank National 511 Union Street 511 Union Street 511 Union Street
Association Nashville, TN 37219 Nashville, TN 37219 Nashville, TN 37219
Attn: J. Todd Carter Attn: Michelle Bull Attn: Michelle Bull
Tel: 615-734-6191 Tel: 615-734-6247 Tel: 615-734-6247
Fax: 615-734-6148 Fax: 615-734-6148 Fax: 615-734-6148
-2-
<PAGE>
Bank One, Bank One, Kentucky, NA Bank One, Kentucky, NA Bank One, Kentucky, NA
Kentucky, NA 416 West Jefferson Street 1 Riverfront Plaza 1 Riverfront Plaza
Louisville, KY 40202 KY1-4190 KY1-4190
Attn: Todd D. Munson Louisville, KY 40202 Louisville, KY 40202
Tel: 502-566-2640 Attn: Sarilas Offutt Attn: Sarilas Offutt
Fax: 502-566-8339 Tel: 502-566-8855 Tel: 502-566-8855
Fax: 502-566-8621 Fax: 502-566-8621
First Commercial First Commercial Bank First Commercial Bank First Commercial Bank
Bank 800 Shadown Creek Parkway 800 Shadow Creek Parkway 800 Shadow Creek Parkway
Birmingham, AL 35202 Birmingham, AL 35202 Birmingham, AL 35202
Attn: Fred R. Elliott Attn: Melinda McCullough Attn: Melinda McCullough
Tel: 205-868-4921 Tel: 205-868-4582 Tel: 205-868-4582
Fax: 205-868-4898 Fax: 205-868-4898 Fax: 205-868-4898
Credit Lyonnais Credit Lyonnais New York Branch Credit Lyonnais New York Branch Credit Lyonnais New York Branch
New York Branch 1301 Avenue of the Americas 1301 Avenue of the Americas 1301 Avenue of the Americas
New York, NY 10019 New York, NY 10019 New York, NY 10019
Attn: Scott Schimpf Attn: Kenia A. Perez Attn: Kenia A. Perez
Tel: 212-261-7788 Tel: 212-261-7313 Tel: 212-261-7313
Fax: 212-261-3440 Fax: 212-261-3440 Fax: 212-261-3440
</TABLE>
-3-
<PAGE>
Schedule 9.06(c)
Form of Assignment and Acceptance
THIS ASSIGNMENT AND ACCEPTANCE dated as of , 199_ is entered into
between THE LENDER IDENTIFIED ON THE SIGNATURE PAGES AS THE "ASSIGNOR" (the
"Assignor") and THE PARTIES IDENTIFIED ON THE SIGNATURE PAGES AS "ASSIGNEES"
("Assignee").
Reference is made to that Credit Agreement dated as of October 15, 1998
(as amended and modified, the "Credit Agreement") among HEALTHCARE REALTY TRUST
INCORPORATED, a Maryland corporation and CAPSTONE CAPITAL CORPORATION, a
Maryland corporation (the "Borrowers"), the Banks identified therein and
NationsBank, N.A., as Agent. Terms defined in the Credit Agreement are used
herein with the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignees, and the Assignees hereby purchase and assume, without recourse, from
the Assignor, effective as of the Effective Date shown below, those rights and
interests of the Assignor under the Credit Agreement identified below (the
"Assigned Interests"), including the Obligations and Commitments relating
thereto, together with unpaid interest and fees relating thereto accruing from
the Effective Date. The Assignor represents and warrants that it owns interests
assigned hereby free and clear of liens, encumbrances or other claims. Each of
the Assignees represents that it is an assignee permitted under the Credit
Agreement. The Assignor and each of the Assignees hereby makes and agrees to be
bound by all the representations, warranties and agreements set forth in Section
9.06 of the Credit Agreement, a copy of which has been received by each such
party. From and after the Effective Date (i) each Assignee, if it is not already
a Bank under the Credit Agreement, shall be a party to and be bound by the
provisions of the Credit Agreement and, to the extent of the interests assigned
by this Assignment and Acceptance, have the rights and obligations of a Bank
thereunder and (ii) each Assignor shall, to the extent of the interests assigned
by this Assignment and Acceptance, relinquish its rights and be released from
its obligations under the Credit Agreement (other than the rights of
indemnification referenced in Section 9.03 of the Credit Agreement). Schedule
2.1 is deemed modified and amended to the extent necessary to give effect to
this Assignment.
2. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of North Carolina.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
3. Terms of Assignment
(a) Date of Assignment: , 199__
--------------------------
(b) Legal Name of Assignor: SEE SIGNATURE PAGE
(c) Legal Name of Assignee: SEE SIGNATURE PAGE
(d) Effective Date of Assignment: , 199__
--------------------------
</TABLE>
See Schedule I attached for a description of the Loans, Obligations and
Commitments (and the percentage interests therein and relating thereto) which
are the subject of this Assignment and Acceptance.
4. The fee payable to the Agent in connection with this Assignment is
enclosed.
IN WITNESS WHEREOF, the parties hereto have caused the execution of
this instrument by their duly authorized officers as of the date first above
written.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ASSIGNOR: ASSIGNEE:
By: _______________________ By: ______________________
Name: Name:
Title: Title:
Address for Notices:
</TABLE>
<TABLE>
<CAPTION>
<S><C> <C>
ACKNOWLEDGMENT AND CONSENT
NATIONSBANK, N.A. HEALTHCARE REALTY TRUST INCORPORATED
as Agent
By: ____________________________ By: _______________________________
Name: Name:
Title: Title:
CAPSTONE CAPITAL CORPORATION
By:________________________________
Name:
Title:
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
TO ASSIGNMENT AND ACCEPTANCE
HEALTHCARE REALTY TRUST INCORPORATED
TERM LOANS PRIOR TO ASSIGNMENT
Tranche A Tranche A Tranche B Tranche B
Term Loan Term Loan Tranche A Term Loan Term Loan Tranche B
Committed Commitment Term Loans Committed Commitment Term Loans
Amount Percentage Outstanding Amount Percentage Outstanding
<S> <C> <C> <C> <C> <C> <C> <C>
--------- ---------- ----------- ---------- ---------- -----------
ASSIGNOR
ASSIGNEES
---------- ---------- ----------- ---------- ---------- ----------
$ % $ $ % $
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TERM LOANS INTERESTS SUBJECT TO THIS ASSIGNMENT
Tranche A Tranche A Tranche B Tranche B
Term Loan Term Loan Tranche A Term Loan Term Loan Tranche B
Committed Commitment Term Loans Committed Commitment Term Loans
Amount Percentage Outstanding Amount Percentage Outstanding
<S> <C> <C> <C> <C> <C> <C> <C>
--------- ---------- ----------- ---------- ---------- -----------
ASSIGNOR
ASSIGNEES
---------- ---------- ----------- ---------- ---------- ----------
$ % $ $ % $
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
TO ASSIGNMENT AND ACCEPTANCE
HEALTHCARE REALTY TRUST INCORPORATED
TERM LOANS AFTER ASSIGNMENT
Tranche A Tranche A Tranche B Tranche B
Term Loan Term Loan Tranche A Term Loan Term Loan Tranche B
Committed Commitment Term Loans Committed Commitment Term Loans
Amount Percentage Outstanding Amount Percentage Outstanding
<S> <C> <C> <C> <C> <C> <C> <C>
--------- ---------- ----------- ---------- ---------- -----------
ASSIGNOR
ASSIGNEES
---------- ---------- ----------- ---------- ---------- ----------
$ % $ $ % $
</TABLE>
Selected Financial
Information
The following table sets forth financial information for the Company which
is derived from the Consolidated Financial Statements of the Company (Dollars in
thousands, except per share data):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 (2) 1997 1996 1995 1994
-------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Total revenues $ 93,104 $ 59,796 $ 38,574 $ 33,361 $ 24,226
Interest expense $ 13,057 $ 7,969 $ 7,344 $ 5,083 $ 1,116
Net income $ 40,479 $ 31,212 $ 19,732 $ 18,258 $ 15,716
Net income per share - Basic $ 1.66 $ 1.71 $ 1.52 $ 1.41 $ 1.33
Net income per share - Diluted $ 1.63 $ 1.68 $ 1.49 $ 1.41 $ 1.33
Weighted average shares outstanding - Basic 24,043,942 18,222,243 13,014,286 12,931,082 11,806,864
Weighted average shares outstanding - Diluted 24,524,600 18,572,492 13,261,291 12,970,326 18,859,714
Balance Sheet Data (as of the end of the period):
Real estate properties, net $1,337,439 $ 466,273 $ 416,034 $ 318,480 $ 280,767
Total Assets $1,615,423 $ 488,514 $ 427,505 $ 336,778 $ 283,190
Notes and bonds payable $ 559,924 $ 101,300 $ 168,618 $ 92,970 $ 40,375
Total stockholders' equity $1,017,704 $ 376,472 $ 245,964 $ 234,448 $ 236,340
Other Data:
Funds from operations - Basic (1) $ 59,667 $ 42,337 $ 28,036 $ 25,490 $ 20,919
Funds from operations - Diluted (1) $ 59,731 $ 42,337 $ 28,036 $ 25,490 $ 20,919
Funds from operations per share - Basic (1) $ 2.48 $ 2.32 $ 2.15 $ 1.97 $ 1.77
Funds from operations per share - Diluted (1) $ 2.44 $ 2.28 $ 2.11 $ 1.97 $ 1.76
Dividends declared and paid per share $ 2.07 $ 1.99 $ 1.91 $ 1.83 $ 1.75
</TABLE>
(1) See Note 12 to Consolidated Financial Statements.
(2) See Note 2 to Consolidated Financial Statements.
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The Company operates under the Internal Revenue Code of 1986, as amended
(the "Code"), as an indefinite life real estate investment trust ("REIT"). The
Company, a self-managed and self-administered REIT, follows a general growth
strategy that integrates owning, managing, and developing income-producing real
estate properties and mortgages associated with the delivery of healthcare
services throughout the United States. Management believes that by providing
related real estate services, it can differentiate the Company's competitive
market position, expand its asset base and increase revenue.
Substantially all of the Company's revenues are derived from rentals on its
healthcare real estate property facilities, interest earned on mortgage loans
and from the temporary investment of funds in short-term instruments and from
management and development services. Leases and other financial support
arrangements with respect to the Company's healthcare real estate facilities
generally ensure that increased costs and expenses incurred with respect to the
operation of the facilities will be borne by tenants and healthcare providers
related to the facilities. The Company incurs operating and administrative
expenses, principally compensation expense for its officers and other employees,
office rental and related occupancy costs and various expenses incurred in the
process of acquiring additional properties.
Results of Operations
1998 Compared to 1997
On October 15, 1998, the Company acquired by merger Capstone Capital
Corporation ("Capstone"). The purchase price is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Common stock $ 532,554
Preferred stock 72,052
Cash and cash equivalents 8,330
Liabilities assumed 424,897
-------
Total Purchase Price $ 1,037,833
================
The assets acquired in the Capstone
merger are summarized as follows
(in thousands):
Real estate properties $ 804,178
Mortgage notes receivable 211,590
Cash and cash equivalents 13,767
Other assets 8,298
-----
Total Assets Acquired $ 1,037,833
================
</TABLE>
The results of operations of the Company were significantly impacted by the
Capstone merger. For the year ended December 31, 1998, net income increased
$12.3 million due to the Capstone merger. As a result of this transaction, the
Company acquired 111 properties and 75 mortgages for a fair value of $804.2
million and $211.6 million, respectively. These investments resulted in
additional master lease, straight line rent and property operating income, net
of operating expenses, for the year of $14.5 million, as well as, additional
interest and other income of $4.1 million, additional interest expense of $2.0
million under the unsecured credit facility and depreciation and amortization
expense of $2.9 million. The Company also assumed Capstone's 6.55% and 10.5%
convertible subordinated debentures and notes payable, with interest rates
ranging from 7.625% to 9.0%, with a collective fair value of $138.0 million
which resulted in interest expense of $1.4 million for the period October 15,
1998 through December 31, 1998.
For the year ended December 31, 1998, net income was $40.5 million, or
$1.66 per basic share of common stock ($1.63 per diluted share), on total
revenues of $93.1 million compared to net income of $31.2 million, or $1.71 per
basic share of common stock
-2-
<PAGE>
($1.68 per diluted share), on total revenues of $59.8 million, for the year
ended December 31, 1997. Funds from operations ("FFO") was $59.7 million, or
$2.48 per basic share ($2.44 per diluted share), for the year ended December 31,
1998 compared to $42.3 million, or $2.32 per basic share ($2.28 per diluted
share), in 1997.
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
---- ----
<S> <C> <C> <C>
Revenues
Master lease rental income $ 48,777 $ 40,298
Property operating income 35,269 14,631
------ ------
Total rental income 84,046 54,929
Management fees 2,056 1,499
Interest and other income 7,002 3,368
----- -----
93,104 59,796
Expenses
General and administrative 11,126 3,807
Property operating expenses 11,978 5,008
Interest 13,057 7,969
Depreciation 15,965 11,468
Amortization 499 332
--- ---
52,625 28,584
------ ------
Net Income $ 40,479 $ 31,212
========== ==========
</TABLE>
Total revenues for the year ended December 31, 1998 compared to the year
ended December 31, 1997, increased $33.3 million or 55.7%. Excluding the impact
of the Capstone merger, which is discussed above, total revenues for the year
ended December 31, 1998 compared to the year ended December 31, 1997, increased
$13.5 million. This increase is primarily due to increases in master lease
rental income and property operating income. During 1998, the Company acquired
nine properties and two properties under construction were completed and began
operations. Certain leases acquired from Capstone contain escalating rental
rates over the life of the leases, however, rental income is recognized as
earned on a straight line basis over the life of the lease. Therefore, $1.3
million of accrued straight line rental income is included in master lease
rental income.
Third party property management fees for the year ended December 31, 1998,
compared to the year ended December 31, 1997, increased $0.6 million or 37.2%,
due primarily to the addition of over 60 buildings with approximately 2.6
million square feet under property management.
Interest and other income for the year ended December 31, 1998 was $7.0
million compared to $3.4 million for the year ended December 31, 1997. Excluding
the effect of the Capstone merger, interest and other income decreased $0.2
million from the year ending December 31, 1997 to the year ending December 31,
1998. During the first quarter of 1997, the Company completed a secondary
offering and maintained a higher than normal average cash and short-term
investment balance.
Total expenses for the year ended December 31, 1998 were $52.6 million
compared to $28.6 million for the year ended December 31, 1997, an increase of
$24.0 million or 84.1%. General and administrative expenses increased $7.3
million. $6.3 million of this increase represents the write-off of certain
capitalized software costs, leasehold improvements, organization and other
deferred costs which were deemed to have no continuing value and incremental
internal costs incurred in conjunction with the Capstone merger. The remaining
$1.0 million increase is primarily due to the increased number of employees for
property management, development, and other service-based activities.
Property operating expenses for the year ended December 31, 1998 compared
to the year ended December 31, 1997 increased $7.0 million. Property operating
expenses rose during 1998 for the same reasons property operating income
increased.
Interest expense for the year ended December 31, 1998 compared to the year
ended December 31, 1997 increased $5.1 million. At the time of the Capstone
merger, the Company repaid the outstanding balances under both Capstone's and
the Company's own
-3-
<PAGE>
unsecured credit facilities and entered into a $265.0 million unsecured credit
facility and a $200.0 million unsecured term loan. During the year ended
December 31, 1997, the Company had an average outstanding balance under its
unsecured credit facility of $18.1 million compared to an average outstanding
balance under its unsecured credit facility and term loan during the year ended
December 31, 1998 of $82.3 million. In addition, Capstone's subordinated
convertible debentures and notes payable were assumed by the Company in the
merger and capitalized interest increased $0.7 million from 1997 to 1998.
Depreciation expense increased $4.5 million due to the significant increase
during 1998 in depreciable properties. Excluding the effect of the Capstone
merger, depreciation expense increased $1.6 million. This increase primarily
resulted from the acquisition of nine properties during 1998 and the completion
in 1998 of two properties under construction at December 31, 1997.
1997 Compared to 1996
For the year ended December 31, 1997, net income was $31.2 million, or
$1.71 per basic share of common stock ($1.68 per diluted share), on total
revenues of $59.8 million compared to net income of $19.7 million, or $1.52 per
basic share of common stock ($1.49 per diluted share), on total revenues of
$38.6 million, for the year ended December 31, 1996. FFO was $42.3 million, or
$2.32 per basic share ($2.28 per diluted share), for the year ended December 31,
1997 compared to $28.0 million, or $2.15 per basic share ($2.11 per diluted
share), in 1996.
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
---- ----
<S> <C> <C> <C>
Revenues
Master lease rental income $ 40,298 $ 35,329
Property operating income 14,631 1,338
------ -----
Total rental income 54,929 36,667
Management fees 1,499 1,111
Interest and other income 3,368 796
----- ---
59,796 38,574
------ ------
Expenses
General and administrative 3,807 2,233
Property operating expenses 5,008 269
Interest 7,969 7,344
Depreciation 11,468 8,652
Amortization 332 344
--- ---
28,584 18,842
------ ------
Net Income $ 31,212 $ 19,732
========== ==========
</TABLE>
Total revenues for the year ended December 31, 1997 compared to the year
ended December 31, 1996, increased $21.2 million or 55%. The increase is
primarily due to master lease rental income and property operating income from
18 properties acquired and two developments completed during the latter part of
the fourth quarter of 1996 and the year ended December 31, 1997, representing an
investment of approximately $102.3 million. Third party property management fees
for the year ended December 31, 1997, compared to the year ended December 31,
1996, increased $0.4 million or 35%, due to the net effect of adding third party
management contracts in Florida and Virginia and converting six master leased
properties (accounted for as third party management) to Company owned and
managed properties. Interest and other income for the year ended December 31,
1997 was $3.4 million compared to $0.8 million for the year ended December 31,
1996. During the first quarter of 1997, the Company completed a secondary
offering and maintained an average cash and short-term investment balance of
$26.1 million during the year ended December 31, 1997 compared to a $2.2 million
average cash balance during the year ended December 31, 1996.
Total expenses for the year ended December 31, 1997 were $28.6 million
compared to $18.8 million for the year ended December 31, 1996, an increase of
$9.8 million or 52%. General and administrative expenses increased $1.6 million,
primarily due to an
-4-
<PAGE>
increase in payroll associated with the large increase in property management
and other service-based activities. Property operating expenses for the year
ended December 31, 1997, compared to the year ended December 31, 1996 increased
$4.7 million due to the conversion from master leased or acquisition of 19
Company owned and managed properties during the latter part of the fourth
quarter of 1996 and the year ended December 31, 1997. Interest expense for the
year ended December 31, 1997, compared to the year ended December 31, 1996,
increased $0.6 million due to the net effect of a decrease in average
outstanding debt balance and a decrease in average construction in progress,
which reduced capitalized interest by approximately $1.4 million. Depreciation
expense increased $2.8 million due to the acquisition of 18 properties and
completion of two properties discussed in the preceding paragraph.
Liquidity and Capital Resources
On October 15, 1998, at the time of the Capstone merger, the Company repaid
the outstanding balances under both Capstone's and the Company's own unsecured
credit facilities and entered into a $265.0 million unsecured credit facility
(the "Unsecured Credit Facility") with ten commercial banks. The Unsecured
Credit Facility bears interest at LIBOR plus 1.05%, payable quarterly, and
matures on October 15, 2001. In addition, the Company will pay, quarterly, a
commitment fee of 0.225 of 1% on the unused portion of funds available for
borrowings. At December 31, 1998, the Company had available borrowing capacity
of $94.0 million under the Unsecured Credit Facility.
At the time of the Capstone merger, the Company entered into a $200.0
million unsecured term loan (the "Term Loan Facility") with NationsBank. The
Term Loan Facility bears interest at LIBOR plus 1.05%, payable quarterly, and
matures on April 16, 1999. The Company intends to exercise the option to extend
the maturity date for an additional six month period in consideration of an
extension payment of .30 of 1%. Since the Capstone merger, the Company has
received proceeds from the sale of assets and from mortgage prepayments of
approximately $29.0 million and reduced the unpaid balance of the Term Loan
Facility to approximately $171.0 million. The Company expects that the Term Loan
Facility will be repaid by internally generated cash flow, proceeds from the
sale of additional assets, and proceeds from additional prepayments of mortgage
notes receivable. If such sources of funds are insufficient to repay the Term
Loan Facility in full, any unpaid balance is expected to be refinanced.
In 1995, the Company privately placed $90.0 million of unsecured notes (the
"Unsecured Notes") bearing interest at 7.41%, payable semi-annually ($5.0
million for 1999), and mature on September 1, 2002. The Company must repay $18.0
million of principal annually. At December 31, 1998, $72.0 million was
outstanding under the Unsecured Notes.
The Company assumed in the Capstone merger 10.5% Convertible Subordinated
Debentures and 6.55% Convertible Subordinated Debentures having an aggregate
principal balance of $78.3 million. In 1999 the Company will pay $5.3 million of
interest on these subordinated debentures.
In 1998, the Company sold an aggregate of 1.4 million shares of its common
stock. The Company received an aggregate of $37.1 million in net proceeds from
these transactions. The proceeds were used to repay debt and were also used for
acquisitions, developments and general corporate purposes.
As of March 1, 1999 the Company can issue an aggregate of approximately
$106.4 million of securities remaining under currently effective registration
statements. Due to the current market price of the Company's stock, the Company
does not presently plan to offer securities under such registration statements.
The Company may, under certain circumstances, borrow additional amounts in
connection with the renovation or expansion of its properties, the acquisition
or development of additional properties or, as necessary, to meet distribution
requirements for REITs under the Code. The Company may raise additional capital
or make investments by issuing, in public or private transactions, its equity
and debt securities, but the availability and terms of any such issuance will
depend upon market and other conditions.
The Company generated net cash from operations in 1998 of $23.5 million, a
decrease of $16.9 million from 1997 and $5.9 million from 1996. The decrease
from 1997 results primarily from the payment of accounts payable and accrued
liabilities assumed in the Capstone merger. Other significant sources and uses
of cash for investing and financing activities are set forth in the Statement of
Cash Flows in the Consolidated Financial Statements.
In October 1998, the Company purchased an ancillary hospital facility in
Lititz, Pennsylvania for approximately $4.2 million from proceeds under the
Unsecured Credit Facility.
-5-
<PAGE>
As of December 31, 1998, the Company had an investment of approximately
$72.2 million in 13 build-to-suit developments in progress, which have a total
remaining funding commitment of approximately $34.7 million. The Company also
had 21 mortgages under development at December 31, 1998, which have a total
remaining funding commitment of approximately $28.2 million. The Company intends
to fund those commitments with funds available from operations and proceeds from
the Unsecured Credit Facility.
At December 31, 1998, the Company had stockholders' equity of $1.0 billion.
The debt to total capitalization ratio was approximately .365 to 1 at March 1,
1999.
On January 26, 1999, the Company declared an increase in its quarterly
common stock dividend from $0.525 per share ($2.10 annualized) to $0.53 per
share ($2.12 annualized) payable to stockholders of record on February 5, 1999.
This dividend was paid on February 16, 1999. The Company presently plans to
continue to pay its quarterly common stock dividends, with increases consistent
with its current practice. In the event that the Company cannot make additional
investments in 1999 because of an inability to obtain new capital by issuing
equity and debt securities, the Company will continue to be able to pay its
common stock dividends in a manner consistent with its current practice. Should
access to new capital not be available, the Company is uncertain of its ability
to increase its quarterly common stock dividends.
During 1999, the Company will pay quarterly dividends on its 8 7/8% Series
A Cumulative Preferred Stock in the annualized amount of $2.22 per share.
Under the terms of the leases and other financial support agreements
relating to most of the properties, tenants or healthcare providers are
generally responsible for operating expenses and taxes relating to the
properties. As a result of these arrangements, with limited exceptions not
material to the performance of the Company, the Company does not believe that it
will be responsible for any major expenses in connection with the properties
during the respective terms of the agreements. The Company anticipates entering
into similar arrangements with respect to additional properties it acquires or
develops. After the term of the lease or financial support agreement, or in the
event the financial obligations required by the agreement are not met, the
Company anticipates that any expenditures it might become responsible for in
maintaining the properties will be funded by cash from operations and, in the
case of major expenditures, possibly by borrowings. To the extent that
unanticipated expenditures or significant borrowings are required, the Company's
cash available for distribution and liquidity may be adversely affected.
The Company plans to continue to meet its liquidity needs, including
funding additional investments in 1999, paying its quarterly dividends (with
increases consistent with its current practices) and funding the debt service on
the 10.50% Convertible Subordinated Debentures, the 6.55% Convertible
Subordinated Debentures, the Unsecured Credit Facility, the Term Loan Facility,
and the Unsecured Notes from its operating revenues, the proceeds of mortgage
loan repayments, sales of real estate investments and mortgage notes receivable,
and debt market financings. The Company believes that its liquidity and sources
of capital are adequate to satisfy its cash requirements. The Company, however,
cannot be certain that these sources of funds will be available at a time and
upon terms acceptable to the Company in sufficient amounts to meet its liquidity
needs.
Impact of Inflation
Inflation has not significantly affected the earnings of the Company
because of the moderate inflation rate and the fact that most of the Company's
leases and financial support arrangements require tenants and sponsors to pay
all or some portion of the increases in operating expenses, thereby reducing the
risk of any adverse effects of inflation to the Company. In addition, inflation
will have the effect of increasing the gross revenue the Company is to receive
under the terms of the leases and financial support arrangements. Leases and
financial support arrangements vary in the remaining terms of obligations from
three to 20 years, further reducing the risk of any adverse effects of inflation
to the Company. The Unsecured Credit Facility bears interest at a variable rate;
therefore, the amount of interest payable under the Unsecured Credit Facility
will be influenced by changes in short-term rates, which tend to be sensitive to
inflation.
Real Estate Investment Trust Tax Proposals
The Clinton Administration's Fiscal Year 2000 Budget proposal includes
three provisions of interest to REITs in general, two of which potentially
affect the Company. These provisions (i) modify the structure of businesses
which are indirectly conducted by the Company and could limit or negatively
affect the Company's future ability to engage indirectly in certain business
activities that cannot be conducted directly by the Company; and (ii) repeal
tax-free conversion of large C corporations to S corporations, which would
-6-
<PAGE>
effectively tax the built-in gains of C corporations prospectively electing
tax-free reorganizations, thus affecting an acquisition format employed by the
Company in the past. The President's Budget proposal includes numerous other
revenue provisions, none of which would materially impact the Company in the
event of their adoption. The last action on the President's Year 2000 Budget
proposal was the release by the Joint Committee on Taxation's "Description of
Revenue Provisions Contained in the President's Fiscal Year 2000 Budget
Proposal" on February 22, 1999. Congress has yet to debate the broader
implications of the President's Year 2000 Budget proposals, so there is no way
to predict the outcome of these proposals or the eventual economic effect of
these proposals on the Company if these proposals are enacted.
Year 2000 Issue
The Year 2000 ("Y2K") issue is the result of computer programs being
written using two digits rather than four to define the applicable year.
Computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions or engage in normal business activities. The Y2K issue
relating to the Company's corporate information technology systems, including
applications employed with respect to the real estate investments of the
Company, could have a material impact on the operations of the Company if
compliance is not completed in a timely manner. The Company's plan to resolve
the Y2K issue involves four phases: assessment, remediation, testing, and
implementation.
Status of Y2K Issue Relating to the Company's Information Technology Systems
Based on the Company's completed assessment of its own software and
hardware relating to the Company's corporate information technology systems, the
Company determined that it is necessary to modify or replace certain portions of
its software and hardware so that those systems will properly utilize dates
beyond December 31, 1999. The Company presently believes that, with actual and
planned modifications or replacements of existing software and certain hardware,
material damage to the Company resulting from the Y2K issue relating to the
Company's corporate information technology systems will be fully mitigated by
March 31, 1999. The Y2K issue could have a material impact on the operations of
the Company if such modifications and replacements are not properly made or are
not completed timely. The Company does not expect to incur costs of more than
$50,000 in this effort.
In the ordinary course of events, the Company has purchased new file
servers and replaced many older desktop microcomputers with new equipment, all
of which are certified to be Y2K compliant by the manufacturers. Additionally,
"patches" are available from the manufacturers that will bring certain equipment
into compliance, and will be installed in desktop systems as necessary. Two
non-compliant file servers currently used for data storage are scheduled to be
replaced by March 31, 1999.
The Company's assessment of computer operating systems and software
indicated that the Company's significant information systems programs should not
require remediation. Accordingly, the Company does not believe that the Y2K
presents a material exposure as it relates to the Company's services. The
Company requested, and has subsequently received, certification from all of its
significant software and operating systems vendors that the versions of their
products currently installed are fully Y2K compliant.
The Company has yet to complete Y2K testing of its information systems,
operating systems and other software. However, the Company expects that it will
be completed in 1999. While the Company does not anticipate that testing will
disprove its vendors' certifications of compliance, remediation of any systems
or software that signal potential Y2K problems will begin immediately upon
discovery. The Company will utilize both internal and external resources to
reprogram or replace, test, and implement the software and operating equipment
for Y2K modifications.
Y2K Issue Compliance of Vendors and Clients
The Company has questioned its significant suppliers and clients as to
their respective responses to the Y2K issue. To date, the Company is not aware
of any suppliers or clients with a Y2K issue that would materially impact the
Company's results of operations, liquidity, or capital resources; however, the
Company has no means of ensuring that those parties will in fact be Y2K
compliant. The Company has not received responses from all of its inquiries and
has renewed its solicitation for written disclosures in compliance with the Year
2000 Information and Readiness Disclosure Act. The inability of suppliers and
clients to complete their Y2K resolution
-7-
<PAGE>
process in a timely fashion could materially impact the Company. The Company
cannot presently determine the effect of non-compliance by the Company's
suppliers and clients.
While the Company does have ongoing relationships with third-party payors,
suppliers, vendors, and others, it has no systems that interface directly with
third party vendors other than its accounts with financial institutions and the
Compan's payroll system interfaces directly with a vendor. The Company is in
the process of working with these institutions and its payroll vendor to ensure
that the Company's systems that interface directly with them are Y2K compliant
by December 31, 1999.
The Company will also have Y2K issue exposure in non-information technology
applications with respect to its real estate investments. Computer technology
employed in elevators, security systems, electrical systems and similar
applications involved in the operations of real estate properties may cause
interruptions of services with respect to those properties on and after January
1, 2000. The terms of agreements in place with respect to the bulk of the real
estate investments held by the Company impose the economic cost of compliance
upon third party lessees and mortgagees; consequently, the costs to the Company
for Y2K remediation should not be material. The Company is in the process of
inquiring and assessing responses of those third parties as to their respective
Y2K issue readiness and will require that those third parties undertake the
necessary actions to ensure Y2K compliance of the properties.
Finally, the Y2K issue may affect the greater business environment in which
the Company operates. Due to the general uncertainty surrounding the Y2K
readiness of third parties, including federal and state governments, the effect
of the Y2K issue on the Company's lessees and mortgagees, as well as the Company
itself cannot be gauged. For example, the General Accounting Office has reported
that the systems employed in managing Medicare reimbursements is not likely to
be Y2K compliant in time to ensure the delivery of uninterrupted benefits and
services. Delay in reimbursements could negatively affect the Company's lessees
and mortgagees, resulting in a delay in receipt of payments owed to the
Company's clients, with the further possibility of delay in payments due by
those clients to the Company. Similar consequences could result from the failure
of other parties having such an indirect relationship with the Company.
Management of the Company believes it has an effective program in place to
resolve the Y2K issue in a timely manner. As noted above, the Company has not
yet completed all necessary phases of the Y2K program. In the event that the
Company does not complete any additional phases, the Company may be unable to
collect receipts in a timely manner. In addition, disruptions in the economy
generally resulting from Y2K issues could also materially adversely affect the
Company. The Company could be subject to litigation for computer systems
failure, for example, equipment shutdown or failure to properly date business
records. The Company cannot reasonably estimate the amount of potential
liability and lost revenue at this time. The most reasonable likely worst case
Y2K scenario is that business disruption could occur with respect to third-party
payors, suppliers, or vendors who fail to become Y2K compliant, and disruptions
in the economy generally resulting from Y2K issues could adversely impact the
Company.
The Company has contingency plans for certain critical applications and is
working on such plans for other non-critical applications. These contingency
plans involve, among other actions, manual workarounds, increasing inventories,
and adjusting staffing strategies. The Company plans to maintain an ongoing
evaluation of its Y2K compliance readiness and contingent plans throughout 1999.
Market Risk
The Company is exposed to market risk, in the form of changing interest
rates, on its debt and mortgage notes receivable. The Company has no market risk
with respect to derivatives and foreign currency fluctuations. Management uses
daily monitoring of market conditions and analytical techniques to manage this
risk.
At December 31, 1998, the fair value of the Company's fixed rate debt
approximates its carrying value of $209.7 million. At December 31, 1998, the
fixed rate debt assumed in the Capstone merger totaled $137.7 million. This debt
was recorded at fair value at the acquisition date of October 15, 1998. Market
risk, expressed as the hypothetical increase in fair value resulting from a one
percentage point decrease in interest rates, is $7.2 million for aggregate fixed
rate debt.
At December 31, 1998, the fair value of the Company's variable rate debt
approximates its carrying value of $350.2 million. By definition, because the
interest rate is variable, the carrying amount of variable rate debt will always
approximate its fair value. Assuming the $350.2 million carrying value is held
constant, the hypothetical increase in interest expense resulting from a one
per-
-8-
<PAGE>
centage point increase in interest rates, would be $3.5 million. The interest
rate on variable rate debt is based on and variable with European interbank
interest rates (LIBOR).
At December 31, 1998, the fair value of the Company's mortgage notes
receivable approximates its carrying value of $228.5 million. These assets,
acquired in the Capstone merger, were recorded at fair value at the acquisition
date of October 15, 1998. Market risk, expressed as the hypothetical decrease in
fair value resulting from a one percentage point increase in interest rates, is
$10.7 million on the aggregate portfolio of mortgage notes receivable.
Cautionary Language Regarding Forward Looking Statements
Statements in this Annual Report on Form 10-K that are not historical
factual statements are "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The statements include, among
other things, statements regarding the intent, belief or expectations of the
Company and its officers and can be identified by the use of terminology such as
"may", "will", "expect", "believe", "intend", "plan", "estimate", "should" and
other comparable terms. In addition, the Company, through its senior management,
from time to time makes forward looking oral and written public statements
concerning the Company's expected future operations and other developments.
Shareholders and investors are cautioned that, while forward looking statements
reflect the Company's good faith beliefs and best judgment based upon current
information, they are not guarantees of future performance and are subject to
known and unknown risks and uncertainties. Actual results may differ materially
from the expectations contained in the forward looking statements as a result of
various factors. For a more detailed discussion of these, and other factors, see
pages 26 through 30 of Item 1 of the Company's Form 10-K for the fiscal year
ended December 31, 1998.
-9-
<PAGE>
Report of
Independent Auditors
The Board of Directors and Stockholders
Healthcare Realty Trust Incorporated
We have audited the accompanying consolidated balance sheets of Healthcare
Realty Trust Incorporated as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Healthcare
Realty Trust Incorporated at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Nashville, Tennessee
January 29, 1999,
except for Note 14,
as to which the date is February 17, 1999
-10-
<PAGE>
Consolidated
Balance Sheets
<TABLE>
<CAPTION>
December 31,
------------
(Dollars in thousands) 1998 1997
---- ----
<S> <C> <C> <C>
Assets
Real estate properties:
Land $ 140,617 $ 58,424
Buildings and improvements 1,169,941 423,618
Personal property 4,825 4,492
Construction in progress 72,172 14,457
------ ------
1,387,555 500,991
Less accumulated depreciation (50,116) (34,718)
------- -------
Total real estate properties, net 1,337,439 466,273
Cash and cash equivalents 14,411 5,325
Mortgage notes receivable 228,542 4,708
Other assets, net 35,031 12,208
------ ------
Total assets $ 1,615,423 $ 488,514
=========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Notes and bonds payable $ 559,924 $ 101,300
Accounts payable and accrued liabilities 25,824 6,879
Other liabilities 11,971 3,863
------ -----
Total liabilities 597,719 112,042
------- -------
Commitments - -
Stockholders' equity:
Preferred stock, $.01 par value;
50,000,000 shares authorized; issued
and outstanding,
1998 - 3,000,000; 1997 - none 30 -
Common stock, $.01 par value;
150,000,000 shares authorized; issued
and outstanding,
1998 - 39,792,775; 1997 - 19,285,927 398 193
Additional paid-in capital 1,049,039 402,607
Deferred compensation (10,662) (7,689)
Cumulative net income 129,346 88,867
Cumulative dividends (150,447) (107,506)
-------- --------
Total stockholders' equity 1,017,704 376,472
--------- -------
Total liabilities and stockholders' equity $ 1,615,423 $ 488,514
=========== =========
</TABLE>
See accompanying notes
-11-
<PAGE>
<TABLE>
<CAPTION>
Consolidated
Statements of Income
Year Ended December 31,
-----------------------
(Dollars in thousands, except per
share data) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Master lease rental income $ 48,777 $ 40,298 $ 35,329
Property operating income 35,269 14,631 1,338
Management fees 2,056 1,499 1,111
Interest and other income 7,002 3,368 796
----- ----- ---
93,104 59,796 38,574
------ ------ ------
Expenses
General and administrative 11,126 3,807 2,233
Property operating expenses 11,978 5,008 269
Interest 13,057 7,969 7,344
Depreciation 15,965 11,468 8,652
Amortization 499 332 344
--- --- ---
52,625 28,584 18,842
------ ------ ------
Net income $ 40,479 $ 31,212 $ 19,732
========== =========== ==========
Net income per share - Basic $ 1.66 $ 1.71 $ 1.52
========== ========== ==========
Net income per share - Diluted $ 1.63 $ 1.68 $ 1.49
========== ========== ==========
Shares outstanding - Basic 24,043,942 18,222,243 13,014,286
========== ========== ==========
Shares outstanding - Diluted 24,524,600 18,572,492 13,261,291
========== ========== ==========
</TABLE>
See accompanying notes
-12-
<PAGE>
<TABLE>
<CAPTION>
Consolidated
Statements of Stockholders' Equity
Additional Cumulative Total
(Dollars in thousands, Preferred Common Paid-In Deferred Net Cumulative Stockholder's
except per share data) Stock Stock Capital Compensation Income Dividends Equity
----- ----- ------- ------------ ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 - $ 130 $ 243,419 $ (478) $ 37,923 $ (46,546) $ 234,448
Issuance of stock - 7 16,584 - - - 16,591
Shares awarded as deferred
stock compensation - 2 4,611 (4,613) - - -
Deferred stock compensation
amortization - - - 389 - - 389
Net income - - - - 19,732 - 19,732
Dividends ($1.91 per share) - - - - - (25,196) (25,196)
- - - - - ------- -------
Balance at December 31, 1996 - 139 264,614 (4,702) 57,655 (71,742) 245,964
Issuance of stock - 52 134,113 - - - 134,165
Shares awarded as deferred
stock compensation - 2 3,880 (3,882) - - -
Deferred stock compensation
amortization - - - 895 - - 895
Net income - - - - 31,212 - 31,212
Dividends ($1.99 per share) - - - - - (35,764) (35,764)
- - - - - ------- -------
Balance at December 31, 1997 - 193 402,607 (7,689) 88,867 (107,506) 376,472
Issuance of common stock - 202 567,734 - - - 567,936
Issuance of preferred stock $30 - 71,956 - - - 71,986
Shares awarded as deferred
stock compensation - 2 4,331 (4,274) - - 59
Shares issued from warrants - 1 2,411 - - - 2,412
Deferred stock compensation
amortization - - - 1,301 - - 1,301
Net income - - - - 40,479 - 40,479
Dividends - common
($2.07 per share) - - - - - (42,386) (42,386)
Dividends - preferred
($0.46224 per share) - - - - - (555) (555)
- - - - - ---- ----
Balance at December 31, 1998 $30 $ 398 $1,049,039 $(10,662) $ 129,346 $(150,447) $ 1,017,704
=== ====== ========== ======== ========= ========= ===========
</TABLE>
See accompanying notes
-13-
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of
Cash Flows
Year Ended December 31,
-----------------------
(In thousands) 1998 1997 1996
- -------------- ---- ---- ----
<S> <C> <C> <C>
Operating Activities
Net income $ 40,479 $ 31,212 $ 19,732
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 17,122 12,073 9,017
Deferred compensation 1,247 672 377
Increase (decrease) in deferred income (907) 114 (29)
Increase in other assets (7,957) (2,346) (933)
Increase (decrease) in accounts payable and
accrued liabilities (27,906) (1,340) 1,222
Increase in straight line rent (1,265) - -
One time charge to operations 3,373 - -
Gain on sales of real estate (675) - -
---- - -
Net cash provided by operating activities 23,511 40,385 29,386
------ ------ ------
Investing Activities
Acquisition and development of real estate properties (94,066) (61,813) (63,069)
Acquisition and development of mortgages (12,439) (4,708) -
Proceeds from sale of real estate 11,895 - -
Receipt (disbursement) of security deposits 134 (976) (390)
Purchase of Capstone, net of cash acquired 5,437 - -
----- - -
Net cash used in investing activities (89,039) (67,497) (63,459)
------- ------- -------
Financing Activities
Borrowings on notes and bonds payable 425,000 35,300 101,899
Repayments on notes and bonds payable (338,689) (102,618) (50,903)
Increase in notes receivable (6,439) - -
Dividends paid (42,941) (35,764) (25,196)
Proceeds from issuance of common stock 37,683 134,165 484
------ ------- ---
Net cash provided by financing activities 74,614 31,083 26,284
====== ====== ======
Increase (decrease) in cash and cash equivalents 9,086 3,971 (7,789)
----- ----- ------
Cash and cash equivalents, beginning of period 5,325 1,354 9,143
----- ----- -----
Cash and cash equivalents, end of period $ 14,411 $ 5,325 $ 1,354
========== ========== ==========
</TABLE>
See accompanying notes
-14-
<PAGE>
Notes to
Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Organization
The Company invests in healthcare-related properties and mortgages located
throughout the United States, including ancillary hospital facilities, physician
clinics, ambulatory surgery centers, medical office buildings, inpatient rehab
facilities, assisted living facilities, skilled nursing facilities,
comprehensive ambulatory care centers, and other facilities. The Company
provides management, leasing and build-to-suit development, and capital for the
construction of new facilities as well as for the acquisition of existing
properties. As of December 31, 1998, the Company had invested or committed to
invest in 280 properties (the "Properties") located in 130 markets nationwide,
affiliated with 61 healthcare-related entities.
Basis of Presentation
The financial statements include the accounts of the Company, its wholly
owned subsidiaries and certain other affiliated corporations with respect to
which the Company controls the operating activities and receives substantially
all economic benefits. Significant intercompany accounts and transactions have
been eliminated.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
Real Estate Properties
Real estate properties are recorded at cost. Transaction fees and
acquisition costs are netted with the purchase price as appropriate. The cost of
real properties acquired is allocated between land, buildings, and personal
property based upon estimated market values at the time of acquisition.
Depreciation is provided for on a straight-line basis over the following
estimated useful lives:
<TABLE>
<S> <C> <C>
Buildings and improvements 31.5 or 39.0 years
Personal property 3.0 to 7.0 years
</TABLE>
Mortgage Notes Receivable
Mortgage notes receivable, substantially all of which were acquired in the
Capstone merger (see Note 2), were recorded at their fair value at the date of
acquisition. The mortgage portfolio has a weighted average maturity of
approximately 7 years. Interest rates, which range from 8.1% to 12.5%, are
generally adjustable each year to reflect actual increases in the Consumer Price
Index subject to a minimum increase of 4%. Substantially all of the mortgages
are subject to a prepayment penalty.
Cash and Cash Equivalents
Short-term investments with maturities of three months or less at date of
purchase are classified as cash equivalents.
Federal Income Taxes
No provision has been made for federal income taxes. The Company intends at
all times to qualify as a real estate investment trust under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended. The Company must
distribute at least 95% of its real estate investment trust taxable income to
its stockholders and meet other requirements to continue to qualify as a real
estate investment trust.
Other Assets
Other assets consist primarily of receivables, deferred costs and
intangible assets. Deferred financing costs are amortized over the term of the
related credit facility using the interest method. Intangible assets are
amortized straight-line over the applicable lives of the assets, which range
from four to forty years. Accumulated amortization was $2.5 million and $1.5
million at December 31, 1998 and 1997, respectively.
Revenue Recognition
Rental income related to noncancelable operating leases is recognized as
earned over the life of the lease agreements on a straight-line basis. Any
additional rent, as defined in each lease agreement, is recognized as earned.
-15-
<PAGE>
Stock Issued to Employees
The Company has elected to follow Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its stock issued to employees.
Net Income Per Share
Earnings per share have been restated for Financial Accounting Standards
Board Statement No. 128, "Earnings per Share".
Basic earnings per share is calculated using weighted average shares
outstanding less issued and outstanding but unvested restricted shares of Common
Stock.
Diluted earnings per share is calculated using weighted average shares
outstanding plus the dilutive effect of convertible debt and restricted shares
of Common Stock and outstanding stock options, using the treasury stock method
and the average stock price during the period.
Significant Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standards Board Statement No. 130, "Reporting Comprehensive
Income" ("FAS 130"), which establishes standards for reporting and displaying
comprehensive income and its components in a full set of general purpose
financial statements. The Company adopted FAS 130 effective for its fiscal year
ended December 31, 1998. Comprehensive income is the same as net income for the
Company.
In June 1997, the FASB issued Financial Accounting Standards Board
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("FAS 131"). The Company adopted FAS 131 effective for its fiscal
year ended December 31, 1998. The adoption of FAS 131 had no impact on the
Company, as the Company operates in only one business segment, consisting of
investments in healthcare related-related properties and mortgages throughout
the United States.
Reclassification
Certain reclassifications have been made in the financial statements for
the years ended 1997 and 1996 to conform to the 1998 presentation. These
reclassifications had no effect on the results of operations as previously
reported.
2. Capstone Merger
On June 8, 1998, the Company announced a definitive agreement to acquire
Capstone Capital Corporation ("Capstone"). The merger was consummated on October
15, 1998. Pursuant to the merger agreement, the Company acquired Capstone in a
stock-for-stock merger in which the stockholders of Capstone received a fixed
ratio of .8518 shares of the Company's common stock and the holders of Capstone
preferred stock received one share of the Company's voting preferred stock in
exchange for each share of Capstone preferred stock. The Company issued
18,906,909 shares of common stock (see Note 11) and 3,000,000 shares of
preferred stock. The transaction was accounted for as a purchase and resulted in
no goodwill.
The purchase price is summarized as follows (in thousands):
<TABLE>
<S> <C>
Common stock $ 532,554
Preferred stock 72,052
Cash and cash equivalents 8,330
Liabilities assumed 424,897
-------
Total Purchase Price $ 1,037,833
===========
</TABLE>
The assets acquired in the Capstone merger are summarized as follows (in
thousands):
<TABLE>
<S> <C>
Real estate properties $ 804,178
Mortgage notes receivable 211,590
Cash and cash equivalents 13,767
Other assets 8,298
-----
Total Assets Acquired $ 1,037,833
===========
</TABLE>
-16-
<PAGE>
The unaudited proforma results of operations for the two years ended
December 31, 1998 and 1997, assuming that the Capstone merger had occurred as of
the beginning of each of those periods are (dollars in thousands, except for per
share data):
<TABLE>
1998 1997
---- ----
<S> <C> <C>
Revenues $ 168,721 $ 116,974
Net income $ 73,186 $ 54,234
Net income per share - Basic $ 1.74 $ 1.39
Net income per share - Diluted $ 1.72 $ 1.38
</TABLE>
3. Real Estate Property Leases
The Company's properties are generally leased or supported pursuant to
noncancelable, fixed-term operating leases and other financial support
arrangements with expiration dates from 1999 to 2018. Some leases and financial
arrangements provide for fixed rent renewal terms of five years, or multiples
thereof, in addition to market rent renewal terms. The leases generally provide
the lessee, during the term of the lease and for a short period thereafter, with
an option and a right of first refusal to purchase the leased property.
Each lease generally requires the lessee to pay minimum rent, additional
rent based upon increases in the Consumer Price Index or increases in net
patient revenues (as defined in the lease agreements), and all taxes (including
property tax), insurance, maintenance and other operating costs associated with
the leased property.
Amounts of rental income received from lessees who accounted for more than
10% of the Company's rental income for the three years in the period ended
December 31, 1998 were (in thousands):
<TABLE>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Tenet Healthcare $ 13,713 $ 13,297 $ 11,539
Columbia/HCA Healthcare Corporation 17,125 13,899 8,761
Phycor 8,899 8,218 2,160
</TABLE>
Future minimum lease and guaranty payments under the noncancelable
operating leases and financial support arrangements as of December 31, 1998 are
as follows (in thousands):
<TABLE>
<S> <C>
1999 $ 133,651
2000 134,104
2001 133,359
2002 132,682
2003 133,175
2004 and thereafter 796,270
-------
$ 1,463,241
</TABLE>
-17-
<PAGE>
4. Real Estate Properties
The following table summarizes the Company's real estate properties by type
of facility and by state as of December 31, 1998 (dollars in thousands).
<TABLE>
<CAPTION>
Buildings and
Number of Improvements Personal Accumulated
Facilities (1) Land and CIP Property Total Depreciation
-------------- ---- ------- -------- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ancillary hospital facilities:
California 10 20,560 74,944 40 95,543 4,667
Florida 12 5,843 88,016 114 93,973 4,885
Texas 13 9,472 71,894 259 81,625 7,407
Virginia 7 11,718 54,225 87 66,031 3,870
Other states 18 12,265 146,488 59 158,811 5,811
-- ------ ------- -- ------- -----
60 59,858 435,567 559 495,983 26,640
Assisted Living Facilities:
New Jersey 2 0 13,527 0 13,527 0
Pennsylvania 7 1,017 27,654 0 28,671 90
Texas 8 0 71,153 0 71,153 301
Virginia 3 888 15,815 0 16,703 67
Other states 14 765 42,507 0 43,271 99
-- --- ------ - ------ --
34 2,670 170,656 0 173,325 557
Ambulatory surgery centers:
Florida 2 0 16,179 0 16,179 69
Missouri 2 2,958 12,555 0 15,513 59
Nevada 1 940 2,861 0 3,801 327
Texas 1 510 1,514 15 2,040 278
Other states 3 541 3,370 9 3,919 165
- --- ----- - ----- ---
9 4,949 36,479 24 41,452 898
Comprehensive ambulatory care:
California 1 2,571 19,281 0 21,853 82
Florida 6 5,866 36,367 0 42,233 764
Illinois 1 198 10,935 0 11,133 47
Texas 2 1,643 20,005 69 21,717 2,761
Other states 6 687 28,655 0 29,342 66
- --- ------ - ------ --
16 10,965 115,243 69 126,278 3,720
Inpatient rehabilitation facilities:
Alabama 1 0 17,388 0 17,388 108
Florida 1 0 11,483 0 11,483 72
Pennsylvania 6 4,675 105,461 0 110,136 521
Texas 1 1,095 11,578 0 12,673 49
Virginia 1 364 2,575 0 2,939 11
- --- ----- - ----- --
10 6,134 148,485 0 154,619 761
Medical office buildings:
Tennessee 1 3,212 5,518 0 8,730 58
Texas 1 166 1,810 0 1,976 202
Virginia 4 1,927 11,774 129 13,830 959
- ----- ------ --- ------ ---
6 5,305 19,102 129 24,536 1,219
Physician clinics:
Alabama 2 2,382 8,419 0 10,801 37
Florida 9 12,097 41,844 51 53,991 2,424
Massachusetts 5 4,204 26,003 0 30,207 111
Texas 3 6,550 22,184 461 29,195 1,932
Other states 16 5,956 23,512 0 29,467 624
-- ----- ------ - ------ ---
35 31,189 121,962 512 153,661 5,128
Skilled nursing facilities:
Colorado 3 2,885 23,522 0 26,408 1,059
Pennsylvania 3 478 20,098 0 20,576 86
Texas 2 1,795 17,670 0 19,466 887
Virginia 7 1,870 40,773 0 42,643 174
Other states 14 6,568 62,263 215 69,047 5,382
-- ----- ------ --- ------ -----
29 13,596 164,326 215 178,140 7,588
Other:
Alabama 1 182 8,569 8 8,759 1,520
Arizona 2 0 2,518 0 2,518 0
Michigan 1 4,692 9,751 0 14,443 42
Mississippi 1 538 3,718 30 4,285 519
Texas 1 539 5,737 0 6,277 26
- --- ----- - ----- --
6 5,951 30,293 38 36,282 2,107
Corporate property 0 0 0 3,279 3,279 1,498
- - - ----- ----- -----
Total property 205 140,617 1,242,113 4,825 1,387,555 50,116
=== ======= ========= ===== ========= ======
</TABLE>
(1) Includes thirteen lessee developments.
-18-
<PAGE>
5. Notes and Bonds Payable
Notes and bonds payable at December 31, 1998 and 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
<S> <C> <C> <C>
Unsecured credit facility $ 171,000 $ 11,300
Term loan facility 179,200 -
Unsecured notes 72,000 90,000
6.55% Convertible subordinated debentures, net 73,219 -
10.50% Convertible subordinated debentures, net 3,823 -
Mortgage notes 60,682 -
------ -
$ 559,924 $ 101,300
=========== ===========
</TABLE>
Unsecured Credit Facility
On October 15, 1998, concurrent with the Capstone merger, the Company
repaid the outstanding balances under both Capstone and its own unsecured credit
facilities and entered into a $265.0 million unsecured credit facility (the
"Unsecured Credit Facility") with ten commercial banks. The Unsecured Credit
Facility bears interest at LIBOR plus 1.05%, payable quarterly, and matures on
October 15, 2001. In addition, the Company will pay, quarterly, a commitment fee
of 0.225 of 1% on the unused portion of funds available for borrowings. The
Unsecured Credit Facility contains certain representations, warranties, and
financial and other covenants customary in such loan agreements. At December 31,
1998, the Company had available borrowing capacity of $94.0 million under the
Unsecured Credit Facility.
Term Loan Facility
On October 15, 1998, concurrent with the Capstone merger, the Company
entered into a $200.0 million unsecured term loan (the "Term Loan Facility")
with NationsBank. The Term Loan Facility bears interest at LIBOR plus 1.05%,
payable quarterly, and matures on April 16, 1999. The Company intends to
exercise the option to extend the maturity date for an additional six month
period in consideration of an extension payment of .30 of 1%. The Term Loan
Facility contains certain representations, warranties and financial and other
covenants customary in such loan agreements, as well as restrictions on dividend
payments if minimum tangible capital requirements are not met. At December 31,
1998, the Company had no additional available borrowing capacity under the Term
Loan Facility.
Unsecured Notes
On September 18, 1995, the Company privately placed $90.0 million of
unsecured notes (the "Unsecured Notes") with 16 institutions. The Unsecured
Notes bear interest at 7.41%, payable semi-annually, and mature on September 1,
2002. Beginning on September 1, 1998 and on each September 1 through 2002, the
Company must repay $18.0 million of principal. The note agreements pursuant to
which the Unsecured Notes were purchased contain certain representations,
warranties and financial and other covenants customary in such loan agreements.
Convertible Subordinated Debentures
As part of the Capstone merger, the Company assumed and recorded at fair
value $74.7 million aggregate face amount of 6.55% Convertible Subordinated
Debentures (the "6.55% Debentures") of Capstone. At December 31, 1998, the
Company had approximately $73.2 million aggregate principal amount of 6.55%
Debentures outstanding with a face amount of $74.7 million and unaccreted
discount of $1.5 million. Such rate of interest and accretion of discount
represents a yield to maturity of 7.5% per annum (computed on a semiannual bond
equivalent basis). The 6.55% Debentures are due on March 14, 2002, unless
redeemed earlier by the Company or converted by the holder, and are callable on
March 16, 2000. Interest on the 6.55% Debentures is payable on March 14 and
September 14 in each year. The 6.55% Debentures are convertible into shares of
common stock of the Company at the option of the holder at any time prior to
redemption or stated maturity, at a conversion price rate of 33.6251 shares per
$1 thousand bond.
As part of the Capstone merger, the Company assumed and recorded at fair
value $3.75 million aggregate face amount of 10.5% Convertible Subordinated
Debentures (the "10.5% Debentures") of Capstone. At December 31, 1998, the
Company had approximately $3.8 million aggregate principal amount of 10.5%
Debentures outstanding with a face amount of $3.6 million and unamortized
premium of $0.2 million. Such rate of interest and amortization of premium
represents a yield to maturity of 7.5% per annum (computed on a semiannual bond
equivalent basis). The 10.5% Debentures are due on April 1, 2002, unless
redeemed earlier by the Company or converted by the holder, and are callable on
April 5, 2000. Interest on the 10.5% Debentures is payable on April 1 and
October 1 in each year. The 10.5% Debentures are convertible into shares of
common stock of the Company at the option of the holder at any time prior to
redemption or stated maturity, at a conversion price rate of 52.8248 shares per
$1 thousand bond.
-19-
<PAGE>
Mortgage Notes
As part of the Capstone merger, the Company assumed six non-recourse
mortgage notes payable, and the related collateral, as follows:
(Dollars in millions)
<TABLE>
<CAPTION>
Book Value
Of Collateral at Balance at
Original December 31, December 31,
Mortgagor Balance Interest Rate Collateral 1998 1998
<S> <C> <C> <C> <C> <C>
Life Insurance Co. $ 23.3 8.500% Ancillary hospital facility $ 40.1 $ 22.9
Life Insurance Co. 4.7 7.625% Ancillary hospital facility 10.2 4.5
Life Insurance Co. 17.1 8.125% Two Ambulatory surgery centers 35.0 16.8
& one ancillary hospital
facility
Bank 17.0 8.250% Six skilled nursing facilities 29.6 16.5
---- ----- ---- ----
$ 62.1 $ 114.9 $ 60.7
======= ========= ========
</TABLE>
The $23.3 million note is payable in monthly installments of principal and
interest based on a 30 year amortization with the final payment due in July
2026. The $4.7 million note is payable in monthly installments of principal and
interest based on a 20 year amortization with the final payment due in January
2017. The three notes totaling $17.1 million are payable in monthly installments
of principal and interest based on a 25 year amortization with a balloon payment
of the unpaid balance in September 2004. The $17.0 million note bears interest
at 50 basis points in excess of the prime rate, and is payable in monthly
installments of principal and interest based on a 25 year amortization with a
balloon payment of the unpaid balance in June 2000.
Other Long-Term Debt Information
Future maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C> <C>
1999 $ 197,644
2000 112,289
2001 189,684
2002 18,742
2003 805
2004 and thereafter 40,760
------
$ 559,924
==========
</TABLE>
During the years ended December 31, 1998, 1997 and the 1996, interest paid
totaled $11.1 million, $9.0 million and $8.4 million, and capitalized interest
totaled $1.4 million, $0.7 million and $2.2 million, respectively.
6. No-Cash Acquisitions of Real Estate
During November 1996, the Company acquired ten properties, in exchange for
an aggregate of 687,692 shares of the Company's common stock (valued at $16.1
million) and the assumption of $20.6 million of notes payable, $4.1 million of
bonds payable and $3.0 million of accounts payable and accrued liabilities, and
incurred $0.5 million in acquisition costs. In addition to the properties,
representing an aggregate investment of $44.1 million, the Company acquired $0.2
million of other assets. The Company has repaid the notes and bonds payable
assumed in the acquisition.
-20-
<PAGE>
7. Stockholders' Equity
The Company had common and preferred shares outstanding as of the three
years ended December 31, 1998 as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Common Shares
Balance, beginning of period 19,285,927 13,898,777 12,976,796
Issuance of stock 20,226,981 5,235,761 718,084
Shares awarded as deferred stock compensation 148,357 143,716 203,897
Shares issued from warrants 131,510 7,673 -
------- ----- -
Balance, end of period 39,792,775 19,285,927 13,898,777
========== ========== ==========
Preferred Shares
Balance, beginning of period - - -
Issuance of stock 3,000,000 - -
--------- - -
Balance, end of period 3,000,000 - -
========= = =
</TABLE>
On October 15, 1998, the Company issued 18,906,909 shares of Common stock
and 3,000,000 shares of 8 7/8% Series A Voting Cumulative Preferred stock in a
stock-for-stock merger with Capstone Capital Corporation (see Note 2).
In July 1998, warrants for 128,149 shares of common stock were exercised.
The Company has no other warrants outstanding. During April and May 1998, the
Company sold an aggregate of 49,953 shares of common stock to a single
institutional investor. In February 1998, the Company participated in two unit
investment trust offerings and sold an aggregate of 1,224,026 shares of its
common stock. The Company received an aggregate of $37.1 million in proceeds for
these transactions. The proceeds were used to repay outstanding borrowings under
the Unsecured Credit Facility, acquisitions, developments and for general
corporate purposes.
Effective February 14, 1997, the Company sold 5,175,000 shares of its
common stock in a secondary offering (the "Secondary Offering") under its
currently effective registration statement pertaining to $250.0 million of
equity securities, debt securities and warrants. The Company received $133.4
million in net proceeds. Promptly thereafter, the net proceeds were used, in
part, to extinguish all $71.9 million of indebtedness outstanding under the
Unsecured Credit Facility, and to repay or defease secured indebtedness in the
total amount of $6.7 million. Remaining proceeds of the Secondary Offering of
approximately $57.2 million have been invested in additional property
acquisitions, build-to-suit property development and for general corporate
purposes.
8. Benefit Plans
Executive Retirement Plan
The Company has an Executive Retirement Plan, under which an executive
designated by the Compensation Committee of the Board of Directors may receive
upon normal retirement (defined to be when the executive reaches age 65 and has
completed five years of service with the Company) 60% of the executive's final
average earnings (defined as the average of the executive's highest three years'
earnings) plus 6% of final average earnings times years of service after age 60
(but not more than five years), less 100% of certain other retirement benefits
received by the executive.
Retirement Plan for Outside Directors
The Company has a retirement plan for outside directors which upon
retirement will pay annually, for a period not to exceed 15 years, an amount
equal to the director's pay immediately preceding retirement from the Board.
-21-
<PAGE>
Retirement Plan Information
Net expense for both the Executive Retirement Plan and the Retirement Plan
for Outside Directors (the "Plans") for the two years in the period ended
December 31, 1998 is comprised of the following (in thousands):
<TABLE>
1998 1997
---- ----
<S> <C> <C>
Service cost $ 775 $ 218
Interest cost 103 73
Other 10 (10)
-- ---
$ 888 $ 281
======= =======
</TABLE>
The Plans are unfunded and benefits will be paid from earnings of the
Company. The following table sets forth the benefit obligations at December 31,
1998 and 1997 (in thousands).
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Benefit obligation at beginning of year $ 1,213 $ 744
Service cost 775 218
Interest cost 103 73
Other 10 (10)
Actuarial gain 452 188
--- ---
Benefit obligation at end of year 2,553 1,213
Unrecognized net actuarial (gain) loss (362) 90
---- --
Net pension liability in accrued liabilities $ 2,191 $ 1,303
========= =======
</TABLE>
Accounting for the Executive Retirement Plan for the years ended December
31, 1998 and 1997 assumes discount rates of 7.04% and 7.6%, respectively, and
compensation increase rates of 2.7% and 2.7%, respectively. Accounting for the
Retirement Plan for Outside Directors assumes discount rates of 7.04% and 7.6%,
respectively.
9. Stock Plans and Warrants
1993 Employees Stock Incentive Plan
The Company is authorized to issue stock representing up to 7.5% of its
outstanding shares of common stock, (the "Employee Plan Shares") under the 1993
Employees Stock Incentive Plan (the "Employee Plan"). As of December 31, 1998
and 1997, the Company had a total of 2,470,080 and 1,073,735 Employee Plan
Shares authorized, respectively, that had not been issued. Unless terminated
earlier, the Employee Plan will terminate on January 1, 2003. As of December 31,
1998 and 1997, the Company had issued a total of 514,378 and 372,710, and had
specifically reserved, but not issued, a total of 445,000 and 141,668 Employee
Plan Shares (the "Reserved Stock"), respectively, for performance-based awards
to employees under the Employee Plan. The issuance of Reserved Stock to eligible
employees is contingent upon the achievement of specific performance criteria.
The Reserved Stock awards are subject to fixed vesting periods varying from four
to twelve years beginning on the date of issue. If an employee voluntarily
terminates employment with the Company before the end of the vesting period, the
shares are forfeited, at no cost to the Company. Once the Reserved Stock has
been issued, the employee has the right to receive dividends and the right to
vote the shares. For 1998 and 1997, compensation expense resulting from the
amortization of the value of these shares was $1.2 million and $0.6 million,
respectively.
Non-Employee Directors' Stock Plans
Prior to May 1995, the Company was authorized to issue stock options for up
to 2% of its outstanding shares of common stock under the 1993 Outside Directors
Stock Incentive Plan (the "1993 Director Plan"). During 1996 the Company
canceled all unexercised options granted pursuant to the 1993 Director Plan.
Effective May 1995, the Company enacted the 1995 Restricted Stock Plan for
Non-Employee Directors (the "1995 Directors' Plan"). The Directors' stock vests
in each Director upon the date three years from the date of issue and is subject
to forfeiture prior to such date upon termination of the Director's service, at
no cost to the Company. As of December 31, 1998 and 1997, the Company had a
total of 95,800 and 96,850 shares under the 1995 Directors' Plan authorized,
respectively, that had not been issued. As of December 31, 1998 and 1997, the
Company had issued a total of 13,473 and 12,423 shares, respectively, pursuant
to the Non-Employee Directors' Stock Plans. For 1998 and 1997, compensation
expense resulting from the amortization of the value of these shares was $89,792
and $79,354 respectively.
-22-
<PAGE>
1995 Employee Stock Purchase Plan
Effective May 1995, the Company adopted an Employee Stock Purchase Plan
(the "Employee Purchase Plan") pursuant to which the Company is authorized to
issue shares of common stock (the "Employee Purchase Plan Shares"). As of
December 31, 1998 and 1997, the Company had a total of 851,232 and 883,664
shares authorized under the Employee Purchase Plan, respectively, that had not
been issued or optioned. Under the Employee Purchase Plan, each eligible
employee as of May 1995 and each subsequent January 1 has been or shall be
granted an option to purchase up to $25,000 of common stock at the lesser of 85%
of the market price on the date of grant or 85% of the market price on the date
of exercise of such option (the "Exercise Date"), but at not less than book
value per share as of the December 31 immediately preceding the date of grant.
The number of shares subject to each year's option becomes fixed on the date of
grant. Eligible employees include those employees who were employed by the
Company or a subsidiary on a full-time basis as of May 1995 and those employees
with six months of service who are so employed by the Company or subsidiary as
of each subsequent January 1. Options granted under the Employee Purchase Plan
expire if not exercised 27 months after each such option's date of grant.
A summary of Employee Purchase Plan activity and related information for
the years ended December 31 is as follows:
<TABLE>
<CAPTION>
All Options
-----------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Outstanding, beginning of year 65,573 71,073 47,268
Granted 74,472 69,930 47,564
Exercised (12,289) (40,631) (10,132)
Forfeited (31,799) (23,723) (13,627)
Expired (10,241) (11,076) -
------- ------- -
Outstanding and exercisable at end of year 85,716 65,573 71,073
Weighted-average fair value of options granted during the year
(calculated as of the grant date) $ 5.94 $ 3.12 $ 2.70
Weighted-average exercise price of options exercised during the year $ 20.69 $ 19.48 $ 18.59
Weighted-average exercise price of options outstanding (calculated as of Dec. 31) $ 19.10 $ 21.58 $ 19.09
Range of exercise prices of options outstanding (calculated as of Dec. 31) $18.43-$19.52 $19.71-$22.47 $18.46-$19.71
Weighted-average contractual life of outstanding options (calculated as of
December 31, in years) 0.9 0.9 0.9
</TABLE>
The fair value for these options was estimated at the date of grant using a
Black-Scholes options pricing model with the following assumptions for 1998,
1997 and 1996; risk-free interest rates of 5.00%, 6.00% and 6.30%; a dividend
yield of 7.13%, 8.02% and 8.60%; a volatility factor of the expected market
price of the Company's Common Stock of .139, .096 and .121; and an expected life
of the option of 1.13 years, respectively. The Company has determined that the
pro forma effect on net income and earnings per share for the three years in the
period ended December 31, 1998 of adopting Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" is not material.
Other
In 1993, the Company issued warrants to purchase up to 188,712 shares of
common stock (the "Warrants"). The Warrants were exercisable for a period of
four years commencing July 1, 1994 at a price of $19.50 per share, the then
current fair market value, subject to adjustment under applicable antidilution
provisions. The holders of the Warrants had the right to require the Company to
include the common stock underlying such Warrants in any registration statement
filed by the Company at the Company's expense. At December 31, 1998 and 1997,
the Company had a total of zero and 162,712 shares, respectively, eligible for
purchase pursuant to the Warrants. During the twelve months ended December 31,
1998 and 1997, the Company had issued a total of 131,510 and 7,673 shares,
respectively, and had cancelled 13,000 and 18,327 shares, respectively, pursuant
to the Warrants. As of December 31, 1998, the Company has no warrants
outstanding.
At December 31, 1998 and 1997, the Company had reserved 3,430,112 and
2,216,961 shares, respectively, for future issuance under stock plans.
-23-
<PAGE>
10. Net Income Per Share
The table below sets forth the computation of basic and diluted earnings
per share as required by FASB Statement No. 128 for the three years in the
period ended December 31, 1998.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Basic EPS
Average Shares Outstanding 24,573,885 18,605,876 13,254,233
Actual Restricted Stock Shares (529,943) (383,633) (239,947)
-------- -------- --------
Denominator - Basic 24,043,942 18,222,243 13,014,286
========== ========== ==========
Net income $ 40,478,407 $ 31,212,289 $ 19,731,623
Preferred Stock Dividend (554,688) 0 0
-------- - -
Numerator - Basic $ 39,923,719 $ 31,212,289 $ 19,731,623
============== ============== =============
Per share amount $ 1.66 $ 1.71 $ 1.52
============== ============== =============
Diluted EPS
Average Shares Outstanding 24,573,885 18,605,876 13,254,233
Actual Restricted Stock Shares (529,943) (383,633) (239,947)
Dilution for Convertible Debentures 40,017 0 0
Restricted Shares - Treasury 405,235 276,890 205,097
Dilution For Employee Stock Purchase Plan 15,597 25,032 13,981
Dilution For Warrants 19,809 48,327 27,927
------ ------ ------
Denominator - Diluted 24,524,600 18,572,492 13,261,291
========== ========== ==========
Numerator - Basic $ 39,923,719 $ 31,212,289 $ 19,731,623
Convertible Subordinated Debenture Interest 63,638 0 0
------ - -
Numerator - Diluted $ 39,987,357 $ 31,212,289 $ 19,731,623
============== ============= ============
Per share amount $ 1.63 $ 1.68 $ 1.49
============== ============= ============
</TABLE>
11. Commitments
As of December 31, 1998, the Company had a net investment of approximately
$72.2 million in thirteen build-to-suit developments in progress, which have a
total remaining funding commitment of approximately $34.7 million. The Company
also has 21 mortgages under development at December 31, 1998, which have a total
remaining funding commitment of approximately $28.2 million.
As a part of the Capstone merger, agreements were entered into with three
individuals affiliated with Capstone that restrict competitive practices and
which the Company believes will protect and enhance the value of the real estate
properties acquired from Capstone. These agreements provide for the issuance of
150,000 shares per year of common stock of the Company to the individuals on
October 15 of the years 1999, 2000, 2001, and 2002, provided all terms of the
agreement are met.
-24-
<PAGE>
12. Other Data
Funds From Operations (Unaudited)
Funds from operations, as defined by the National Association of Real
Estate Investment Trusts, Inc. ("NAREIT") 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. 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 the Company's operating performance or as an alternative to cash
flow as a measure of liquidity.
<TABLE>
<CAPTION>
Year Ended Dec. 31,
-------------------
(Unaudited)
(Dollars in thousands) 1998 1997
---- ----
<S> <C> <C>
Net Income (1) $ 40,479 $ 31,212
Non-recurring items (2) 6,308 112
Gain or loss on dispositions (3) (675) -
Straight line rents (1,264) -
Preferred stock dividend (555) -
Depreciation
Real estate 15,374 11,013
Office F,F&E 0 0
Leasehold improvements 0 0
Other non-revenue producing assets 0 0
- -
15,374 11,013
------ ------
Amortization
Acquired property contracts 0 0
Other non-revenue producing assets 0 0
Organization costs 0 0
- -
0 0
- -
Deferred financing costs 0 0
- -
Total Adjustments 19,189 11,125
------ ------
Funds From Operations - Basic $ 59,667 $ 42,337
============ ===========
Convertible Subordinated Debenture Interest 64 0
-- -
Funds From Operations - Diluted $ 59,731 $ 42,337
======== ===========
Shares Outstanding - Basic 24,043,942 18,222,243
========== ==========
Shares Outstanding - Diluted 24,524,600 18,572,492
========== ==========
Funds From Operations Per Share - Basic $ 2.48 $ 2.32
============ ===========
Funds From Operations Per Share - Diluted $ 2.44 $ 2.28
============ ===========
</TABLE>
(1) 1998 and 1997 amounts include $1.4 million and $0.7 million, respectively,
of stock-based, long-term, incentive compensation expense, a non-cash expense.
(2) Represents charges primarily to write off certain capitalized costs,
leasehold improvements, organization and other deferred costs in 1998 and a loss
from a debt restructuring in 1997.
(3) Represents gains from sales of a real estate property and a tract of land.
Return of Capital
Distributions in excess of earnings and profits generally constitute a
return of capital. For the years ended December 31, 1998, 1997 and 1996,
dividends paid per share of common stock were $2.07, $1.99 and $1.91,
respectively, which consisted of ordinary income per share of $2.07, $1.72 and
$1.65 and return of capital per share of $0.00, $0.27 and $0.26, respectively.
For the year ended December 31, 1998, dividends paid per share of preferred
stock were $0.46, all of which was ordinary income.
-25-
<PAGE>
13. Fair Value of Financial Instruments
The carrying amounts of cash, receivables and payables are a reasonable
estimate of their fair value due to their short-term nature. The fair value of
notes and bonds payable is estimated using discounted cash flow analyses, based
on the Company's current incremental borrowing rates for similar types of
borrowing arrangements. The difference between the carrying amount and the fair
value of the Company's notes and bonds payable is not significant. At December
31, 1998, the carrying value of mortgage notes receivable approximates fair
value based on the present value of future cash flows using current market
interest rates.
14. Subsequent Events
On January 26, 1999, the Company declared an increase in its quarterly
dividend from $.525 per share ($2.10 annualized) to $.53 per share ($2.12
annualized) payable on February 16, 1999 to shareholders of record on February
5, 1999. On February 17, 1999, the Company received proceeds of approximately
$8.1 million from the sale of an ancillary hospital facility in Savannah,
Georgia.
15. Selected Quarterly Financial Data (unaudited)
Quarterly financial information for the years ended December 31, 1998 and
1997 is summarized below:
<TABLE>
<CAPTION>
Quarter Ended
-------------
(In thousands, except per share data) March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1998
Total revenue $ 17,333 $ 17,730 $ 18,325 $ 39,716
------------ ----------- ----------- ------------
Net income $ 8,606 $ 9,381 $ 3,050 $ 19,442
------------ ----------- ----------- ------------
Funds from operations - Basic $ 11,604 $ 12,316 $ 12,368 $ 23,379
------------ ----------- ----------- ------------
Funds from operations - Diluted $ 11,604 $ 12,316 $ 12,368 $ 23,443
------------ ----------- ----------- ------------
Net income per share - Basic $ 0.44 $ 0.46 $ 0.15 $ 0.52
------------ ----------- ----------- ------------
Net income per share - Diluted $ 0.43 $ 0.45 $ 0.15 $ 0.51
------------ ----------- ----------- ------------
Funds from operations per share - Basic $ 0.60 $ 0.61 $ 0.61 $ 0.65
------------ ----------- ----------- ------------
Funds from operations per share - Diluted $ 0.59 $ 0.60 $ 0.60 $ 0.64
------------ ----------- ----------- ------------
1997
Total revenue $ 12,842 $ 14,265 $ 15,865 $ 16,824
------------ ----------- ----------- ------------
Net income $ 6,339 $ 8,170 $ 8,328 $ 8,375
------------ ----------- ----------- ------------
Funds from operations - Basic $ 9,056 $ 10,873 $ 11,122 $ 11,286
------------ ----------- ----------- ------------
Funds from operations - Diluted $ 9,056 $ 10,873 $ 11,122 $ 11,286
------------ ----------- ----------- ------------
Net income per share - Basic $ 0.39 $ 0.43 $ 0.44 $ 0.44
------------ ----------- ----------- ------------
Net income per share - Diluted $ 0.38 $ 0.42 $ 0.43 $ 0.44
------------ ----------- ----------- ------------
Funds from operations per share - Basic $ 0.56 $ 0.58 $ 0.59 $ 0.60
------------ ----------- ----------- ------------
Funds from operations per share - Diluted $ 0.55 $ 0.57 $ 0.58 $ 0.59
------------ ----------- ----------- ------------
</TABLE>
-26-
<TABLE>
<CAPTION>
Exhibit 21
Subsidiaries of the Registrant
<S> <C>
Subsidiary* State of Incorporation
HR of Texas, Inc. Maryland
HRT of Alabama, Inc. Alabama
HRT of Tennessee, Inc. Tennessee
HRT of Virginia, Inc. Virginia
Healthcare Realty Services Incorporated Alabama
HRT of Florida, Inc. Florida
HRT of Roanoke, Inc. Virginia
HRT of Delaware, Inc. Delaware
HR Interests, Inc. Texas
Pennsylvania HRT, Inc. Pennsylvania
HR Acquisition I Corporation 1 Maryland
_______________
* All of the above listed subsidiaries are wholly owned by the Company.
Affiliates of HR Acquisition I Corporation:* State of Organization
Capstone Capital of Alabama, Inc. Alabama
Capstone Capital of Baytown, Inc. Alabama
Capstone Capital of Bonita Bay, Inc. Alabama
Capstone Capital of California, Inc. Alabama
Capstone Capital of Cape Coral, Inc. Alabama
Capstone Capital of Kentucky, Inc. Alabama
Capstone of Las Vegas, Inc. Alabama
Capstone Capital of Los Angeles, Inc. Alabama
Capstone Capital of Massachusetts, Inc. Alabama
Capstone Capital of Ocoee, Inc. Alabama
Capstone Capital of Pennsylvania, Inc. Pennsylvania
Capstone Capital of Port Orange, Inc. Alabama
Capstone Capital of Sarasota, Inc. Alabama
Capstone Capital of Texas, Inc. Alabama
Capstone Capital of Virginia, Inc. Alabama
Capstone Capital Properties, Inc. Alabama
Capstone Capital Senior Housing, Inc. Alabama
* All of the above listed subsidiaries are wholly owned by HR Acquisition I
Corporation.
1 Formerly known as Capstone Capital Corporation
<PAGE>
Other Affiliates* State of Organization
Durham Medical Office Building, Inc. Texas
HR Assets, Inc. (Inactive) Texas
HR Capital, Inc. (Inactive) Texas
HR Funding, Inc. (Inactive) Texas
HR of San Antonio, Inc.2**
</TABLE>
Texas
* The Company owns approximately 99% by value of the stock of each of the
above listed other affiliates. The remainder of the affiliates' stock is
owned by, and voting control rests with, executive officers of the Company.
** Durham Medical Office Building, Inc. is 100% Shareholder.
<TABLE>
<CAPTION>
Limited Partnerships: Percent of Ownership* State of Organization
<S> <C> <C>
Healthcare Realty of Tennessee, L.P. 100% Tennessee
San Antonio SSP, Ltd. 25.3% Texas
Pasadena Medical Plaza, SSJ, Ltd. 51.0% Florida
Trinity SSJ, Ltd. 51.0% Texas
Capstone of Bonita Bay, Ltd. 100% Alabama
Capstone of Cape Coral, Ltd. 100% Alabama
Capstone of Las Vegas, Ltd. 100% Alabama
Capstone of Los Angeles, Ltd. 25% Alabama
Capstone of Ocoee, Ltd. 75% Alabama
Capstone of Port Orange, Ltd. 75% Alabama
Capstone of San Antonio, Ltd. 100% Alabama
Capstone of Sarasota, Ltd. 100% Alabama
Capstone of Virginia Limited Partnership 90% Alabama
Cap Bay IV, Ltd. 75% Alabama
Cap Bay V, Ltd. 75% Alabama
Cap Bay VII, Ltd. 70% Alabama
Cap Bay VIII, Ltd. 70% Alabama
</TABLE>
* The Company and/or certain affiliates have varying amounts of ownership
as either the general or limited partner in these limited partnerships.
- --------
2 Formerly known as SSP San Antonio, Inc.
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Healthcare Realty Trust Incorporated of our report dated January 29,
1999 (except for Note 14 as to which the date is February 17, 1999) included in
the 1998 Annual Report to Shareholders of Healthcare Realty Trust Incorporated.
Our audits also included the financial statement schedules of Healthcare
Realty Trust Incorporated listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedules
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-97240) pertaining to the Healthcare Realty Trust
Incorporated 1993 Employees Stock Incentive Plan, 1995 Restricted Stock Plan for
Non-Employee Directors, and 1995 Employee Stock Purchase Plan; in the
Registration Statement (Form S-3 No. 33-97888) pertaining to the registration of
$250,000,000 of debt securities, preferred stock, common stock warrants, and
common stock; and in the Registration Statement (Form S-3 No. 33-79452)
pertaining to the Healthcare Realty Trust Incorporated Dividend Reinvestment
Plan of our report dated January 29, 1999 (except for Note 14 as to which the
date is February 17, 1999), with respect to the consolidated financial
statements incorporated herein by reference, and our report included in the
preceding paragraph with respect to the financial statement schedules included
in this Annual Report (Form 10-K) of Healthcare Realty Trust Incorporated.
ERNST & YOUNG LLP
Nashville, Tennessee
March 26, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-1-1998
<PERIOD-END> Dec-31-1998
<EXCHANGE-RATE> 1
<CASH> 14,411
<SECURITIES> 0
<RECEIVABLES> 19,975
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,386
<PP&E> 1,387,555
<DEPRECIATION> 50,116
<TOTAL-ASSETS> 1,615,423
<CURRENT-LIABILITIES> 37,795
<BONDS> 559,924
0
30
<COMMON> 398
<OTHER-SE> 1,017,276
<TOTAL-LIABILITY-AND-EQUITY> 1,615,423
<SALES> 84,837
<TOTAL-REVENUES> 93,104
<CGS> 39,568
<TOTAL-COSTS> 52,625
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,057
<INCOME-PRETAX> 40,479
<INCOME-TAX> 0
<INCOME-CONTINUING> 40,479
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,479
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.63
</TABLE>
