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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
- --------- OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR
- --------- 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
COMMISSION FILE NUMBER: 1-11852
---------------
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:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
-------------------------------------------------------------------------------------
<S> <C>
Common Stock, $.01 par value per share New York Stock Exchange
8 7/8% Series A Voting Cumulative Preferred Stock, New York Stock Exchange
$.01 par value per share
10 1/2% Convertible Subordinated Debentures due 2002 New York Stock Exchange
6.55% Convertible Subordinated Debentures due 2002 New York Stock Exchange
</TABLE>
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
------ ------
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 8, 2000) of the Registrant held by non-affiliates on
March 8, 2000, were approximately $626,350,554 and $46,125,000, respectively.
As of March 8, 2000, 40,123,071 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 1999 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 16, 2000 are incorporated into
Part III of this Report.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Business............................................................4
The Company......................................................4
Property Acquisitions............................................7
Property Dispositions............................................7
Commitments......................................................7
Mortgage Portfolio...............................................7
Competition......................................................7
Government Regulation............................................8
Environmental Matters............................................9
Insurance.......................................................10
Employees.......................................................10
Federal Income Tax Information..................................11
ERISA Considerations............................................23
Cautionary Statements...........................................25
Item 2. Properties.........................................................29
Executive Offices...............................................29
Item 3. Legal Proceedings..................................................34
Item 4. Submission of Matters to a Vote of Securityholders.................34
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................................35
Item 6. Selected Financial Data............................................35
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................35
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.........35
Item 8. Financial Statements and Supplementary Data........................35
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................35
Item 10. Directors and Executive Officers of the Registrant.................36
Directors.......................................................36
Executive Officers..............................................36
Item 11. Executive Compensation.............................................36
Item 12. Security Ownership of Certain Beneficial Owners and Management.....36
Item 13. Certain Relationships and Related Transactions.....................37
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....37
</TABLE>
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PART I
ITEM 1. BUSINESS
THE COMPANY
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
---- -------
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 December
31, 1999, the Company has invested or committed to invest, directly and
indirectly, over $1.7 billion in 285 income-producing real estate properties and
mortgages associated with the delivery of healthcare services. As of December
31, 1999, the Company's real estate portfolio, containing over 8.9 million
square feet, was comprised of eight facility types and was operated pursuant to
contractual arrangements with 46 healthcare providers. Also, the Company's
mortgage portfolio was comprised of four facility types and was operated by 34
healthcare providers. At December 31, 1999, the Company provided property
management services for 282 healthcare-related properties nationwide, totaling
over 8.5 million square feet, and third-party asset management services for 274
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
to generate internal growth by
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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 the Company has a strategic advantage in providing its services to a more
diverse group of healthcare providers because the Company is not affiliated with
any of its clients and does not expect to be affiliated with potential clients.
Management believes that client diversification reduces the Company's
potential exposure to unsuccessful healthcare service strategies and to a
concentration of credit with any one healthcare provider. Approximately 66% of
the Company's real estate investments including mortgages, 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>
HealthSouth Corporation 17.9%
Columbia/HCA Healthcare Corporation 13.0%
Tenet Healthcare Corporation 6.7%
Life Care Centers of America 6.0%
Balanced Care Corporation 4.4%
</TABLE>
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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. Company assets that are in categories outside of the Company's
outpatient healthcare focus, such as its senior living assets, are under
continuing management analysis with a view toward possible disposition through
cash, like-kind exchange or securities transactions.
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)
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 97.9% 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.
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PROPERTY ACQUISITIONS
During the fourth quarter of 1999, the Company acquired a 25,000
square-foot ambulatory surgery center in Boca Raton, Florida for approximately
$6.1 million.
PROPERTY DISPOSITIONS
During the fourth quarter of 1999, the Company sold an ancillary
hospital facility in Dallas, Texas for approximately $4.3 million in net
proceeds, sold a physician clinic in Los Angeles, California for approximately
$700,000 in net proceeds; sold two ancillary hospital facilities in Savannah,
Georgia for approximately $12.8 million in net proceeds; and, four mortgage note
receivables were repaid for approximately $16.6 million in net proceeds.
COMMITMENTS
As of December 31, 1999, the Company had a net investment of
approximately $20.0 million in six build-to-suit developments in progress, which
have a total remaining funding commitment of approximately $37.6 million.
Further, the Company has commitments to purchase or provide funding for the
construction of other properties totaling $12.4 million at December 31, 1999.
The Company also has six mortgages under development at December 31, 1999, which
have a total remaining funding commitment of approximately $1.9 million.
As 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
agreements are met. The shares will be recorded on the Company's books at the
value of $28.0714 per share, the value of the shares issued in the Capstone
merger. The Company issued 150,000 shares during 1999 pursuant to these
agreements.
MORTGAGE PORTFOLIO
Mortgage notes receivable, substantially all of which were acquired in
the Capstone merger, were recorded at their fair value at the date of
acquisition. Approximately 48% of the mortgage notes receivable are secured by
assisted living facilities and 37% are secured by skilled nursing facilities.
The 83 mortgages in the portfolio at December 31, 1999 represent 34 operators.
Six of these mortgages, representing $21.7 million, or 8.5%, of the balance at
December 31, 1999, are secured by properties under development. The remaining
loan commitment at December 31, 1999 on these mortgages totals $1.9 million.
The weighted average maturity of the mortgage portfolio is
approximately 5.9 years, with maturity dates ranging from February 2001 to
October 2010. Interest rates, which range from 8% to 13%, are generally
adjustable each year to reflect increases in the Consumer Price Index.
Substantially all mortgages are subject to a prepayment penalty.
COMPETITION
The Company competes for property acquisitions with, among others:
- Investors;
- Healthcare providers;
- Other healthcare related REITs;
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- Real estate partnerships; and
- Financial institutions.
From 1992 until late 1998, the REIT industry was in an expansion mode,
and capital was readily available to REITs. 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 financial performance 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.
GOVERNMENT REGULATION
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
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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,
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
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.
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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.
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
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
As of March 8, 2000, the Company employed 227 people. None of the
employees is a member of a labor union, and the Company considers its relations
with its employees to be excellent.
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FEDERAL INCOME TAX INFORMATION
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
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).
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.
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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."
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.
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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, two 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
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.
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). The
Company has analyzed its gross income through December 31, 1999, 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 or acquires.
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,
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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) the income earned by the
Company for other services furnished or rendered by the Company to tenants of a
property or for the 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 adjusted tax
basis of the personal property to the total adjusted 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
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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, which 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 49 qualified REIT subsidiaries and other
affiliates which it employs in the conduct of its business.
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 of such earlier year. The Company's distributions
for 1999 were adequate to satisfy its distribution requirement.
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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
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
in effect through the year 2000 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.
Effective January 1, 2001, the ownership and use of nonqualified REIT
subsidiaries such as the Specified Affiliates will be governed by new rules
enacted by the Ticket to Work and Work Incentives Improvement Act of 1999. These
rules are discussed in more detail under "Ticket to Work and Work Incentives
Improvement Act of 1999 - Significant REIT Provisions - Taxable REIT
Subsidiaries."
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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.
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. Since the
Section 467 regulations provide 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 Section 467 regulations provide that leases providing for
fluctuations in rents by no more than a reasonable percentage, 15% for long-term
real property leases, from the average rent payable over the term of the lease
will be deemed to not be motivated by tax avoidance. The Company, based on its
evaluation of the value of the property and the terms of the leases, does not
believe it has 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
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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, 39 or 40 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.
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%
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(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
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
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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.
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
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<PAGE> 21
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
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.
Ticket to Work and Work Incentives Improvement Act of 1999--Significant REIT
Provisions
The Ticket to Work and Work Incentives Improvement Act of 1999 (the
"Act"), which includes several provisions pertinent to REITs, was enacted on
December 17, 1999 and will generally be effective for the Company beginning in
2001. The provisions of the Act that are pertinent to the Company are as
follows:
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<PAGE> 22
Taxable REIT Subsidiaries ("TRS")
A REIT will be allowed to own up to 100% of the stock of TRS, which
will be allowed to provide services to the REIT's tenants and others without
disqualifying the rents that the REIT receives from its tenants. The scope of
the activities of all such TRS in comparison to that of the REIT's overall
business of real estate ownership and operation has been limited under the Act
by requiring that the securities of all TRS may not exceed 20% of the value of
the REIT's assets. The dividends of TRS will not constitute qualified income for
purposes of the 75% income test. In addition, TRS will generally not be allowed
to operate health care or lodging facilities. A health care facility is
generally defined to be a hospital, nursing facility, assisted living facility,
congregate care facility or other licensed facility extending medical, nursing
or ancillary services to patients.
TRS will be, as implied by the name, subject to federal corporate
income tax in much the same manner as other, non-REIT C corporations, with the
exceptions that the deductions for debt and rental payments made by TRS to the
REIT will be limited and a 100% excise tax will be imposed on transactions
between a TRS and the affiliated REIT or that REIT's tenants that are not
conducted on an arm's length basis. TRS are corporations in which a REIT owns
stock, directly or indirectly, and for which both the REIT and the corporations
have made TRS elections.
Subject to transition rules that exempt existing arrangements to the
extent that the third party subsidiary does not engage in a substantial new line
of business or acquire any substantial asset or that the REIT does not acquire
any securities of the subsidiary, a REIT will not be allowed to own more than
10% of the vote or value of the securities (other than certain debt securities)
of a non-REIT C corporation other than TRS. Existing third-party subsidiaries
will be allowed to convert into a TRS on a tax-free basis.
Health Care Properties
The hiring of an independent contractor to manage a qualified health
care property will not cause the property to cease to be foreclosure property
solely because the REIT receives rental income from the contractor with respect
to one or more properties. A REIT will also be able to make a foreclosure
property election with respect to qualified health care properties acquired as
the result of the termination of the lease of such property.
Distribution Requirement
A REIT will be required to distribute only 90% of its taxable income,
as compared to the current law's 95% level.
Personal Property Rents
Rents received by a REIT attributable to personal property leased with
real property will be treated as qualified income to the extent that the fair
market value of the personal property does not exceed 15% of the fair market
value of the total rented property. The law currently in effect makes this
determination based upon the relative adjusted tax basis of the personal
property compared to that of the total rented property.
Other Changes
The Act also relaxes the requirements for testing whether an entity
qualifies as an independent contractor, extends the deficiency procedure to
assist REITs with distributing non-REIT earnings and profits and further
restricts the estimated tax payment rules applicable to the owners of a closely
held REIT. In changes not directly aimed at REITs, but nonetheless potentially
affecting
22
<PAGE> 23
them, the Act limits the availability of the installment method of accounting
and extends through 2001 the availability of a deduction for certain
environmental remediation expenditures.
Effect on the Company
The TRS rules will afford the Company the opportunity to offer services
to its tenants that are prohibited or require undue administrative complexity
under current law. In addition, the liberalization of the foreclosure property
rules for qualified health care properties will offer the Company more
flexibility in the event that the Company finds it necessary to operate any of
its properties through an independent contractor due to foreclosure or lease
termination. The Company is otherwise unable to anticipate the specific impact
of these or any other of the Act's changes.
Real Estate Investment Trust Tax Proposals
The President's Fiscal Year 2001 Budget Proposal (the "Proposal")
includes several provisions potentially affecting REITs. One notable provision
would increase the percentage of a REIT's ordinary and capital gain income for a
particular taxable year that the REIT must generally distribute within that year
(in order to avoid the four percent excise tax on the undistributed portion) to
98%. This provision would be effective for taxable years beginning in 2001 and
would largely eliminate the effect of the Taxpayer Relief Extension Act's
reduction in a REIT's taxable income distribution requirement to 90%. Although
the Company generally distributes in excess of 98% of its ordinary and capital
gain income within the year in which it was earned, this provision would make it
more difficult for the Company to consistently escape the four percent excise
tax as it has done in the past. The Proposal also includes provisions affecting
certain closely held REITs, limiting the dividend treatment of "fast-pay"
preferred stock dividends by non-traded REITs, and permanently extending the
deductibility of remediation expenditures for qualified contaminated sites. The
Proposal is subject to significant contingencies, including the differing views
of the President and Congress regarding the broader issues of tax and spending
policy. The Company is unable to anticipate the resolution of these
contingencies or, except as noted, the impact upon the Company should any or all
of these provisions be 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.
23
<PAGE> 24
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
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
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<PAGE> 25
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.
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.
RISKS RELATED TO THE COMPANY'S 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.
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<PAGE> 26
THERE IS CONSIDERABLE COMPETITION IN THE COMPANY'S MARKET.
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.
Competition for attractive investments results in investment pressure
on the Company. The Company intends to adhere to its established acquisition
standards; 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.
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. From 1992 until late 1998, the
REIT industry was in an expansion mode, and capital was readily available to
REITs. By the end of 1999, 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.
Virtually all of the Company's available capital in 2000 will be used to meet
existing commitments and to reduce debt. The Company will require additional
capital to acquire healthcare properties. 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 OBLIGATIONS.
The Company currently has substantial bank and institutional
indebtedness with significant payments due in 2000. 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. The Company anticipates that it will be able to obtain such
financing, as needed; however, if the Company is unable to obtain sufficient
funds within the necessary time periods, it will default on its obligations.
FAILURE OF THE COMPANY TO MAINTAIN OR INCREASE ITS DIVIDEND COULD
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.
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<PAGE> 27
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.
DEVELOPMENT FUNDING INVOLVES GREATER RISKS THAN ARE ASSOCIATED WITH THE
PURCHASE AND LEASE-BACK OF OPERATING PROPERTIES.
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. If the developer or contractor fails to complete the
project under the terms of the development agreement, the Company would be
forced to become involved in the development to ensure completion or the Company
would lose the property.
TRANSFERS OF OPERATIONS OF HEALTHCARE FACILITIES ARE SUBJECT TO
REGULATORY APPROVALS NOT REQUIRED FOR TRANSFERS OF OTHER TYPES OF COMMERCIAL
OPERATIONS AND REAL ESTATE.
Many of the Company's properties are special-purpose facilities that
may not be easily adaptable to uses unrelated to healthcare.
RISKS RELATED GROWTH OF REVENUE AND FUNDS FROM OPERATIONS
The Company's general growth strategy requires continuing growth in the
Company's funds from operations which could be negatively affected by the
following factors:
OPERATORS OF SENIOR LIVING ASSETS HAVE COME UNDER INCREASED FINANCIAL
PRESSURE WHICH MAY AFFECT THEIR ABILITY TO MEET THEIR OBLIGATIONS TO THE
COMPANY.
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 had added pressure on operators. As a result of the
Capstone merger, the Company's portfolio of senior living facilities increased
substantially. Since the Capstone merger, three operators in this sector have
declared bankruptcy; however, the Company has sold, leased or is in the process
of leasing these properties. The Company cannot be certain that additional
operator failures in this sector will not occur.
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.
ADVERSE TRENDS IN HEALTHCARE PROVIDER OPERATIONS CAN NEGATIVELY 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:
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<PAGE> 28
- 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 EFFECT ON THE COMPANY IF A LARGER PROVIDER WERE TO SUFFER FINANCIAL
HARDSHIPS.
Currently, 48% of the Company's real estate portfolio, including
mortgages, is leased to, or supported by its five largest healthcare provider
clients. To varying degrees, these providers have experienced the pressures
listed above. Any financial problems experienced by these providers would
negatively impact 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. If the Company could not attract another healthcare provider on a
timely basis or on acceptable terms, the Company's revenues would suffer.
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, (2) the sale of its properties,
including non-elective dispositions, under the terms of master leases or similar
financial support arrangements, and (3) principal payments on its mortgage
investments. These arrangements 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.
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<PAGE> 29
Delays in acquiring properties 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.
RISKS RELATED TO THE COMPANY'S STATUS AS A REIT
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.
ITEM 2. PROPERTIES
EXECUTIVE OFFICES
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 22,551 square feet of rented space, expires on
October 31, 2003, with two five-year renewal options. Annual rental is
approximately $421,000.
PROPERTY OPERATIONS
The following table sets forth information regarding the Company's
properties as of December 31, 1999.
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<PAGE> 30
<TABLE>
<CAPTION>
FACILITY FACILITY TOTAL DATE
TYPE (4) LOCATION INVESTMENT ENCUMBRANCES ACQUIRED
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AHF AL $ 4,697,059 1998
AHF AL 6,899,236 1998
AHF AL 14,091,201 1998
AHF AL 8,507,164 1998
AHF AL 2,353,118 1998
AHF AL 6,416,670 1998
AHF AZ 5,273,993 1993
AHF CA 4,792,781 1995
AHF CA 5,749,332 1994
AHF CA 5,287,476 1994
AHF CA 9,324,345 1994
AHF CA 9,189,080 1994
AHF CA 15,698,415 1997
AHF CA 16,068,467 1998
AHF CA 7,538,204 1993
AHF CA 5,327,777 1993
AHF FL 11,215,993 1994
AHF FL 7,756,400 1998
AHF FL 5,292,400 1994
AHF FL 4,981,848 1994
AHF FL 4,995,230 1994
AHF FL 3,302,941 1998
AHF FL 19,453,635 1998
AHF FL 4,556,668 1994
AHF FL 5,084,512 1996
AHF FL 20,063,164 $ 8,642,547 1998
AHF FL 1,620,558 1995
AHF FL 8,467,651 1994
AHF GA 6,388,548 1993
AHF GA 11,069,865 1994
AHF KS 10,612,306 1995
AHF NV 6,881,494 1998
AHF NV 42,758,366 22,612,354 1998
AHF PA (2) 1,266,252 1999
AHF PA 4,775,583 1998
AHF TN 9,354,010 1997
AHF TN (2) 209,369 1999
AHF TN 10,713,633 4,398,886 1998
AHF TN 3,138,889 1994
AHF TX 1,905,817 1993
AHF TX 10,699,488 1998
AHF TX 9,262,657 1998
AHF TX 842,093 1996
AHF TX 1,737,128 1993
AHF TX 18,485,079 1993
AHF TX 5,252,820 1994
AHF TX 3,194,800 1998
AHF TX 14,301,748 1993
AHF TX 3,236,289 1998
AHF TX 3,107,422 1996
AHF VA 3,771,668 1994
AHF VA 4,593,463 1994
AHF VA 8,773,577 1994
AHF VA 5,855,716 1994
AHF VA 27,608,960 1996
AHF VA 1,433,579 1996
AHF VA 14,683,388 1998
</TABLE>
30
<PAGE> 31
<TABLE>
<CAPTION>
FACILITY FACILITY TOTAL DATE
TYPE (4) LOCATION INVESTMENT ENCUMBRANCES ACQUIRED
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AHF VA 3,082,977 1998
AHF VA 9,551,370 1999
AHF WY (2) 879,544 1999
ALF CT 11,924,642 1998
ALF FL 1,764,000 1998
ALF FL 9,572,814 1998
ALF FL (2) 8,791,535 1998
ALF GA 5,894,100 1998
ALF MO 1,528,562 1998
ALF MO 1,528,561 1998
ALF MO 1,528,562 1998
ALF MO 1,528,562 1998
ALF NC 3,669,603 1998
ALF NJ 8,719,597 1998
ALF NJ 8,982,861 1998
ALF OH 4,337,865 1998
ALF PA 4,117,404 1998
ALF PA 4,544,157 1998
ALF PA 4,100,876 1998
ALF PA 3,886,033 1998
ALF PA 2,698,505 1998
ALF PA 8,245,717 1998
ALF PA 2,805,932 1998
ALF SC 3,004,764 1998
ALF TX 9,941,467 1998
ALF TX 10,318,933 1998
ALF TX 5,842,697 1998
ALF TX 6,912,461 1998
ALF TX 7,525,955 1998
ALF TX 7,986,831 1998
ALF TX 10,840,056 1998
ALF TX 11,455,702 1998
ALF VA 5,930,081 1998
ALF VA 5,228,517 1998
ALF VA 5,576,337 1998
ASC CA 1,046,229 1993
ASC FL 6,144,037 1999
ASC GA 1,560,659 1998
ASC IL 1,453,447 1998
ASC MO 5,307,122 1998
ASC NV 3,800,571 1994
ASC TX 2,039,563 1993
CAC AZ 10,492,408 1998
CAC CA 28,747,108 1998
CAC FL 11,182,027 4,648,093 1998
CAC FL 5,801,741 3,268,190 1998
CAC FL 3,199,810 1998
CAC FL 3,872,469 1998
CAC FL 3,187,566 1998
CAC FL (3) (2) 11,985,876 1996
CAC MO 9,449,685 1998
CAC MO 11,982,707 1998
CAC TN 3,126,397 1998
CAC TX 12,053,222 1993
CAC TX 9,666,769 1994
IRF AL 17,721,800 1998
IRF FL 11,703,036 1998
</TABLE>
31
<PAGE> 32
<TABLE>
<CAPTION>
FACILITY FACILITY TOTAL DATE
TYPE (4) LOCATION INVESTMENT ENCUMBRANCES ACQUIRED
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IRF PA 19,895,520 1998
IRF PA 20,891,771 1998
IRF PA 14,391,440 1998
IRF PA 19,616,487 1998
IRF PA 17,835,429 1998
IRF PA 19,616,574 1998
IRF TX 12,916,201 1998
PC AL 2,639,646 1998
PC AL 8,368,389 1998
PC CA 8,055,943 1998
PC FL 6,745,314 1998
PC FL 10,305,181 1993
PC FL 2,199,246 1998
PC FL 3,893,612 1998
PC FL 5,213,956 1994
PC FL 13,509,657 1998
PC FL 8,332,183 1998
PC FL 1,556,229 1998
PC FL 3,604,186 1994
PC FL 856,377 1998
PC GA 2,624,880 1998
PC GA 2,673,880 1994
PC IL 11,680,200 1998
PC MA 2,564,171 1998
PC MA 7,634,926 1998
PC MA 9,209,268 1998
PC MA 3,963,588 1998
PC MA 7,414,137 1998
PC MO 5,333,435 1998
PC MO 4,032,033 1998
PC TN 2,554,651 1998
PC TN 1,889,836 1998
PC TN 2,057,416 1998
PC TN 1,981,966 1998
PC TN 2,186,828 1998
PC TX 16,938,177 1998
PC TX 4,458,322 1993
PC VA 1,362,983 1996
PC VA 901,107 1996
PC VA 337,915 1996
PC VA 182,269 1996
PC VA 350,203 1996
PC VA 674,806 1996
SNF AZ 2,873,661 1997
SNF CA 12,687,699 1994
SNF CO 6,230,515 1994
SNF CO 12,417,625 1997
SNF CO 7,759,595 1996
SNF FL 10,205,696 1995
SNF IN 3,640,140 1993
SNF KS 7,592,661 1996
SNF MI 3,540,494 1993
SNF MI 3,284,185 1993
SNF MI 3,143,156 1993
SNF MI 1,049,352 1993
SNF MI 1,697,049 1993
SNF NC (1) 6,175,865 1998
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
FACILITY FACILITY TOTAL DATE
TYPE (4) LOCATION INVESTMENT ENCUMBRANCES ACQUIRED
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SNF OK 606,100 1999
SNF PA 2,936,955 1998
SNF PA 5,011,011 1998
SNF PA 12,669,190 1998
SNF TN 5,046,153 1997
SNF TN 3,289,203 1997
SNF TX 9,445,015 1995
SNF TX 10,020,503 1995
SNF VA (1) 6,952,798 16,204,372 1998
SNF VA (1) 5,296,037 1998
SNF VA (1) 4,733,910 1998
SNF VA (1) 3,458,764 1998
SNF VA (1) 3,207,675 1998
OTH AL 8,789,812 1993
OTH AR 2,988,896 1998
OTH AZ 3,533,540 1998
OTH FL 3,336,907 1998
OTH FL 1,417,038 1998
OTH MI 13,558,158 1998
OTH MO 10,896,833 1998
OTH MS 4,290,408 1993
OTH PA (2) 3,355,172 1999
OTH TX 8,601,386 1993
OTH TX 5,891,916 1998
OTH TX 1,976,372 1994
OTH VA 6,885,358 1996
OTH VA 5,121,498 1996
OTH VA 926,023 1993
OTH VA 12,760,711 1998
OTH VA 1,015,117 1993
OTH VA 2,119,232 1998
-------------- ----------------
Total Real Estate $ 1,395,576,876 $ 59,774,442
Corporate 3,568,771 --
--------------- ----------------
Total Property $ 1,399,145,647 $ 59,774,442
=============== ================
</TABLE>
(1) All six of the properties are encumbered by one mortgage with a 12/31/99
balance of $16,204,372.
(2) Development at 12/31/99.
(3) Consists of three buildings, with one building being an MOB that is in
construction as of 12/31/99.
(4) Facility Types:
AHF Ancillary Hospital Facilities
ALF Assisted Living Facilities
ASC Ambulatory Surgery Centers
CAC Comprehensive Ambulatory Care Centers
IRH Inpatient Rehabilitation Facilities
PC Physician Clinics
SNF Skilled Nursing Facilities
OTH Other
33
<PAGE> 34
ITEM 3. LEGAL PROCEEDINGS
On March 22, 1999, HR Acquisitions I Corporation, formerly known as
Capstone Capital Corporation ("HRT"), a wholly-owned subsidiary of the Company,
filed suit against Medistar Corporation and its affiliate, Medix Construction
Company in United States District Court for the Northern District of Alabama,
Southern Division. HRT is seeking damages in excess of two million dollars
arising out of the development and construction of four real estate projects
located in different parts of the United States. Medistar and Medix served as
the developer and contractor, respectively, for the projects. HRT has asserted
claims for damages relating to, among others, alleged breaches of the
development and contracting obligations, failure to perform in accordance with
contract terms and specifications, and other deficiencies in performance by
Medistar and Medix. On June 10, 1999, Medistar and Medix filed its answer and
counterclaim asserting a variety of alleged legal theories, claims for damages
for alleged deficiencies by HRT and the Company in the performance of alleged
obligations, and for damage to their business reputation. Attempts at mediation
have not resulted in a settlement of the disputes. The Company's prosecution of
its claims and defense of the counterclaims will be vigorous. While the Company
cannot predict the range of possible loss or outcome, the Company believes that,
even though the asserted cross claims seek substantial monetary damages, the
allegations made by Medistar and Medix are not factually or legally meritorious,
are subject to sustainable defenses and are, to a significant extent, covered by
liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
No matter was submitted to a vote of shareholders during the fourth
quarter of 1999.
34
<PAGE> 35
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 1999 Annual Report to Shareholders under the caption "Common
Stock," is incorporated herein by reference.
On October 15, 1999, the Company issued an aggregate of 150,000 shares
of its Common Stock to three former executive officers of Capstone Capital
Corporation pursuant to Consulting Agreements with such individuals. Such sales
were exempt under the registration requirements of the Securities Act of 1933 in
reliance on the exemption contained in Section 4(2) of such Act. The Company
made no other private sales of equity securities during 1999.
ITEM 6. SELECTED FINANCIAL DATA
The Company's selected financial data, set forth on page 9 of its 1999
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 16 of the
Company's 1999 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 on page 16 of the Company's 1999
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 on pages 17 through 34 of the
Company's 1999 Annual Report to Shareholders, are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
35
<PAGE> 36
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 16, 2000 under the caption "Election of
Directors," is incorporated herein by reference.
EXECUTIVE OFFICERS
The executive officers of the Company are:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David R. Emery................ 55 Chairman of the Board, Chief Executive Officer &
President
Timothy G. Wallace............ 41 Executive Vice President & Chief Financial Officer
Roger O. West................. 55 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 30 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 8
through 14 of the Company's Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 16, 2000 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 6 through 7 of the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 16,
2000 under the caption "Security Ownership of Certain Beneficial Owners and
Management," is incorporated herein by reference.
36
<PAGE> 37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related transactions,
set forth on page 16 of the Company's Proxy Statement relating to the Annual
Meeting of Shareholders to be held on May 16, 2000 under the caption "Certain
Relationships and Related Transactions," is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(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 1999
Annual Report to Shareholders:
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- Independent Auditors' Report.
- Consolidated Balance Sheets - December 31, 1999 and 1998.
- Consolidated Statements of Income for the years ended December
31, 1999, December 31, 1998 and December 31, 1997.
- Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1999, December 31, 1997 and December 31,
1997.
- Consolidated Statements of Cash Flows for the years ended
December 31, 1999, December 31, 1998 and December 31, 1997.
- Notes to Consolidated Financial Statements.
(2) FINANCIAL STATEMENT SCHEDULES:
Schedule II -- Valuation and Qualifying Accounts at December 31,
1999...............................................................S-1
Schedule III -- Real Estate and Accumulated Depreciation at December
31, 1999...........................................................S-2
Schedule IV - Mortgage Loans on Real Estate at December 31,
1999...............................................................S-3
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:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
- ------ -----------------------
<S> <C>
3.1 -- Second Articles of Amendment and Restatement of the Registrant.(1)
3.2 -- Amended and Restated Bylaws of the Registrant.(7)
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. (filed herewith)
</TABLE>
37
<PAGE> 38
<TABLE>
<S> <C>
10.4 -- Retirement Plan for Outside Directors.(1)
10.5 -- Non-Qualified Deferred Compensation Plan. (filed herewith)
10.6 -- Executive Variable Incentive Compensation Plan. (filed herewith)
10.7 -- 2000 Employee Stock Purchase Plan. (filed herewith)
10.8 -- Dividend Reinvestment Plan.(2)
10.9 -- Amended and Restated Employment Agreement by and between David R. Emery and Healthcare Realty
Trust Incorporated. (filed herewith)
10.10 -- Amended and Restated Employment Agreement by and between Roger O. West and Healthcare Realty
Trust Incorporated. (filed herewith)
10.11 -- Amended and Restated Employment Agreement by and between Timothy G. Wallace and Healthcare
Realty Trust Incorporated. (filed herewith)
10.12 -- 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. (6)
10.13 -- 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.(6)
10.14 -- Amendment No. 1 to Term Credit Agreement. (7)
10.15 -- Amendment No. 2 to Term Credit Agreement. (filed herewith)
10.16 -- 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 9 to the Notes to the
Consolidated Financial Statement in the Annual Report to Shareholders for the year ended
December 31, 1999 filed herewith as Exhibit 13).
13 -- Annual Report to Shareholders for the year ended December 31, 1999 (filed herewith).
21 -- Subsidiaries of the Registrant (filed herewith).
23 -- Consent of Ernst & Young LLP, independent auditors (filed herewith).
27 -- Financial Data Schedule (For SEC Use Only)
</TABLE>
- ---------------
(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 Form 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.
(6) Filed as an exhibit to the Company's Form 10-K for the year ended
December 31, 1998 and hereby incorporated by reference.
(7) Filed as an exhibit to the Company's Form 10-Q for the quarter ended
September 30, 1999 and hereby incorporated by reference.
38
<PAGE> 39
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. Non-Qualified Deferred Compensation Plan (filed as Exhibit
10.5)
6. Executive Variable Incentive Compensation Plan (filed as
Exhibit 10.6)
7. 2000 Employee Stock Purchase Plan (filed as Exhibit 10.7)
8. Amended and Restated Employment Agreement by and between David
R. Emery and Healthcare Realty Trust Incorporated (filed as
Exhibit 10.8)
9. Amended and Restated Employment Agreement by and between Roger
O. West and Healthcare Realty Trust Incorporated (filed as
Exhibit 10.9)
10. Amended and Restated Employment Agreement by and between
Timothy G. Wallace and Healthcare Realty Trust Incorporated
(filed as Exhibit 10.10)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of 1999.
(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).
39
<PAGE> 40
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 14, 2000.
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 14, 2000
- ------------------------------------ Chief Executive Officer (Principal
David R. Emery Executive Officer)
/s/ Timothy G. Wallace Executive Vice President March 14, 2000
- ------------------------------------ and Chief Financial Officer
Timothy G. Wallace (Principal Financial Officer)
/s/ Fredrick M. Langreck Senior Vice President March 14, 2000
- ------------------------------------ and Treasurer
Fredrick M. Langreck
/s/ Scott W. Holmes Senior Vice President - March 14, 2000
- ------------------------------------ Financial Reporting
Scott W. Holmes
/s/ Errol L. Biggs, Ph.D. Director March 14, 2000
- ------------------------------------
Errol L. Biggs, Ph.D.
/s/ Thompson S. Dent Director March 14, 2000
- ------------------------------------
Thompson S. Dent
</TABLE>
40
<PAGE> 41
<TABLE>
<S> <C> <C>
/s/ Charles Raymond Fernandez, M.D. Director March 14, 2000
- ------------------------------------
Charles Raymond Fernandez, M.D.
/s/ Batey M. Gresham, Jr. Director March 14, 2000
- ------------------------------------
Batey M. Gresham, Jr.
/s/ Marliese E. Mooney Director March 14, 2000
- ------------------------------------
Marliese E. Mooney
/s/ Edwin B. Morris, III Director March 14, 2000
- ------------------------------------
Edwin B. Morris, III
/s/ John Knox Singleton Director March 14, 2000
- ------------------------------------
John Knox Singleton
</TABLE>
41
<PAGE> 42
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AT DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
----------------------------------------
Balance at Charged to Charged to Assumed from
Beginning costs and other Capstone Balance at
Description of Period expenses accounts Capital Corp. Deductions(1) End of Period
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999
Mortgage notes receivable allowance $3,000 $ -- $ -- $ -- $ 717 $2,283
Accounts receivable allowance 419 576 -- -- -- 995
------------------------------------------------------------------------------------
3,419 576 -- -- 717 3,278
------------------------------------------------------------------------------------
1998
Mortgage notes receivable allowance -- -- -- 3,000 -- 3,000
Accounts receivable allowance 15 73 -- 346 15 419
------------------------------------------------------------------------------------
15 73 -- 3,346 15 3,419
------------------------------------------------------------------------------------
1997
Mortgage notes receivable allowance -- -- -- -- -- --
Accounts receivable allowance 20 15 -- -- 20 15
------------------------------------------------------------------------------------
$ 20 $ 15 $ -- $ -- $ 20 $ 15
------------------------------------------------------------------------------------
</TABLE>
(1) Write-off or collection of the related receivable accounts.
42
<PAGE> 43
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
Land Buildings, Improvements, and CIP
----------------------------------- -----------------------------------------
Costs Costs
Capitalized Capitalized
Initial Subsequent to Initial Subsequent to Personal
Facility Type State Investment Acquisition Total Investment Acquisition Total Property
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ancillary Hospital Facilities
AL 1,194,515 136,087 1,330,602 3,366,457 0 3,366,457 0
AL 1,018,666 112,325 1,130,991 5,768,245 0 5,768,245 0
AL 2,710,081 151,076 2,861,157 11,230,044 0 11,230,044 0
AL 60,030 83,455 143,485 8,363,679 0 8,363,679 0
AL 109,811 29,650 139,461 2,213,657 0 2,213,657 0
AL 120,060 65,885 185,945 6,230,725 0 6,230,725 0
AZ 308,070 0 308,070 4,965,923 0 4,965,923 0
CA 1,337,483 0 1,337,483 3,122,980 332,318 3,455,297 0
CA 2,218,847 0 2,218,847 3,319,804 210,680 3,530,484 0
CA 2,059,953 0 2,059,953 3,068,881 158,642 3,227,523 0
CA 3,149,515 0 3,149,515 5,666,654 505,588 6,172,242 2,587
CA 3,160,865 0 3,160,865 5,859,967 165,865 6,025,832 2,383
CA 0 0 0 15,342,398 355,075 15,697,473 941
CA 3,190,439 16,030 3,206,469 12,861,998 0 12,861,998 0
CA 1,720,127 0 1,720,127 5,797,840 0 5,797,840 20,237
CA 1,522,222 0 1,522,222 3,787,288 0 3,787,288 18,267
FL 0 0 0 5,072,041 220,359 5,292,400 0
FL 45,216 0 45,216 4,936,632 0 4,936,632 0
FL 0 0 0 4,843,314 151,915 4,995,230 0
FL 0 0 0 19,928,451 129,087 20,057,538 5,626
FL 0 0 0 8,042,864 424,788 8,467,651 0
FL 0 0 0 1,620,558 0 1,620,558 0
FL 2,201,396 110,437 2,311,833 991,108 0 991,108 0
FL 1,071,287 50,061 1,121,348 18,332,287 0 18,332,287 0
FL 0 4,470 4,470 4,278,351 1,227,385 5,505,737 115,656
FL 0 0 0 3,830,316 185,000 4,015,316 0
FL 532,112 0 532,112 10,677,707 5,454 10,683,162 719
FL 2,026,672 0 2,026,672 5,729,728 0 5,729,728 0
GA 696,248 0 696,248 4,834,104 819,788 5,653,892 38,409
GA 1,268,962 0 1,268,962 8,604,603 1,182,151 9,786,754 14,150
KS 0 0 0 10,460,566 142,961 10,603,527 8,779
NV 0 0 0 41,736,845 1,021,521 42,758,366 0
NV 2,127,851 165,073 2,292,924 4,588,570 0 4,588,570 0
PA 282,295 0 282,295 983,957 0 983,957 0
PA 330,877 0 330,877 4,444,707 0 4,444,707 0
TN 0 0 0 209,369 0 209,369 0
TN 3,212,188 24,550 3,236,738 6,117,271 0 6,117,271 0
TN 395,056 0 395,056 2,643,834 100,000 2,743,834 0
TN 1,733,202 576 1,733,778 8,968,458 6,000 8,974,458 5,397
TX 125,471 0 125,471 1,767,800 0 1,767,800 12,547
TX 2,349,321 0 2,349,321 6,882,712 30,624 6,913,336 0
TX 999,193 0 999,193 17,445,918 0 17,445,918 39,968
TX 682,867 0 682,867 4,569,953 0 4,569,953 0
TX 3,833,077 0 3,833,077 10,295,139 0 10,295,139 173,532
TX 124,000 0 124,000 3,112,289 0 3,112,289 0
TX 0 0 0 10,613,689 47,802 10,661,491 37,997
<CAPTION>
(1)
Total Accum. Date Dated
Facility Type State Assets Depreciation Encumbrances Acquired Constructed
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ancillary Hospital Facilities
AL 4,697,059 132,541 1998 1992, 1993
AL 6,899,236 219,383 1998 1981
AL 14,091,201 422,792 1998 1991
AL 8,507,164 313,022 1998 1993
AL 2,353,118 83,332 1998 1977
AL 6,416,670 233,430 1994 1991
AZ 5,273,993 1,031,343 1993 1988
CA 4,792,781 398,620 1994 1973
CA 5,749,332 451,511 1994 1975
CA 5,287,476 416,674 1994 1981
CA 9,324,345 778,219 1994 1984
CA 9,189,080 796,813 1997 1997
CA 15,698,415 982,050 1993 1988
CA 16,068,467 523,702 1998 1994
CA 7,538,204 1,222,912 1993 1981
CA 5,327,777 803,523 1993 1961, 1968, 1984-85
FL 5,292,400 713,661 1994 1994
FL 4,981,848 648,748 1994 1994
FL 4,995,230 627,575 1994 1994
FL 20,063,164 735,102 8,642,547 1998 1995
FL 8,467,651 1,081,894 1994 1994
FL 1,620,558 199,107 1995 1977
FL 3,302,941 43,517 1998 1970, 1980
FL 19,453,635 677,628 1998 1973, 1989-1990
FL 5,625,863 710,221 1994 1994
FL 4,015,316 327,355 1998 1994
FL 11,215,993 1,563,151 1995 1984
FL 7,756,400 211,642 1998 1994
GA 6,388,548 833,878 1993 1983
GA 11,069,865 1,323,658 1994 1975
KS 10,612,306 810,011 1995 1996
NV 42,758,366 1,561,274 22,612,354 1998 1996
NV 6,881,494 179,347 1998 1974
PA 1,266,252 0 1999 under const.(3)
PA 4,775,584 124,757 1998 1982
TN 209,369 0 1999 under const.(3)
TN 9,354,010 207,224 1997 1998
TN 3,138,889 392,540 1994 1991
TN 10,713,633 330,296 4,398,886 1998 1992
TX 1,905,817 378,795 1993 1989
TX 9,262,657 255,603 1998 1995
TX 18,485,079 3,660,355 1993 1992
TX 5,252,820 659,148 1994 1982
TX 14,301,748 2,299,263 1993 1985
TX 3,236,289 422,287 1998 1995
TX 10,699,488 398,130 1998 1995
</TABLE>
43
<PAGE> 44
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
Land Buildings, Improvements, and CIP
----------------------------------- -----------------------------------------
Costs Costs
Capitalized Capitalized
Initial Subsequent to Initial Subsequent to Personal
Facility Type State Investment Acquisition Total Investment Acquisition Total Property
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TX 159,384 0 159,384 598,293 84,416 682,709 0
TX 497,982 0 497,982 2,040,742 568,697 2,609,439 0
TX 0 0 0 3,194,800 0 3,194,800 0
TX 217,941 0 217,941 1,507,164 0 1,507,164 12,023
VA 0 0 0 3,771,668 0 3,771,668 0
VA 874,497 0 874,497 3,718,966 0 3,718,966 0
VA 1,912,645 0 1,912,645 6,860,932 0 6,860,932 0
VA 0 0 0 4,729,002 1,126,714 5,855,716 0
VA 7,507,301 291,752 7,799,053 6,884,335 0 6,884,335 0
VA 330,953 50,705 381,658 2,701,319 0 2,701,319 0
VA 1,366,860 0 1,366,860 8,179,867 0 8,179,867 4,642
VA 1,455,813 3,136 1,458,949 26,061,170 0 26,061,170 88,841
VA 38,604 0 38,604 1,394,974 0 1,394,974 0
WY 0 0 0 879,544 0 879,544 0
----------------------------------------------------------------------------------------------
Ancillary Hospital Facilities 62,279,955 1,295,268 63,575,223 410,052,457 9,202,830 419,255,288 602,701
----------------------------------------------------------------------------------------------
Assisted Living Facilities
CT 441,212 0 441,212 11,483,429 0 11,483,429 0
FL 281,064 0 281,064 1,482,936 0 1,482,936 0
FL 0 0 0 8,791,535 0 8,791,535 0
FL 890,000 0 890,000 8,682,814 0 8,682,814 0
GA 0 0 0 5,894,100 0 5,894,100 0
MO 53,578 0 53,578 1,474,983 0 1,474,983 0
MO 12,893 0 12,893 1,515,669 0 1,515,669 0
MO 85,955 0 85,955 1,442,607 0 1,442,607 0
MO 53,279 0 53,279 1,475,283 0 1,475,283 0
NC 368,835 0 368,835 3,300,768 0 3,300,768 0
NJ 931,764 0 931,764 7,787,833 0 7,787,833 0
NJ 877,175 0 877,175 8,105,687 0 8,105,687 0
OH 173,615 0 173,615 4,164,250 0 4,164,250 0
PA 98,260 0 98,260 4,019,144 0 4,019,144 0
PA 288,029 0 288,029 3,812,847 0 3,812,847 0
PA 66,577 0 66,577 3,819,456 0 3,819,456 0
PA 48,398 0 48,398 2,650,107 0 2,650,107 0
PA 471,207 0 471,207 7,774,511 0 7,774,511 0
PA 467,244 0 467,244 4,076,913 0 4,076,913 0
PA 50,759 0 50,759 2,755,173 0 2,755,173 0
SC 106,050 0 106,050 2,898,714 0 2,898,714 0
TX 0 0 0 9,941,467 0 9,941,467 0
TX 0 0 0 10,318,933 0 10,318,933 0
TX 0 0 0 10,840,056 0 10,840,056 0
TX 0 0 0 10,629,211 826,491 11,455,702 0
TX 0 0 0 7,525,955 0 7,525,955 0
TX 0 0 0 5,842,697 0 5,842,697 0
TX 0 0 0 6,912,461 0 6,912,461 0
TX 0 0 0 7,986,831 0 7,986,831 0
VA 375,509 0 375,509 5,554,572 0 5,554,572 0
<CAPTION>
(1)
Total Accum. Date Dated
Facility Type State Assets Depreciation Encumbrances Acquired Constructed
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TX 842,093 48,678 1996 1990
TX 3,107,422 188,840 1996 1990
TX 3,194,800 118,482 1996 1984
TX 1,737,128 244,645 1998 1988
VA 3,771,668 956,984 1994 1972-80
VA 4,593,463 91,385 1994 1994
VA 8,773,577 1,685,288 1994 1993,1994
VA 5,855,716 82,561 1994 1993, 1994
VA 14,683,388 274,990 1998 1977
VA 3,082,977 100,066 1998 1992
VA 9,551,370 86,727 1999 1975, 1984
VA 27,608,960 2,142,558 1996 1981
VA 1,433,579 113,267 1996 1994
WY 879,544 0 1999 under const.(3)
-----------------------------------------------
Ancillary Hospital Facilities 483,433,216 36,320,505 35,653,787
-----------------------------------------------
Assisted Living Facilities
CT 11,924,642 340,605 1998 1999
FL 1,764,000 54,908 1998 1976
FL 8,791,535 0 1998 under const.(3)
FL 9,572,814 23,094 1998 1999
GA 5,894,100 218,588 1998 1997
MO 1,528,561 54,613 1998 1996
MO 1,528,562 56,120 1998 1996
MO 1,528,562 53,415 1998 1993-94
MO 1,528,562 54,625 1998 1995
NC 3,669,603 139,638 1998 1999
NJ 8,719,597 218,108 1998 1999
NJ 8,982,861 258,584 1998 1999
OH 4,337,865 154,188 1998 1998
PA 4,117,404 148,815 1998 1996
PA 4,100,876 141,176 1998 1992, 1994
PA 3,886,033 141,421 1998 1989, 1993
PA 2,698,505 98,124 1998 1990
PA 8,245,717 208,761 1998 1999
PA 4,544,157 150,954 1998 1998
PA 2,805,932 102,014 1998 1993
SC 3,004,764 107,329 1998 1993, 1995
TX 9,941,467 368,688 1998 1986
TX 10,318,933 382,686 1998 1997
TX 10,840,056 402,013 1998 1997
TX 11,455,702 402,593 1998 1997
TX 7,525,955 278,660 1998 1997
TX 5,842,697 216,335 1998 1997
TX 6,912,461 255,944 1998 1997
TX 7,986,831 295,725 1998 1997
VA 5,930,081 204,872 1998 1998
</TABLE>
44
<PAGE> 45
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
Land Buildings, Improvements, and CIP
----------------------------------- -----------------------------------------
Costs Costs
Capitalized Capitalized
Initial Subsequent to Initial Subsequent to Personal
Facility Type State Investment Acquisition Total Investment Acquisition Total Property
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
VA 234,122 0 234,122 4,994,395 0 4,994,395 0
VA 279,751 0 279,751 5,296,586 0 5,296,586 0
----------------------------------------------------------------------------------------------
Assisted Living Facilities 6,655,276 0 6,655,276 183,251,923 826,491 184,078,414 0
----------------------------------------------------------------------------------------------
Ambulatory Surgery Centers
CA 209,246 0 209,246 828,613 0 828,613 8,370
FL 2,200,000 0 2,200,000 3,944,037 0 3,944,037 0
GA 0 65,091 65,091 1,495,568 0 1,495,568 0
IL 223,490 60,062 283,552 1,169,895 0 1,169,895 0
MO 1,685,945 0 1,685,945 3,621,177 0 3,621,177 0
NV 940,000 0 940,000 2,860,571 0 2,860,571 0
TX 509,891 0 509,891 1,514,376 0 1,514,376 15,297
----------------------------------------------------------------------------------------------
Ambulatory Surgery Centers 5,768,572 125,153 5,893,725 15,434,237 0 15,434,237 23,667
----------------------------------------------------------------------------------------------
Comprehensive Ambulatory Care Centers
AZ 2,094,965 0 2,094,965 8,391,032 1,994 8,393,026 4,418
CA 3,375,281 0 3,375,281 25,329,559 42,269 25,371,827 0
FL 0 0 0 3,187,566 0 3,187,566 0
FL 976,145 0 976,145 2,223,665 0 2,223,665 0
FL 584,544 0 584,544 3,287,925 0 3,287,925 0
FL 0 0 0 11,179,400 2,627 11,182,027 0
FL 0 0 0 5,794,753 6,988 5,801,741 0
FL(2) 1,032,261 0 1,032,261 10,953,616 0 10,953,616 0
MO 1,471,792 0 1,471,792 7,975,420 0 7,975,420 2,473
MO 1,676,402 577,655 2,254,057 9,728,650 0 9,728,650 0
TN 0 0 0 3,126,397 0 3,126,397 0
TX 601,475 0 601,475 11,169,134 213,206 11,382,339 69,408
TX 1,041,298 0 1,041,298 8,518,528 106,943 8,625,471 0
----------------------------------------------------------------------------------------------
Comprehensive Ambulatory
Care Centers 12,854,163 577,655 13,431,818 110,865,645 374,027 111,239,670 76,299
----------------------------------------------------------------------------------------------
Inpatient Rehabilitation Facilities
AL 0 0 0 17,721,800 0 17,721,800 0
FL 0 0 0 11,703,036 0 11,703,036 0
PA 0 0 0 20,891,771 0 20,891,771 0
PA 1,330,054 0 1,330,054 18,565,466 0 18,565,466 0
PA 982,859 0 982,859 13,408,581 0 13,408,581 0
PA 1,191,530 0 1,191,530 18,424,957 0 18,424,957 0
PA 1,213,750 0 1,213,750 18,402,824 0 18,402,824 0
PA 0 0 0 17,835,429 0 17,835,429 0
TX 1,116,455 0 1,116,455 11,799,746 0 11,799,746 0
----------------------------------------------------------------------------------------------
Inpatient Rehabilitation
Facilities 5,834,648 0 5,834,648 148,753,610 0 148,753,610 0
----------------------------------------------------------------------------------------------
<CAPTION>
(1)
Total Accum. Date Dated
Facility Type State Assets Depreciation Encumbrances Acquired Constructed
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
VA 5,228,517 185,259 1998 1998
VA 5,576,337 195,780 1998 1998
---------------------------------------------
Assisted Living Facilities 190,733,689 5,913,635 0
---------------------------------------------
Ambulatory Surgery Centers
CA 1,046,229 179,862 1993 1985
FL 6,144,037 8,419 1999 1992
GA 1,560,659 59,197 1998 1993
IL 1,453,447 46,941 1998 1960's, 1988
MO 5,307,122 132,324 1998 1988
NV 3,800,571 400,352 1994 1994
TX 2,039,563 328,717 1993 1985
---------------------------------------------
Ambulatory Surgery Centers 21,351,628 1,155,812 0
---------------------------------------------
Comprehensive Ambulatory Care Centers
AZ 10,492,408 148,833 1998 1999
CA 28,747,108 905,550 1998 1997
FL 3,187,566 134,289 1998 1997
FL 3,199,810 117,361 1998 1999
FL 3,872,469 129,739 1998 1996
FL 11,182,027 411,299 4,648,093 1998 1995
FL 5,801,741 213,216 3,268,190 1998 1995
FL(2) 11,985,877 430,824 1996 1995(3)
MO 9,449,685 172,543 1998 1999
MO 11,982,707 395,657 1998 1993
TN 3,126,397 123,325 1998 1997
TX 12,053,222 2,396,647 1993 1991
TX 9,666,769 954,929 1994 1995
---------------------------------------------
Comprehensive Ambulatory
Care Centers 124,747,786 6,534,212 7,916,283
---------------------------------------------
Inpatient Rehabilitation Facilities
AL 17,721,800 562,697 1998 1987
FL 11,703,036 371,590 1998 1986
PA 20,891,771 771,690 1998 1986
PA 19,895,520 685,762 1998 1986
PA 14,391,440 495,280 1998 1987
PA 19,616,487 584,669 1998 1983
PA 19,616,574 583,957 1998 1983
PA 17,835,429 658,796 1998 1987
TX 12,916,201 435,850 1998 1991
---------------------------------------------
Inpatient Rehabilitation
Facilities 154,588,258 5,150,291 0
---------------------------------------------
</TABLE>
45
<PAGE> 46
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
Land Buildings, Improvements, and CIP
----------------------------------- -----------------------------------------
Costs Costs
Capitalized Capitalized
Initial Subsequent to Initial Subsequent to Personal
Facility Type State Investment Acquisition Total Investment Acquisition Total Property
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Physician Clinics
AL 636,763 0 636,763 2,002,883 0 2,002,883 0
AL 1,664,923 126,257 1,791,180 6,577,209 0 6,577,209 0
CA 0 0 0 8,055,943 0 8,055,943 0
FL 0 0 0 1,556,229 0 1,556,229 0
FL 468,544 0 468,544 3,135,642 0 3,135,642 0
FL 963,285 0 963,285 5,782,029 0 5,782,029 0
FL 132,499 39,058 171,557 684,820 0 684,820 0
FL 856,732 0 856,732 1,342,514 0 1,342,514 0
FL 1,047,865 0 1,047,865 2,845,747 0 2,845,747 0
FL 4,713,071 0 4,713,071 8,796,586 0 8,796,586 0
FL 948,912 0 948,912 7,383,271 0 7,383,271 0
FL 2,183,572 0 2,183,572 8,070,829 0 8,070,829 50,781
FL 906,829 0 906,829 3,589,796 717,332 4,307,127 0
GA 422,156 0 422,156 2,202,724 0 2,202,724 0
GA 586,435 0 586,435 2,087,444 0 2,087,444 0
IL 207,491 0 207,491 11,472,709 0 11,472,709 0
MA 1,148,714 0 1,148,714 6,486,212 0 6,486,212 0
MA 1,147,752 0 1,147,752 2,815,836 0 2,815,836 0
MA 478,135 0 478,135 6,936,002 0 6,936,002 0
MA 38,341 0 38,341 2,525,830 0 2,525,830 0
MA 1,471,333 0 1,471,333 7,737,935 0 7,737,935 0
MO 0 0 0 4,032,033 0 4,032,033 0
MO 1,030,216 0 1,030,216 4,273,487 28,735 4,302,222 997
TN 499,993 141,807 641,800 1,912,851 0 1,912,851 0
TN 773,898 0 773,898 1,394,700 18,230 1,412,930 0
TN 468,627 0 468,627 1,540,396 48,393 1,588,790 0
TN 460,988 0 460,988 1,409,173 19,674 1,428,848 0
TN 596,917 0 596,917 1,311,313 73,735 1,385,049 0
TX 5,134,313 0 5,134,313 11,803,864 0 11,803,864 0
TX 661,287 0 661,287 3,776,918 0 3,776,918 20,117
VA 92,159 0 92,159 258,044 0 258,044 0
VA 150,526 0 150,526 524,280 0 524,280 0
VA 33,280 0 33,280 148,990 0 148,990 0
VA 182,522 0 182,522 969,461 211,000 1,180,461 0
VA 78,437 0 78,437 259,478 0 259,478 0
VA 83,967 0 83,967 817,140 0 817,140 0
----------------------------------------------------------------------------------------------
Physician Clinics 30,270,482 307,122 30,577,604 136,520,318 1,117,099 137,637,419 71,895
----------------------------------------------------------------------------------------------
Skilled Nursing Facilities
AZ 266,596 0 266,596 2,521,319 85,746 2,607,065 0
CA 1,361,951 0 1,361,951 11,325,745 0 11,325,747 0
CO 1,651,477 0 1,651,477 4,579,039 0 4,579,039 0
<CAPTION>
(1)
Total Accum. Date Dated
Facility Type State Assets Depreciation Encumbrances Acquired Constructed
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Physician Clinics
AL 2,639,646 73,982 1998 1997
AL 8,368,389 250,970 1998 1991
CA 8,055,943 320,219 1998 1999
FL 1,556,229 57,483 1998 1998
FL 3,604,186 452,270 1994 1984
FL 6,745,314 213,574 1998 1991
FL 856,377 27,809 1998 1973
FL 2,199,246 49,589 1998 1978
FL 3,893,612 105,115 1998 1978
FL 13,509,657 324,924 1998 1990
FL 8,332,183 272,720 1998 1986
FL 10,305,181 1,723,339 1993 1969,1973
FL 5,213,956 589,531 1994 1991
GA 2,624,880 81,363 1998 1991
GA 2,673,880 309,996 1994 1991
IL 11,680,200 422,072 1998 1973, 1984, 1989
MA 7,634,926 239,585 1998 1982
MA 3,963,588 104,010 1998 1963
MA 7,414,137 256,199 1998 1985
MA 2,564,171 93,298 1998 1987
MA 9,209,268 285,820 1998 1968
MO 4,032,033 149,531 1998 1994
MO 5,333,435 158,608 1998 1996
TN 2,554,651 79,711 1998 1955
TN 2,186,828 65,078 1998 1982
TN 2,057,416 72,900 1998 1992
TN 1,889,836 65,928 1998 1992
TN 1,981,966 63,107 1998 1982
TX 16,938,177 434,255 1998 1997
TX 4,458,322 803,087 1993 1961,1968
VA 350,203 20,952 1996 1984
VA 674,806 42,570 1996 1995
VA 182,269 12,097 1996 1973
VA 1,362,983 81,422 1996 1905
VA 337,915 21,069 1996 1986
VA 901,107 66,349 1996 1992
--------------------------------------------
Physician Clinics 168,286,916 8,390,532 0
--------------------------------------------
Skilled Nursing Facilities
AZ 2,873,661 188,669 1997 1972
CA 12,687,698 1,560,975 1994 1989
CO 6,230,515 631,106 1994 1994
</TABLE>
46
<PAGE> 47
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
Land Buildings, Improvements, and CIP
----------------------------------- -----------------------------------------
Costs Costs
Capitalized Capitalized
Initial Subsequent to Initial Subsequent to Personal
Facility Type State Investment Acquisition Total Investment Acquisition Total Property
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CO 901,650 0 901,650 11,411,187 104,788 11,515,975 0
CO 332,149 0 332,149 7,389,813 37,633 7,427,446 0
FL 1,349,775 0 1,349,775 8,855,920 0 8,855,920 0
IN 96,059 0 96,059 3,511,749 0 3,511,749 32,332
KS 1,013,423 0 1,013,423 6,477,785 101,455 6,579,238 0
MI 40,463 0 40,463 3,467,687 0 3,467,687 32,345
MI 6,984 0 6,984 3,241,786 0 3,241,786 35,415
MI 62,326 0 62,326 1,187,348 1,844,691 3,032,039 48,791
MI 52,468 0 52,468 963,336 0 963,336 33,548
MI 30,855 0 30,855 1,633,306 0 1,633,306 32,886
NC 417,527 0 417,527 5,758,338 0 5,758,338 0
OK 120,000 0 120,000 486,100 0 486,100 0
PA 27,150 0 27,150 2,909,805 0 2,909,805 0
PA 146,314 0 146,314 4,864,697 0 4,864,697 0
PA 266,993 38,819 305,812 12,363,378 0 12,363,378 0
TN 82,945 0 82,945 4,963,209 0 4,963,209 0
TN 145,402 0 145,402 3,143,801 0 3,143,801 0
TX 605,036 0 605,036 8,772,078 67,901 8,839,979 0
TX 1,190,364 0 1,190,364 8,738,144 91,995 8,830,139 0
VA 261,490 0 261,490 6,691,308 0 6,691,308 0
VA 487,092 0 487,092 2,971,672 0 2,971,672 0
VA 94,135 0 94,135 4,639,775 0 4,639,775 0
VA 82,244 0 82,244 3,125,431 0 3,125,431 0
VA 134,817 0 134,817 5,161,220 0 5,161,220 0
----------------------------------------------------------------------------------------------
Skilled Nursing Facilities 11,227,685 38,819 11,266,504 141,154,976 2,334,209 143,489,185 215,317
----------------------------------------------------------------------------------------------
Other
AL 180,633 0 180,633 8,601,151 0 8,601,151 8,028
AR 478,532 169,031 647,563 2,341,333 0 2,341,333 0
AZ 582,249 0 582,249 2,951,291 0 2,951,291 0
FL 0 0 0 1,417,039 0 1,417,039 0
FL 833,869 77,117 910,986 2,425,921 0 2,425,921 0
MI 4,404,681 0 4,404,681 9,153,477 0 9,153,477 0
MO 1,810,263 229,955 2,040,218 8,856,615 0 8,856,615 0
MS 537,660 0 537,660 3,723,087 0 3,723,087 29,660
PA 0 0 0 3,355,172 0 3,355,172 0
TX 356,212 150,063 506,275 5,385,641 0 5,385,641 0
TX 992,738 2,318 995,056 6,865,237 299,403 7,164,640 441,689
TX 166,123 0 166,123 1,810,249 0 1,810,249 0
VA 43,126 0 43,126 839,285 0 839,285 43,611
VA 64,347 0 64,347 867,590 0 867,590 83,179
VA 1,066,739 0 1,066,739 5,665,960 150,239 5,816,198 2,420
VA 752,629 0 752,629 4,367,295 1,575 4,368,870 0
VA 0 65,319 65,319 2,053,914 0 2,053,914 0
VA 392,402 0 392,402 12,368,309 0 12,368,309 0
----------------------------------------------------------------------------------------------
Other 12,662,203 693,803 13,356,006 83,048,566 451,217 83,499,782 608,587
----------------------------------------------------------------------------------------------
Total Real Estate 147,552,984 3,037,820 150,590,804 1,229,081,732 14,305,873 1,243,387,605 1,598,466
----------------------------------------------------------------------------------------------
Corporate Property 0 0 0 2,165 0 2,165 3,566,607
Total Property 147,552,984 3,037,820 150,590,804 1,229,083,897 14,305,873 1,243,389,770 5,165,073
----------------------------------------------------------------------------------------------
<CAPTION>
(1)
Total Accum. Date Dated
Facility Type State Assets Depreciation Encumbrances Acquired Constructed
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CO 12,417,625 528,149 1997 1998
CO 7,759,595 502,462 1996 1998
FL 10,205,696 765,489 1995 1996
IN 3,640,140 759,358 1993 1987
KS 7,592,661 508,035 1996 1997
MI 3,540,494 750,228 1993 1968
MI 3,284,185 706,155 1993 1971,1977
MI 3,143,156 449,229 1993 1968
MI 1,049,352 231,223 1993 1967
MI 1,697,047 369,752 1993 1964,1974
NC 6,175,865 213,211 (4) 1998 1991
OK 606,100 5,079 1999 1974
PA 2,936,955 107,740 1998 1992
PA 5,011,011 180,123 1998 1995
PA 12,669,190 460,204 1998 1976
TN 5,046,153 328,760 1997 1981
TN 3,289,203 208,243 1997 1991
TX 9,445,015 705,131 1995 1996
TX 10,020,503 635,042 1995 1997
VA 6,952,798 247,756 16,204,372(4) 1998 1971, 1977
VA 3,458,764 110,031 (4) 1998 1966
VA 4,733,910 171,795 (4) 1998 1991
VA 3,207,675 115,724 (4) 1998 1991
VA 5,296,037 191,057 (4) 1998 1989
-------------------------------------------
Skilled Nursing Facilities 154,971,004 11,630,726 16,204,372
-------------------------------------------
Other
AL 8,789,812 1,793,778 1993 1906,1986
AR 2,988,896 97,066 1998 1991
AZ 3,533,540 95,742 1998 1999
FL 1,417,039 52,342 1998 1998
FL 3,336,907 94,315 1998 1960, 1986
MI 13,558,158 342,180 1998 1983
MO 10,896,833 342,839 1998 1966, 1975
MS 4,290,408 618,210 1993 1986,1991
PA 3,355,172 0 1999 under const.(3)
TX 5,891,916 211,153 1998 1983
TX 8,601,385 1,454,091 1993 1993
TX 1,976,372 248,256 1994 1994
VA 926,023 214,805 1993 1988
VA 1,015,117 257,428 1993 1989
VA 6,885,358 465,412 1996 1995
VA 5,121,498 354,720 1996 1990
VA 2,119,233 79,863 1998 1993
VA 12,760,711 458,689 1998 late 1950's, 1970
-------------------------------------------
Other 97,464,378 7,180,889 0
-------------------------------------------
Total Real Estate 1,395,576,875 82,276,602 59,774,442
-------------------------------------------
Corporate Property 3,568,772 1,719,200 0
Total Property 1,399,145,647 83,995,802 59,774,442
-------------------------------------------
</TABLE>
(1) Depreciation is provided on buildings and improvements over 31.5 or
39.0 years and personal property over 3.0 to 7.0 years.
(2) Consists of three buildings, with one building being an MOB that is
under construction as of 12/31/99.
(3) Development at 12/31/99.
(4) All 6 of the properties are encumbered by one mortgage with a 12/31/99
balance of $16,204,372.
(5) Total assets at 12/31/99 have an estimated aggregate total cost of
$1,245,602,980.38 for Federal Income Tax purposes.
(6) Reconciliation of Total Property and Accumulated Depreciation for the
twelve months ended December 31, 1999, 1998 and 1997:
47
<PAGE> 48
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
Year to Date Ending 12/31/99 Year to Date Ending 12/31/98 Year to Date Ending 12/31/97
------------------------------ ----------------------------- ---------------------------
Total Accumulated Total Accumulated Total Accumulated
Property Depreciation Property Depreciation Property Depreciation
------------------------------ ----------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance 1,387,554,751 50,116,154 505,698,610 34,718,380 439,177,928 23,143,511
Retirements/dispositions:
Real Estate (46,839,974) (4,027,489) (11,410,200) (423,339) (71,148) (32,343)
Corporate Property 0 0 0 0 0 0
Additions during the period:
Real Estate 24,633,438 37,686,289 847,262,872 15,507,502 59,822,598 11,035,703
Corporate Property 286,651 220,848 119,603 313,611 1,467,143 571,509
Construction in Progress 33,510,781 0 45,883,866 0 5,302,089 0
------------------------------ ----------------------------- ---------------------------
Ending Balance 1,399,145,647 83,995,802 1,387,554,751 50,116,154 505,698,610 34,718,380
============================== ============================= ===========================
</TABLE>
48
<PAGE> 49
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
AS OF DECEMBER 31, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
PERIODIC ORIGINAL
INTEREST MATURITY PAYMENT FACE CARRYING BALLOON
DESCRIPTION RATE DATE TERMS AMOUNT AMOUNT(9) PAYMENT
<S> <C> <C> <C> <C> <C> <C>
INDIVIDUAL MORTGAGES IN EXCESS OF 3% OF THE TOTAL CARRYING AMOUNT:
CONSTRUCTION LOANS:
5 Years after
One assisted living facility located in Illinois 10.00% Conversion (2) $ 7,620 $ 7,769 (3)
PERMANENT LOANS:
Specialty hospital located in Arizona 9.31% 11/1/04 (1) 17,800 17,993 16,409(4)
Skilled nursing facility located in Maryland 10.15% 2/15/02 (1) 8,800 8,921 8,498(6)
Skilled nursing facility located in Michigan 11.14% 2/15/07 (1) 9,600 9,592 8,463(6)
Skilled nursing facility located in Tennessee 10.09% 10/27/13 (10) 12,380 12,781 12,380(5)
Ancillary hospital facility located in Florida 10.25% 10/5/10 (1) 9,400 9,563 8,006(7)
Acute care hospital located in California 11.99% 8/10/09 (1) 8,000 7,974 6,979(8)
OTHER MORTGAGES:
Twenty three skilled nursing facilities located in the From From
states of Alabama, California, Florida, Massachusetts, 8.02% Nov-01
Maryland, Michigan, Ohio, Oklahoma, South Carolina, to to
Tennessee, and Virginia; with face amounts ranging 13.00% Aug-09 62,557
from $.350 to $6.3 million
Forty nine assisted living facilities located in the states of
Alabama, Arizona, California, Florida, Georgia, Iowa,
Indiana, Mississippi, Montana, North Carolina, Nebraska, From From
New Mexico, Ohio, Oregon, Pennsylvania, Tennessee, 8.23% Oct-01
Texas, and Washington; with face amounts to to
ranging from $ .350 to $6.8 million 13.00% Dec-09 94,259
One ancillary hospital facility located in Texas with
an original face amount of $2.4 million 11.50% Feb-01 2,560
Three construction loans for assisted living facilities Earlier of 11/00
located in California, Mississippi, and Wyoming 10.00% or tenant lease 19,490
dates/5 Years
after conversion
--------
TOTAL MORTGAGE NOTES RECEIVABLE $253,459
========
</TABLE>
Notes:
(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) No prepayment penalty. Balloon payment amount is undeterminable until
the final loan amount is known.
(4) No prepayment penalty until 4th year, then 3% penalty scaling down 1%
annually.
(5) Prepayment penalty cannont be determined because future interest rate
fluctuations are based on future Consumer Price Index.
(6) Yield Maintenance Amount is defined generally as % of the Principal
Amount Being Prepaid x [(Present Value of the principal and Interest
payments remaining to maturity at a discount rate) - (Principal Amount
outstanding at the time of prepayment)].
(7) No prepayment until 5th anniversary, then 5% penalty scaling down 1%
per year.
(8) No prepayment before December 2001, then 3% penalty until August 2002,
then scales down 1% per year.
(9) Generally includes purchase accounting adjustment resulting from
Capstone merger.
(10) Interest only until maturity. Then principal is payable in full.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1999 1998 1997
--------- --------- ------
<S> <C> <C> <C>
Balance at beginning of period $ 237,617 $ 4,708 $ --
Additions during period:
New or acquired mortgages 0 221,929 0
Commitments assumed in the Capstone merger 16,734 0 0
Construction fundings 21,804 19,864 4,488
Other 407 121 220
--------- --------- ------
38,945 241,914 4,708
Deductions during period:
Collections of principal (1,931) (164) 0
Cost of mortgages sold (20,249) (8,646) 0
Amortization of premium (923) (195) 0
--------- --------- ------
(23,103) (9,005) 0
--------- --------- ------
Balance at end of period $ 253,459 $ 237,617 $4,708
========= ========= ======
</TABLE>
49
<PAGE> 1
EXHIBIT 10.3
HEALTHCARE REALTY TRUST
INCORPORATED
EXECUTIVE RETIREMENT PLAN
1. PURPOSE OF THE PLAN
The principal objective of this Executive Retirement Plan is to ensure
the payment of a competitive level of retirement income in order to attract,
retain, and motivate selected executives. The Plan is designed to provide a
benefit which, when added to other retirement income of the executive, will meet
the objective described above. Eligibility for participation in the plan shall
be limited to executives selected by the Compensation Committee of the Board of
Directors. This Plan will become effective on January 1, 1993.
2. DEFINITIONS
(A) "ACCRUED BENEFIT" means, as of any date, the Participant's
retirement benefit to begin at his Normal Retirement Date (as hereinafter
defined), determined pursuant to Section 4.2 and based on his Final Average
Earnings on the date of calculation and Service projected to Normal Retirement
Date multiplied by the ratio of years of Service as of calculation date over
years of Service projected to age 65.
(B) "BASIC PLAN" means the retirement plan, a defined benefit and/or a
defined contribution plan, covering essentially all employees of the Company,
including a Participant.
(C) "BASIC PLAN BENEFIT" means the amount of benefit payable from the
Basic Plan to a Participant in the form of a straight life annuity. If the Basic
Plan includes a defined contribution plan, the lump sum value will be converted
to a straight life annuity based on actuarial factors selected by the Committee.
If the Basic Plan provides for employee contributions or employer contributions
[other than matching contributions, if any, within the contemplation of Section
401(m) of the Internal Revenue Code] which are based upon an employee's deferral
of compensation, such as under a cash or deferred arrangement under Section
401(k) of the Internal Revenue Code of 1986, the Basic Plan Benefit shall not
include benefits which are attributable to such contributions and any earnings
thereon.
(D) "COMMITTEE" means the Compensation Committee of the Board of
Directors of the Company, which the Board of Directors has given authority to
administer this Plan.
(E) "COMPANY" means Healthcare Realty Trust Incorporated, a Maryland
corporation.
(F) "DISABILITY" means any termination from the Company's employment
during the life of a Participant and prior to age 65 by reason of a
Participant's total and permanent disability, as determined by the Committee, in
its sole and absolute discretion. A Participant, who makes application for and
qualifies for disability benefits under the Company's disability plan or under
any similar plan provided by the Company, as now in effect or as hereinafter
amended (the "LTD Plans"), shall qualify for Disability under this Plan, unless
the Committee determines that the Participant is not totally and permanently
disabled. A Participant who fails to qualify for disability benefits under the
LTD Plans (whether or not the Participant makes application for disability
benefits thereunder) shall not be deemed to be totally and permanently disabled
under this Plan, unless the Committee otherwise determines, based upon the
opinion of a qualified physician or medical clinic selected by the Committee to
the effect that a condition of total and permanent disability exists.
(G) "EARNINGS" means total annual cash compensation, including base
salary, annual incentives awards, and deferred compensation.
1
<PAGE> 2
(H) "FINAL AVERAGE EARNINGS" means the average of the three (3)
highest, not necessarily consecutive, years' Earnings.
(I) "OTHER RETIREMENT INCOME" means the Basic Plan Benefit payable to a
Participant from the Basic Plan and Social Security.
(J) "PARTICIPANT" means an employee of the Company designated as a
Participant by the Committee. An employee shall become a Participant in the Plan
as of the date he or she is individually selected by, and specifically named in
the resolutions of, the Committee to be included in the Plan.
(K) "PLAN" means the Company's Executive Retirement Plan.
(L) "RETIREMENT" means the termination of a Participant's employment
with the Company on one of the retirement dates specified in Section 3.1.
(M) "SERVICE" means a Participant's total years of employment with the
Company from date of hire to date of termination of employment.
(N) "SOCIAL SECURITY BENEFIT" means the annual Primary Insurance Amount
estimated by the Committee to be payable to the Participant at age 65 under the
Federal Social Security Act, provided, however, that:
(i) the Social Security Benefit for a Participant who dies,
retires or terminates employment before age 65 will be
calculated assuming:
(A) the Participant will not receive any future wages
that would be treated as wages for purposes of the
Federal Social Security Act; and
(B) the Participant will elect to begin receiving his
Social Security Benefit as of the earliest age then
allowable under the Act or, if later, at actual
date of Retirement.
(ii) the Social Security Benefit for a Participant who retires on
a Disability Retirement date will be calculated assuming
that the Participant's disability would make him eligible
for Social Security disability benefits.
(iii) once calculated, the Social Security Benefit will be frozen
as of the date the Participant dies, retires, or terminates
employment, whichever is applicable.
(O) "SURVIVING SPOUSE" means the spouse of a Participant who is legally
married to the Participant on the Participant's termination or death.
Where appearing in the Plan, the masculine gender will be deemed to
include the feminine gender, and the singular may include the plural, unless the
context clearly indicates the contrary.
3. ELIGIBILITY FOR BENEFITS
3.1 Each Participant is eligible to retire and receive a benefit under this Plan
beginning on one of the following dates:
(A) "NORMAL RETIREMENT DATE," which is the first day of the month
following the month in which the Participant reaches age 65 and has
completed five (5) years of Service.
(B) "EARLY RETIREMENT DATE," which is the first day of any month
following the month in which the Participant reaches age 55 and has
completed five (5) years of Service.
2
<PAGE> 3
(C) "POSTPONED RETIREMENT DATE," which is the first day of the
month following the Participant's Normal Retirement Date in
which the Participant terminates employment with the Company.
3.2 No benefits are payable hereunder unless the Participant retires on an Early
Retirement, Normal Retirement or Postponed Retirement Date. Notwithstanding the
prior sentence, in the event a Participant has entered into an employment
agreement with the Company which provides for vesting of his/her Accrued Benefit
hereunder, whether as a result of a termination other than for cause or
otherwise, any benefit paid with such agreement shall be funded and paid through
this Plan.
3.3 If any Participant entitled to a benefit under this Plan is (i) discharged
for cause after attaining his Early, Normal or Postponed Retirement Date, or
(ii) enters into competition with the Company, or interferes with the relations
between the Company and any person, firm or entity with whom the Company does
business, or (iii) by reason of Participant's material, substantial and willful
dishonesty towards, fraud upon, or deliberate injury or attempted injury has
caused material injury to Corporation, the rights of such Participant to a
benefit under this Plan, including the rights of a Surviving Spouse to a
benefit, will be forfeited, unless the Committee determines that such activity
is not detrimental to the best interests of the Company. However, if the
individual ceases such activity and notifies the Committee of this action, then
the Participant's right to receive a benefit, and any right of a Surviving
Spouse to a benefit, may be restored within sixty (60) days of said
notification, unless the Committee at its sole discretion determines that the
prior activity has caused serious injury to the Company, which determination
will be final and conclusive. Notwithstanding any provision herein to the
contrary, item (ii) above shall not apply in the event of a Termination Upon a
Change in Control.
4. AMOUNT AND FORM OF RETIREMENT BENEFIT
4.1 The annual retirement benefit payable to a Participant for his life time at
a Normal Retirement Date under the Plan shall be equal to sixty percent (60%) of
Final Average Earnings plus six percent (6%) of Final Average Earnings times
years of Service after age 60 to a maximum of five (5) years, less one hundred
percent (100%) of the Other Retirement Income of Participant.
4.2 The annual benefit payable to a Participant for his lifetime at an Early
Retirement Date shall be equal to the benefit determined in Section 4.1
multiplied by the following factors according to the service of the Participant
on Early Retirement Date and the age of the Participant on the date the benefit
begins:
<TABLE>
<CAPTION>
Service Reduction Factor Age Reduction Factor
- ------------------------------------------ --------------------------
Completed Years of Service and Under Age When Benefit
Age 60 Factor Begins Factor*
- -------------------------------------------------- -------------------------------
<S> <C> <C> <C>
4 0% 60 75%
5 50 61 80
6 60 62 85
7 70 63 90
8 80 64 95
9 90 65 100
10 or more 100
</TABLE>
*.417% for each month between whole ages.
3
<PAGE> 4
<TABLE>
<CAPTION>
Completed Years of Service and
Age 60 and Over Factor
---------------- ------
<S> <C>
4 0%
5 or more 100
</TABLE>
4.3 The annual benefit payable to a Participant for his lifetime at a Postponed
Retirement Date shall be equal to the benefit determined in accordance with
Section 4.1 based on Service and Final Average Earnings as of the Participant's
Retirement Date.
4.4 The benefit determined under this Plan will be payable in any form approved
by the Committee and elected by the Participant.
5. PAYMENT OF RETIREMENT BENEFITS
5.1 Benefits payable in accordance with Section 4 will begin on the
Participant's date of Retirement or, in the case of Early Retirement, on the
first day of any month following the Participant's Early Retirement Date but not
later than his Normal Retirement Date, as the Participant may elect. Benefits
will continue to be paid on the first day of each succeeding month. The last
payment will be on the first day of the month in which the retired Participant
dies, unless otherwise elected in accordance with Section 4.4.
5.2 Any Participant who is under Disability upon reaching his Normal Retirement
Date will be paid his retirement benefit under Section 4.1. Upon a Participant's
Disability while an employee of the Company, the Participant will continue to
accrue years of service during his Disability until the earliest of (a) his
recovery from Disability, (b) his 65th birthday or (c) his death. For the
purpose of determining the Participant's benefit hereunder, the Participant's
Final Average Earnings shall be determined on the basis of his Earnings up to
the date of Disability.
5.3 Any Participant who is entitled, in accordance with an employment agreement
with the Company to continued accruals with respect to this Plan, shall be paid
such benefit from this Plan, whether or not through any trust associated with
this Plan.
6. DEATH BENEFITS PAYABLE
6.1 If a Participant should die after Retirement and after the commencement of
payment of his benefits, the Surviving Spouse will receive an annual benefit
equal to fifty percent (50%) of the amount of the Participant's retirement
benefit determined in accordance with Section 4. If a Participant should die
after Retirement but before commencement of payment of his benefits, the
Participant's Surviving Spouse shall receive the amount of the Participant's
retirement benefit as if Participant had retired on the day before his death.
6.2 A Surviving Spouse's benefits will be payable monthly, and will begin on the
first day of the month following the month in which the Participant dies. The
last payment will be on the first day of the month in which the Surviving Spouse
dies.
6.3 If a Participant should die after Retirement, and is survived by dependent
children each child will receive a benefit equal to $1,500 per month until the
later of the first day of the month in which the dependent child reaches age 18,
or age 25 if a full-time student or dies if physically or mentally handicapped
as determined by the Committee.
6.4 No benefits are payable to any person or persons in the event a Participant
should die before Retirement.
4
<PAGE> 5
7. MISCELLANEOUS
7.1 The Committee may, at its sole discretion, terminate, suspend, or amend this
Plan at any time or from time to time, in whole or in part. However, no
amendment or suspension of the Plan will affect a Participant's right to receive
an Accrued Benefit, or a retired Participant's or Surviving Spouse's right to
continue to receive a benefit in accordance with this Plan.
7.2 Nothing contained herein will confer upon any Participant the right to be
retained in the service of the Company, nor will it interfere with the Company's
right to discharge or otherwise deal with Participants without regard to the
existence of this Plan.
7.3 This Plan is unfunded, and the Company will make Plan benefit payments
solely on a current disbursement basis. The Company may establish such grantor
trust(s) or other asset pool(s) as it deems necessary or appropriate to provide
for the payment of benefits hereunder.
7.4 To the maximum extent permitted by law, no benefit under this Plan shall be
assignable or subject in any manner to alienation, sale, transfer, claims of
creditors, pledge, attachment, or encumbrances of any kind.
7.5 The Committee may adopt rules and regulations to assist it in administering
the Plan.
7.6 Each Participant shall receive a copy of this Plan, and the Committee will
make available for inspection by any Participant a copy of the rules and
regulations used by the Committee in administering the Plan.
7.7 This Plan is established under and will be construed according to the
Employee Retirement Income Security Act of 1974.
8. MINIMUM BENEFIT IN CERTAIN CASES
The provisions of this Section 8 apply only in the case of a
Participant who has entered into an Employment Agreement with the Company which
provides for accelerated vesting in the event of death, disability, termination
other than for cause or a change in control. The provisions of this Section 8
apply notwithstanding Section 3.2 or any other provision of this Plan. In the
event a Participant's employment with the Company is terminated by reason of
death, disability, termination other than for cause or a change in control, each
as contemplated by the Employment Agreement between such individual and the
Company, then the benefit payable to or with respect to such Participant shall
be the greater of the benefit otherwise determined in accordance with the
provision of the Plan or the single sum benefit equal to the present value of
the then-Accrued Benefit, determined by reducing such adjusted accrued benefit
from age sixty-five (65) to the date as of which payment is made, using the
actuarial assumptions which have been used for financial accounting purposes
under generally accepted accounting principles.
5
<PAGE> 1
EXHIBIT 10.5
HEALTHCARE REALTY TRUST
NON-QUALIFIED DEFERRED COMPENSATION PLAN
Effective - January 1, 1999
1
<PAGE> 2
HEALTHCARE REALTY TRUST
NON-QUALIFIED DEFERRED COMPENSATION PL
<TABLE>
<CAPTION>
Table of Contents
-----------------
<S> <C>
ARTICLE I
SUMMARY
1.1 Statement of Purpose 5
ARTICLE II
DEFINITIONS
2.1 Account 5
2.2 Base Salary 5
2.3 Beneficiary 5
2.4 Board 5
2.5 Bonus 5
2.6 Code 6
2.7 Committee 6
2.8 Compensation 6
2.9 Company 6
2.10 Credited Service 6
2.11 Deferral Account 6
2.12 Deferral Benefit 6
2.13 Deferral Election 6
2.14 Disability 6
2.15 Early Retirement 6
2.16 Eligible Employee 7
2.17 Employer 7
2.18 Hardship Withdrawal 7
2.19 Investment Return Rate 7
2.20 Participant 7
2.21 Participation Agreement 7
2.22 Plan 7
2.23 Plan Year 7
2.24 Retirement 7
2.25 Selected Affiliate 8
2.26 Trust 8
2.27 Valuation Date 8
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Eligibility 8
3.2 Participation 8
3.3 Change in Participation Status 8
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
3.4 Ineligible Participant 9
ARTICLE IV
DEFERRAL OF COMPENSATION
4.1 Amount of Deferral 9
4.2 Crediting Deferred Compensation 9
ARTICLE V
BENEFIT ACCOUNTS
5.1 Valuation of Account 9
5.2 Crediting of Investment Return 9
5.3 Statement of Accounts 10
5.4 Vesting of Account 10
5.5 Investment Vehicles 10
5.6 Establishment of "Rabbi Trust" 10
ARTICLE VI
PAYMENT OF BENEFITS
6.1 Payment of Deferral Benefit upon Death, Disability or 11
Retirement
6.2 Payment of Deferral Benefit upon Termination 11
6.3 Payments to Beneficiaries 11
6.4 Hardship Withdrawal 11
6.5 Form of Payment 12
6.6 Commencement of Payments 12
6.7 Small Benefit 12
ARTICLE VII
BENEFICIARY DESIGNATION
7.1 Beneficiary Designation 12
7.2 Change of Beneficiary Designation 13
7.3 No Designation 13
7.4 Effect of Payment 13
ARTICLE VIII
ADMINISTRATION
8.1 Committee 13
8.2 Agents 13
8.3 Binding Effect of Decisions 13
8.4 Indemnification of Committee 13
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE IX
AMENDMENT AND TERMINATION OF PLAN
9.1 Amendment 14
9.2 Termination 14
9.3 Change of Control 14
ARTICLE X
MISCELLANEOUS
10.1 Funding
10.2 Nonassignability 14
10.3 Captions
10.4 Governing Law 15
10.5 Successors 15
10.6 Right to Continued Service 15
10.7 Claims Procedure 15
EXHIBIT A 17
EXHIBIT B 18
EXHIBIT C 19
EXHIBIT D 20
</TABLE>
4
<PAGE> 5
ARTICLE I
1.1 STATEMENT OF PURPOSE
This is the Healthcare Realty Trust Non-Qualified Deferred Compensation Plan
(the "Plan") made in the form of this Plan and in related agreements between the
Employer and certain management or highly compensated employees. The purpose of
the Plan is to provide management and highly compensated employees of the
Employer with the option to defer the receipt of portions of their compensation
payable for services rendered to the Employer. It is intended that the Plan will
assist in attracting and retaining qualified individuals to serve as officers
and managers of the Employer. The Plan is effective as of January 1, 1999.
ARTICLE II
DEFINITIONS
When used in this Plan and initially capitalized, the following words and
phrases shall have the meanings indicated:
2.1 ACCOUNT.
"Account" means the sum of a Participant's Deferral Account.
2.2 BASE SALARY.
"Base Salary" means a Participant's base earnings paid by an Employer to a
Participant without regard to any increases or decreases in base earnings as a
result of (i) an election to defer base earnings under this Plan or (ii) an
election between benefits or cash provided under a Plan of an Employer
maintained pursuant to Section 125 or 401(k) of the Code and as limited in
Exhibit B attached hereto.
2.3 BENEFICIARY.
"Beneficiary" means the person or persons designated or deemed to be designated
by the Participant pursuant to Article VII to receive benefits payable under the
Plan in the event of the Participant's death.
2.4 BOARD.
"Board" means the Board of Directors of the Company.
2.5 BONUS
"Bonus" means a Participant's earnings, other than base earnings, paid by an
Employer to a Participant as incentive compensation without regard to any
increases or decreases in such earnings as a result of (i) an election to defer
such earnings under this Plan or (ii) an election between benefits or cash
provided under a Plan of an Employer maintained pursuant to Section 125 or 401
(k) of the Code and as limited in Exhibit B attached hereto.
4
<PAGE> 6
2.6 CODE.
"Code" means the Internal Revenue Code of 1986, as amended.
2.7 COMMITTEE.
"Committee" has the meaning set forth in Section 8.1.
2.8 COMPENSATION.
"Compensation" means the Base Salary and Bonus payable with respect to an
Eligible Employee for each plan year.
2.9 COMPANY.
"Company" means Healthcare Realty Trust, Selected Affiliate companies and any
successor thereto.
2.10 CREDITED SERVICES.
"Credited Service" means the sum of all periods of a Participant's employment by
the Company or a Selected Affiliate for which service credit is given under the
Healthcare Realty Trust 401 (k) Plan.
2.11 DEFERRAL ACCOUNT.
"Deferral Account" means the account maintained on the books of the Employer for
the purpose of accounting for the amount of Compensation that each Participant
elects to defer under the Plan and for the amount of investment return credited
thereto for each Participant pursuant to Article V.
2.12 DEFERRAL BENEFIT.
"Deferral Benefit" means the benefit payable to a Participant or his or her
Beneficiary pursuant to Article VI.
2.13 DEFERRAL ELECTION.
"Deferral Election" means the written election made by a Participant to defer
Compensation pursuant to Article IV.
2.14 DISABILITY.
"Disability" means a Participant's Disability as defined under the Company's
Long Term Disability Plan or its successors.
2.15 EARLY RETIREMENT.
"Early Retirement" will be as set forth in any Company retirement plan
applicable to a Participant or otherwise as granted by the Committee at its sole
discretion.
6
<PAGE> 7
2.16 ELIGIBLE EMPLOYEE.
"Eligible Employee" means a highly compensated or management employee of the
Company who is designated by the Committee, by name or group or description, in
accordance with Section 3.1 as eligible to participate in the Plan.
2.17 EMPLOYER.
"Employer" means, with respect to a Participant, the Company or the Selected
Affiliate which pays such Participant's Compensation.
2.18 HARDSHIP WITHDRAWAL.
"Hardship Withdrawal" has the meaning set forth in Section 6.5.
2.19 INVESTMENT RETURN RATE.
"Investment Return Rate" means:
(a) In the case of an investment named in Exhibit C of a fixed
income nature, the interest deemed to be credited,
(b) In the case of an investment named in Exhibit C of an equity
investment nature, the increase and decrease in deemed value
and dividends deemed to be credited.
2.20 PARTICIPANT.
"Participant" means any Eligible Employee who elects to participate by filing a
Participation Agreement or who is automatically enrolled as provided in Section
3.2.
2.21 PARTICIPATION AGREEMENT.
"Participation Agreement" means the agreement filed by a Participant, in the
form prescribed by the Committee, pursuant to Section 3.2.
2.22 PLAN.
"Plan" means the Healthcare Realty Trust Non-Qualified Deferred Compensation
Plan, as amended from time to time.
2.23 PLAN YEAR.
"Plan Year" means a twelve-month period commencing January 1 and ending the
following December 31.
2.24 RETIREMENT.
"Retirement" means the termination of a Participant who has retired on any date
permitted for retirement pursuant to any Company retirement plan applicable to
such Participant or otherwise has reached age 65.
7
<PAGE> 8
2.25 SELECTED AFFILIATE.
"Selected Affiliate" means (1) any company in an unbroken chain of companies
beginning with the Company if each of the companies other than the last company
in the chain owns or controls, directly or indirectly, stock possessing not less
than 50 percent of the total combined voting power of all classes of stock in
one of the other companies, or (2) any partnership or joint venture in which one
or more of such companies is a partner or venturer, each of which shall be
selected by the Committee.
2.26 TRUST.
"Trust" has the meaning set forth in Section 5.6.
2.27 VALUATION DATE.
"Valuation Date" means a date on which the amount of a Participant's Account is
valued as provided in Article V. The Valuation Date shall be the last day of
each month and any other date determined by the Committee.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY.
Eligibility to participate in the Plan is limited to Eligible Employees. From
time to time, and subject to Section 3.4, the Committee shall prepare, and
attach to the Plan as Exhibit D, a complete list of the Eligible Employees, by
individual name or by reference to an identifiable group of persons or by
descriptions of the components of compensation of an individual which would
qualify individuals which are eligible to participate and all of whom shall be a
select group of management or highly compensated employees.
3.2 PARTICIPATION.
Participation in the Plan shall be limited to Eligible Employees who elect to
participate in the Plan by filing a Participation Agreement with the Committee.
An Eligible Employee shall commence participation in the Plan upon the first day
of his or her first payroll period following the receipt of his or her
Participation Agreement by the Committee.
3.3 CHANGE IN PARTICIPATION STATUS.
During the election period each December, a Participant may change a previously
elected percentage of deferral of total compensation or elect to terminate his
or her participation in the Plan. Changes will only become effective as of the
beginning of the next Plan Year following receipt of the change in election by
the Committee and in accordance with the Company's prevailing administrative
procedures. Amounts credited to such Participant's Account with respect to
periods prior to the effective date of such termination shall continue to be
payable pursuant to, receive investment credit on, and otherwise be governed by,
the terms of the Plan.
8
<PAGE> 9
3.4 INELIGIBLE PARTICIPANT.
Notwithstanding any other provisions of this Plan to the contrary, if the
Committee determines that any Participant may not qualify as a "select group of
management or highly compensated employee" within the meaning of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or regulations
thereunder, the Committee may determine, in its sole discretion, that such
Participant shall cease to be eligible to participate in this Plan. Upon such
determination, any future Participant's contributions to the Plan will cease,
however, the Participants existing account balance will be maintained in the
same manner as other Plan Participants.
ARTICLE IV
DEFERRAL OF COMPENSATION
4.1 AMOUNT OF DEFERRAL.
With respect to each Plan Year, a Participant may elect to defer a specified
percentage of his or her Compensation up to the percentage of compensation
defined and the terms described in Exhibit B attached hereto.
4.2 CREDITING REFERRED COMPENSATION.
The amount of Compensation that a Participant elects to defer under the Plan
shall be credited by the Employer to the Participant's Deferral Account
periodically, the frequency of which will be determined by the Committee, but
which crediting shall occur no later than 30 days following the date upon which
such Compensation would have otherwise been paid by the Employer to the
Participant. To the extent that the Employer is required to withhold any taxes
or other amounts from a Participant's deferred Compensation pursuant to any
state, federal or local law, such amounts shall be withheld only from the
Participant's compensation before such amounts are credited.
ARTICLE V
BENEFIT ACCOUNTS
5.1 VALUATION OF ACCOUNT.
As of each Valuation Date, a Participant's Account shall consist of the balance
of the Participant's Account as of the immediately preceding Valuation Date,
plus the Participant's Deferred Compensation credited pursuant to Section 4.2
since the immediately preceding Valuation Date, plus investment return credited
as of such Valuation Date pursuant to Section 5.2, minus the aggregate amount of
distributions, if any, made from such Account since the immediately preceding
Valuation Date.
5.2 CREDITING OF INVESTMENT RETURN.
As of each Valuation Date, each Participant's Deferral Account shall be
increased by the amount of investment return earned since the immediately
preceding Valuation Date. Investment return shall be credited at the Investment
Return Rate as of such Valuation Date based on the average balance of the
Participant's Deferral Account, since the immediately preceding Valuation Date,
but after such Accounts have been adjusted for any contributions or
distributions to be credited or deducted for such period.
9
<PAGE> 10
Investment return for the period prior to the first Valuation Date applicable to
a Deferral Account shall be deemed earned ratably over such period. Until a
Participant or his or her Beneficiary receives his or her entire Account, the
unpaid balance thereof shall earn an investment return as provided in this
Section 5.2.
5.3 STATEMENT OF ACCOUNTS.
The Committee shall provide to each Participant, within 30 days after the close
of each calendar quarter, a statement setting forth the balance of such
Participant's Account as of the last day of the preceding calendar quarter and
showing all adjustments made thereto during such calendar quarter.
5.4 VESTING OF ACCOUNT.
Except as provided in Sections 10.1 and 10.2, a Participant shall be 100% vested
in his or her Deferral Account at all times.
5.5 INVESTMENT VEHICLES.
The Company may select investment vehicles owned as general assets by the
Company or as assets of a trust described in Section.10.1 to establish the
Investment Return Rate. The deemed investment vehicles are set forth in Exhibit
C, which the Company may amend from time to time in its sole discretion.
A Participant may request the Company to make deemed investments of the credit
balance of his Deferral Account in one or more of such investment vehicles. A
Participant may change the deemed investment of his Deferral Account or change
the deemed investment of his existing Deferral Account balance may differ from
the deemed investment of future amounts credited to the Deferral Account. Such
changes shall be made in accordance with procedures as the Committee may
establish from time to time. Such procedures may regulate the frequency of such
changes and the form of notice required to make such election or changes. The
Committee may also establish a deemed investment, which shall apply if the
Participant makes no election.
The effective date of any change shall be the date for which the appropriate
direction to the Company or its designee has been properly received in
accordance with the procedures established by the Committee. The Committee shall
have the right to refuse to honor any Participant direction related to
investments or withdrawals, including transfers among investment options, where
necessary or desirable to assure compliance with applicable law including U.S.
and other securities laws. However, neither the Company nor the Committee
assumes any responsibility for compliance by officers or others with any such
laws, and any failure by the Company or the Committee to delay or dishonor any
such direction shall not be deemed to increase the Company's legal obligations
to the Participant or third parties.
5.6 ESTABLISHMENT OF "RABBI TRUST"
The Company shall establish a rabbi trust, which is intended to be a grantor
trust, of which the Company is the grantor, within the meaning of subpart E,
part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of
1986, as amended, and shall be construed accordingly. The Company shall make
regular deposits into the Trust in order to finance its obligations to
Participants, the frequency of which deposits will be determined by the
Committee, but which shall occur no later than the latest date upon which
deferred compensation may be credited to Participants' Accounts pursuant to
Section 4.2. Such deposits will be invested in accordance with the provisions of
Section 5.5 as soon as practicable. The principal of the Trust, and any earnings
thereon shall be held separate and apart from other funds of
10
<PAGE> 11
Company and shall be used exclusively for the uses and purposes of Participants
and general creditors. Participants and their beneficiaries shall have no
preferred claim on, or any beneficial ownership interest in, any assets of the
Trust. Any rights created under this Plan document and the Trust agreement shall
be mere unsecured contractual rights of Participants and their beneficiaries
against the Company. Any assets held by the Trust will be subject to the claims
of the Company's general creditors under federal and state law in the event of
insolvency of the Company.
ARTICLE VI
PAYMENT OF BENEFITS
6.1 PAYMENT OF DEFERRAL BENEFIT UPON DEATH, DISABILITY OR RETIREMENT.
Upon the death, Disability, Early Retirement; or Retirement of a Participant,
the Employer shall pay to the Participant or his Beneficiary a Deferral Benefit
equal to the balance of his or her vested Account determined pursuant to Article
V, less any amounts previously distributed, based on his written election
pursuant to Section 6.5.
6.2 PAYMENT OF DEFERRAL BENEFIT UPON TERMINATION.
Upon the termination of service of the Participant as an employee of the
Employer and all Selected Affiliates for reasons other than death, Disability,
or Retirement, the Employer shall pay to the Participant a Deferral Benefit in a
lump sum equal to the balance of his or her vested Account determined pursuant
to Article V, less any amounts previously distributed, as soon as
administratively practical.
6.3 PAYMENTS TO BENEFICIARIES.
In the event of the Participant's death prior to his or her receipt of all
elected annual installments, his or her Beneficiary will receive the remaining
annual installments at such times as such installments would have become
distributable to the Participant.
6.4 HARDSHIP WITHDRAWAL.
In the event that the Committee, under written request of a Participant,
determines, in its sole discretion, that the Participant has suffered an
unforeseeable financial emergency, the Employer shall pay to the Participant, as
soon as practicable following such determination, an amount necessary to meet
the emergency (the "Hardship Withdrawal"), but not exceeding the aggregate
balance of such Participant's Deferral Account as of the date of such payment.
For purposes of this Section 6.4, an "unforeseeable financial emergency" shall
mean an event that the Committee determines to give rise to an unexpected need
for cash arising from an illness, casualty loss, sudden financial reversal or
other such unforeseeable occurrence. Amounts of Hardship Withdrawal may not
exceed the amount the Committee reasonably determines to be necessary to meet
such emergency needs (including taxes incurred by reason of a taxable
distribution). The amount of the Deferral Benefit otherwise payable under the
Plan to such Participant shall be adjusted to reflect the early payment of the
Hardship Withdrawal.
11
<PAGE> 12
6.5 FORM OF PAYMENT.
The Deferral Benefit payable pursuant to Section 6.1 shall be paid in one of the
following forms, as elected by the Participant in his or her Participant
Agreement on file as of one (1) year and one (1) day prior to the year of death,
disability or retirement:
(a) Annual payments of a fixed amount which shall amortize the
vested Account balance of the payment commencement date over a
period of five (5) or ten (10) years (together, in the case of
each annual payment, with interest thereon credited after the
payment commencement date pursuant to Section 5.2).
(b) A lump sum as soon as administratively practical.
In the event a Participant fails to make a distribution election, his or her
vested Account Balance shall be distributed as a lump sum distribution as soon
as administratively practical after his or her death, disability or retirement.
6.6 COMMENCEMENT OF PAYMENTS
Commencement of payments under Section 6.1 of the Plan shall begin within ninety
days following an event which entitles a Participant (or a Beneficiary) to
payments in lump sum under the Plan or in the January following the event for
annual payment.
6.7 SMALL BENEFIT.
In the event the Committee determines that the balance of a Participant's
Account is less than $5,000 at the time of commencement of payments, or the
portion of the balance of the Participant's Account payable to any Beneficiary
is less than $5,000 at the time of commencement of payments, the Committee may
inform the Employer, and the Employer, in its discretion, may choose to pay the
benefit in the form of a lump sum payment, notwithstanding any provision of the
Plan or a Participant election to the contrary. Such lump sum payment shall be
equal to the balance of the Participant's Account or the portion thereof payable
to a Beneficiary.
ARTICLE VII
BENEFICIARY DESIGNATION
7.1 BENEFICIARY DESIGNATION.
Each Participant shall have the sole right, at any time, to designate any person
or persons as his or her Beneficiary to whom payment under the Plan shall be
made in the event of his or her death prior to complete distribution to the
Participant of his or her Account. Any Beneficiary designation shall be made in
a written instrument provided by the Committee. All Beneficiary designations
must be filed with the Committee and shall be effective only when received in
writing by the Committee.
12
<PAGE> 13
7.2 CHANGE OF BENEFICIARY DESIGNATION.
Any Beneficiary designation may be changed by a Participant by the filing of a
new Beneficiary designation, which will cancel all Beneficiary designations
previously filed. The designation of a Beneficiary may be made or changed at any
time without the consent of any person.
7.3 NO DESIGNATION.
If a Participant fails to designate a Beneficiary as provided above, or if all
designated Beneficiaries predecease the Participant, then the Participant's
designated Beneficiary shall be deemed to be the Participant's estate.
7.4 EFFECT OF PAYMENT.
Payment of the Deferral Benefit to a Participant's Beneficiary (or, upon the
death of a primary Beneficiary, to the contingent Beneficiary or, if none, to
the Participant's estate) shall completely discharge the Employer's obligations
under the Plan.
ARTICLE VIII
ADMINISTRATION
8.1 COMMITTEE.
Members of the Committee for the Healthcare Realty Trust Non-Qualified Deferred
Compensation Plan are listed on Exhibit A. The Committee shall have complete
discretion to i) supervise the administration and operation of the Plan, ii)
adopt rules and procedures governing the Plan from time to time, and iii) shall
have authority to give interpretive rulings with respect to the Plan.
8.2 AGENTS.
The Committee may appoint an individual, who may be an employee of the Company,
to be the Committee's agent with respect to the day-to-day administration of the
Plan. In addition, the Committee may, from time to time, employ other agents and
delegate to them such administrative duties as it sees fit, and may from time to
time consult with counsel who may be counsel to the Company.
8.3 BINDING EFFECT OF DECISIONS.
Any decision or action of the Committee with respect to any question arising out
of or in connection with the administration, interpretation and application of
the Plan shall be final and binding upon all persons having any interest in the
Plan.
8.4 INDEMNIFICATION OF COMMITTEE.
The Company shall indemnify and hold harmless the members of the Committee and
their duly appointed agents under Section 8.2 against any and all claims, loss,
damage, expense or liability arising from any action or failure to act with
respect to the Plan, except in the case of gross negligence or willful
misconduct by any such member or agent of the Committee.
13
<PAGE> 14
ARTICLE IX
AMENDMENT AND TERMINATION OF PLAN
9.1 AMENDMENT.
The Company, on behalf of itself and of each Selected Affiliate may at any time
amend, suspend or reinstate any or all of the provisions of the Plan, except
that no such amendment, suspension or reinstatement may adversely affect any
Participant's Account, as it existed as of the day before the effective date of
such amendment, suspension or reinstatement, without such Participant's prior
written consent. The Committee or its delegate as the case may be, in its sole
discretion, may accelerate the date of payment of a Participant's Account.
Written notice of any amendment or other action with respect to the Plan shall
be given to each Participant.
9.2 TERMINATION.
The Company, on behalf of itself and of each Selected Affiliate, in its sole
discretion, may terminate this Plan at any time and for any reason whatsoever.
Upon termination of the Plan, the Committee shall take those actions necessary
to administer any Accounts existing prior to the effective date of such
termination; provided, however, that a termination of the Plan shall not
adversely affect the value of a Participant's Account, as it existed as of the
day before the effective date of such termination, or the timing or method of
distribution of a Participant's Account, without the Participant's prior
written consent. Notwithstanding the foregoing, a termination of the Plan shall
not give rise to accelerated or automatic vesting of any Participant's Account.
9.3 CHANGE OF CONTROL.
Upon a change of control, the plan is to be terminated with all benefits to be
distributed to participants in a lump sum.
ARTICLE X
MISCELLANEOUS
10.1 FUNDING.
Participants, their Beneficiaries, and their heirs, successors and assigns,
shall have no secured interest or claim in any property or assets of the
Employer. The Employer's obligation under the Plan shall be merely that of an
unfunded and unsecured promise of the Employer's to pay money in the future.
10.2 NONASSIGNABILITY.
No right or interest under the Plan of a Participant or his or her Beneficiary
(or any person claiming through or under any of them) shall be assignable or
transferable in any manner or be subject to alienation, anticipation, sale,
pledge, encumbrance or other legal process or in any manner be liable for or
subject to the debts or liabilities of any such Participant or Beneficiary. If
any Participant or Beneficiary shall attempt to or shall transfer, assign,
alienate, anticipate, sell, pledge or otherwise encumber his or her benefits
hereunder or any part thereof, or if by reason of his or her bankruptcy or other
event happening at any time such benefits would devolve upon anyone else or
would not be enjoyed by him or her, then
14
<PAGE> 15
the Committee, in its discretion, may terminate his or her interest in any such
benefit (including the Deferral Account) to the extent the Committee considers
necessary or advisable to prevent or limit the effects of such occurrence.
Termination shall be effected by filing a written "termination declaration" with
the Healthcare Realty Trust Non-Qualified Deferred Compensation Plan Committee
of the Company and making reasonable efforts to deliver a copy to the
Participant or Beneficiary whose interest is adversely affected (the "terminated
participant").
As long as the terminated participant is alive, any benefits affected by the
termination shall be retained by the Employer and, in the Committee's sole and
absolute judgment, may be paid to or expended for the benefit of the terminated
participant, his or her spouse, his or her children or any other person or
persons in fact dependent upon him or her in such a manner as the Committee
shall deem proper. Upon the death of the terminated participant, all benefits
withheld from him or her and not paid to others in accordance with the preceding
sentence shall be disposed of according to the provisions of the Plan that would
apply if he or she died prior to the time that all benefits to which he or she
was entitled were paid to him or her.
10.3 CAPTIONS.
The caption contained herein is for convenience only and shall not control or
affect the meaning or construction hereof.
10.4 GOVERNING LAW.
The provisions of the Plan shall be constructed and interpreted according to the
laws of the State of Tennessee.
10.5 SUCCESSORS.
The provisions of the Plan shall bind and inure to the benefit of the Company,
its Selected Affiliates, and their respective successors and assigns. The term
successors as used herein shall include any corporate or other business entity
that shall, whether by merger, consolidation, purchase or otherwise, acquire all
or substantially all of the business and assets of the Company or a Selected
Affiliate and successors of any such Company or other business entity.
10.6 RIGHT TO CONTINUED SERVICE.
Nothing contained herein shall be construed to confer upon any Eligible Employee
the right to continue to serve as an Eligible Employee of the Employer or in any
other capacity.
10.7 CLAIMS PROCEDURE.
If a benefit under this Plan is not paid to an Executive or Beneficiary and such
person believes that he or she is entitled to receive it, a claim shall be made
in writing to the Committee within sixty (60) days from the date payment was to
be made. Such claim shall be reviewed by the Committee and the Corporation. If
the claim is denied, in full or in part, the Committee shall provide written
notice within ninety (90) days setting forth the specific reasons for denial.
The notice shall include specific reference to the provisions of this Plan upon
which the denial is based and any additional material or information necessary
to perfect the claim, if any. Such written notice shall also indicate the steps
to be taken if a review of the denial is desired.
15
<PAGE> 16
If the claim is denied and a review is desired, the claimant shall notify the
Committee in writing within sixty (60) days. A claim shall be treated as denied
if the Committee does not take action in the aforesaid ninety (90) day period.
In requesting review, the claimant may review this Plan or any documents
relating to it and submit any written issues and comments he or she may feel
appropriate in his or her sole discretion within sixty (60) days. This decision
likewise shall state the specific provisions of this Plan on which the decision
is based.
Executed this 9th day of February, 1999.
Healthcare Realty Trust Incorporated
By: /S/
-------------------------------------
Title: Roger O. West
Executive Vice President
16
<PAGE> 17
EXHIBIT A
RE: SECTION 8.1 - COMMITTEE
Date:_______________ , 19_____.
The following indicates the Committee Members for the Healthcare Realty Trust
Non-Qualified Deferred Compensation Plan.
COMMITTEE MEMBERS
1. Roger O. West, Executive Vice President and General Counsel
2. Fredrick M. Langreck, Senior Vice President and Treasurer
3. Michael W. Crisler, Vice President Financial Planning
17
<PAGE> 18
EXHIBIT B
RE: SECTION 4.1 - AMOUNT OF DEFERRAL
Date: ______________, 19___.
As of the date above, and effective until this Exhibit is Modified by the
Committee, the table below indicates the types of compensation which are
eligible for income deferral at the assigned percentages as noted:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Type of Compensation Minimum Percentage Maximum Percentage
That can be deferred that can be deferred
- --------------------------------------------------------------------------------------
<S> <C> <C>
Base Salary 5% 15%
- --------------------------------------------------------------------------------------
Bonus 5% 25%
- --------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
EXHIBIT C
RE: SECTION 2.18 - INVESTMENT RETURN RATE
Date: _____________________, 19___.
The following indicates the investment account equivalents available as of the
date indicated that are used in determining the Investment Return Rate.
<TABLE>
<CAPTION>
ACCOUNT NAME EFFECTIVE DATE
- ------------ --------------
<S> <C>
Fidelity Advisor-Equity Growth Fund 01/01/99
Fidelity Advisor-Growth Opportunities Fund 01/01/99
Fidelity Cash Management Funds-Prime Fund 01/01/99
</TABLE>
19
<PAGE> 20
EXHIBIT D
Re: SECTION 3.2 - ELIGIBILITY
The following employees are eligible to participate in the plan, pursuant to the
regulations of ERISA and the guidelines as set forth by the committee.
1. Michael Crisler 08/04/64 (34)
2. David Emery 09/28/44 (54)
3. Eric Fischer 03/18/64 (34)
4. Roland Hart 01/04/43 (56)
5. Keith Harville 04/20/44 (54)
6. Scott Holmes 05/11/54 (44)
7. Fredrick Langreck 01/16/59 (40)
8. Bryan Starr 01/09/34 (64)
9. Carter Steele 12/24/48 (50)
10. James Tainter 05/10/61 (37)
11. Tim Wallace 05/12/58 (40)
12. Roger West 12/19/44 (54)
20
<PAGE> 21
FIRST AMENDMENT
TO THE
NON QUALIFIED DEFERRED COMPENSATION PLAN
The Healthcare Realty Trust Non-qualified Deferred Compensation plan (the
"Plan"), as adopted effective January 1, 1999, is hereby amended in the
following respects:
1. Effective as of July 1, 1999, Section 2.5 of the Plan is
amended to provide as follows:
2.5 BONUS.
"Bonus" means the cash portion of a Participant's earnings,
other than base earnings, paid by an Employer to a Participant
as incentive compensation without regard to any increases or
decreases in such earnings as a result of (i) an election to
defer such earnings under this Plan or (ii) an election
between benefits or cash provided under a Plan of an Employer
maintained pursuant to Section 125 or 401 (k) of the Code and
as limited in Exhibit B attached hereto.
Executed this 15th day of June, 1999.
BY: /S/
--------------------------
Title: Roger O. West
Executive Vice President
21
<PAGE> 22
SECOND AMENDMENT
TO THE
NON-QUALIFIED DEFERRED COMPENSATION PLAN
The Healthcare Realty Trust Non-qualified Deferred Compensation plan (the
"Plan"), as adopted effective January 1, 1999, is hereby amended in the
following respects:
1. Effective as of December 1, 1999, Exhibit B, which pertains to
Section 4.1 of the Plan is amended to provide as follows:
EXHIBIT B
Re: Section 4.1- Amount of Deferral
Date: December 1, 1999
As of the date above, and effective until this Exhibit is Modified by the
Committee, the table below indicates the types of compensation which are
eligible for income deferral at the assigned percentages as noted:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
TYPE OF COMPENSATION MINIMUM PERCENTAGE MAXIMUM PERCENTAGE
THAT CAN BE DEFERRED THAT CAN BE DEFERRED
- ------------------------------------------------------------------------------
<S> <C> <C>
Salary 5 % 25
- ------------------------------------------------------------------------------
Cash Bonus 5 % 50
- ------------------------------------------------------------------------------
</TABLE>
Executed this 12th day of November, 1999.
By: /S/
-----------------------------
Title: Roger O. West
Executive Vice President
22
<PAGE> 23
THIRD AMENDMENT
TO THE
NON-QUALIFIED DEFERRED COMPENSATION PLAN
The Healthcare Realty Trust Non-qualified Deferred Compensation plan (the
"Plan"), as adopted effective January 1, 1999, is hereby amended in the
following respects:
1. Effective as of January 1, 2000, Exhibit C, which pertains to
Section 2.19 of the Plan is amended to provide as follows:
EXHIBIT B
Re: SECTION 2.19 - INVESTMENT RETURN RATE
Date: January 1, 2000
The following indicates the investment account equivalents available as of the
date indicated that are used in determining the Investment Return Rate.
<TABLE>
<CAPTION>
ACCOUNT NAME EFFECTIVE DATE
- ------------ --------------
<S> <C>
Fidelity Advisor-Equity Growth Fund 01/01/99
Fidelity Advisor-Growth Opportunities Fund 01/01/99
Fidelity Cash Management Funds-Prime Fund 01/01/99
Fidelity Advisor-Overseas Fund 01/01/00
Federated Max-Cap Fund (C shares) O1/O1/00
</TABLE>
Executed this 14th day of December, 1999.
By: /S/
----------------------------
Michael W. Crisler
Vice President Financial Planning
23
<PAGE> 24
TRUST UNDER HEALTHCARE REALTY TRUST
NON-QUALIFIED DEFERRED COMPENSATION PLAN
This Agreement made this 28th day of January, by and between Healthcare Realty
Trust (Company) and SunTrust Bank, Nashville, N.A. , (Trustee):
WHEREAS, Company has adopted the nonqualified deferred compensation Plan as
listed in Appendix A;
WHEREAS, Company has incurred or expects to incur liability under the terms of
such Plan with respect to the individuals participating in such Plan;
WHEREAS, Company wishes to establish a trust (hereinafter called "Trust") and to
contribute to the Trust assets that shall be held therein, subject to the claims
of Company's creditors in the event of Company's Insolvency, as herein defined,
until paid to Plan participants and their beneficiaries in such manner and at
such times as specified in the Plan;
WHEREAS, it is the intention of the parties that this Trust shall constitute an
unfunded arrangement and shall not affect the status of the Plan as an unfunded
plan maintained for the purpose of providing deferred compensation for a select
group of management or highly compensated employees for purposes of Title I of
the Employee Retirement Income Security Act of 1974;
WHEREAS, it is the intention of Company to make contributions to the Trust to
provide itself with a source of funds to assist in the meeting of its
liabilities under Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that the
Trust shall be comprised, held and disposed of as follows:
SECTION 1
Establishment of the Trust
(a) Company hereby deposits with Trustee amounts which shall become the
principal of the Trust to be held, administered and disposed of by
Trustee as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which Company is the
grantor, within the meaning of subpart E, part 1, subchapter J, chapter
1, subtitle A of the Internal Revenue Code of 1986, as amended, and
shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of Company and shall be used
exclusively for the uses and purposes of Plan participants and general
creditors as herein set forth. Plan participants and their
beneficiaries shall have no preferred claim on, or any beneficial
ownership interest in, any assets of the Trust. Any rights created
under the Plan and this Trust Agreement shall be mere unsecured
contractual rights of Plan participants and their beneficiaries against
Company. Any assets held by the Trust will be subject to the claims of
Company's general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) herein. (e) Company, in its sole
discretion, may at any time, or from time to time, make additional
deposits of cash or other property in trust with Trustee to augment the
principal to be held, administered and disposed of by Trustee as
provided in this Trust Agreement. Neither Trustee nor any Plan
participant or beneficiary shall have any right to compel such
additional deposits.
(f) Upon a Change of Control, Company shall, as soon as possible, but in no
event longer than 45 days following the Change of Control, as defined
herein, make an irrevocable contribution to the Trust in an amount that
is sufficient to pay each Plan participant or beneficiary the benefits
to which Plan participants or their beneficiaries would be entitled
pursuant to the terms of the Plan as of the date on which the Change of
Control occurred.
<PAGE> 25
(g) Within 45 days following the end of the Plan year, ending after the
Trust has become irrevocable pursuant to Section 1(b) hereof, Company
shall be required to irrevocably deposit additional cash or other
property to the Trust in an amount sufficient to pay each Plan
participant or beneficiary the benefits payable pursuant to the terms
of the Plan as of the close of the Plan year.
SECTION 2
Payments to Plan Participants and Their Beneficiaries
(a) Company shall deliver to Trustee a schedule (the "Payment Schedule")
that indicates the amounts payable in respect of each Plan participant
(and his or her beneficiaries), that provides a formula or other
instructions acceptable to Trustee for determining the amounts so
payable, the form in which such amount is to be paid (as provided for
or available under the Plan), and the time of commencement for payment
of such amounts. Except as otherwise provided herein, Trustee shall
make payments to the Plan participants and their beneficiaries in
accordance with such Payment Schedule. The Trustee shall make
provisions for the reporting and withholding of any federal taxes that
may be required to be withhold with respect to the payment of benefits
pursuant to the terms of the Plan and shall pay amounts withheld to the
appropriate taxing authorities or determine that such amounts have been
reported, withheld and paid by Company.
(b) The entitlement of a Plan participant or his or her beneficiaries to
benefits under the Plan shall be determined by Company or such party as
it shall designate under the Plan, and any claim for such benefits
shall be considered and reviewed under the procedures set out in the
Plan.
(c) Company may make payment of benefits directly to Plan participants or
their beneficiaries as they become due under the terms of the Plan.
Company shall notify Trustee of its decision to make payment of
benefits directly prior to the time amounts are payable to participants
or their beneficiaries. In addition, if the principal of the Trust, and
any earnings thereon, are not sufficient to make payments of benefits
in accordance with the terms of the Plan, Company shall make the
balance of each such payment as it falls due. Trustee shall notify
Company where principal and earnings are not sufficient.
SECTION 3
Trustee Responsibility Regarding Payments to Trust Beneficiary When
Company Is Insolvent
(a) Trustee shall cease payment of benefits directly to Plan participants
and their beneficiaries if the Company is Insolvent. Company shall be
considered "Insolvent" for purposes of this Trust Agreement if (i)
Company is unable to pay its debts as they become due, or (ii) An order
for relief has been entered with the Company as the debtor in a
proceeding under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be
subject to claims of general creditors of Company under federal and
state law as set forth below.
(1) The Board of Directors and the Chief Executive Officer (or
substitute the title of the highest-ranking officer of the
Company) of Company shall have the duty to inform Trustee in
writing of Company's Insolvency. If a person claiming to be a
creditor of Company alleges in writing to Trustee that Company
has become Insolvent, Trustee shall determine whether Company
is Insolvent and, pending such determination. Trustee shall
discontinue payment of benefits to Plan participants or their
beneficiaries.
(2) Unless Trustee has actual knowledge of Company's Insolvency,
or has received notice from Company or a person claiming to be
a creditor alleging that Company's is Insolvent, Trustee shall
have no duty to inquire whether Company is Insolvent. Trustee
may in all events relay on such evidence concerning Company's
solvency as may be furnished to Trustee and that provides
Trustee with a reasonable basis for making a determination
concerning Company's solvency.
(3) If at any time Trustee has determined that Company is
Insolvent, Trustee shall discontinue payments to Plan
participants or their beneficiaries and shall hold the assets
2
<PAGE> 26
of the Trust for the benefit of Company's general creditors.
Nothing is this Trust Agreement shall in any way diminish any
rights of Plan participants or their beneficiaries to pursue
their rights as general creditors of Company with respect to
benefits due under the Plan or otherwise.
(4) Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section
2 of this Trust Agreement only after Trustee has determined
that Company is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee discontinues the
payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due
to Plan participants or their beneficiaries under the terms of the Plan
for the period of such discontinuance, less the aggregate amount of any
payments made to Plan participants or their beneficiaries by Company in
lieu of the payments provided for hereunder during any such period of
discontinuance.
SECTION 4
Payments to Company
Except as provided in Section 3 hereof, after the Trust has become irrevocable,
Company shall have no right or power to direct Trustee to return to Company or
to divert to others any of the Trust assets before all payments of benefits have
been made to Plan participants and their beneficiaries pursuant to the terms of
the Plan.
SECTION 5
Investment Authority
In no event may Trustee invest in securities (including stock or rights to
acquire stock) or obligations issued by Company, other than a de minimis amount
held in common investment vehicles in which Trustee invest. All rights
associated with assets of the Trust shall be exercised by Trustee or the person
designated by Trustee, and shall in no event be exercisable by or rest with Plan
participants.
SECTION 6
Disposition of Income
During the term of this Trust, all income received by the Trust, net of expenses
and taxes, shall be accumulated and reinvested.
SECTION 7
Accounting by Trustee
Trustee shall keep accurate and detailed records of all investments, receipts,
disbursements, and all other transactions required to be made, including such
specific records as shall be agreed upon in writing Between Company and Trustee.
Within 30 days following the close of each calendar year and within 30 days
after the removal or resignation of Trustee, Trustee shall deliver to Company a
written account of its administration of the Trust during such year or during
the period from the close of the last preceding year to the date of such removal
or resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities, and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
3
<PAGE> 27
SECTION 8
Responsibility of Trustee
(a) Trustee shall act with the care, skill, prudence and diligence under
the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however,
that Trustee shall incur no liability to any person for any action
taken pursuant to a direction, request or approval given by Company
which is contemplated by, and in conformity with, the terms of the Plan
or this Trust and is given in writing by Company. In the event of a
dispute between Company and a party, Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
(b) If Trustee undertakes or defends any litigation arising in connection
with this Trust, Company agrees to indemnify Trustee against Trustee's
costs, expenses, and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily
liable for such payments. If Company does not pay such costs, expenses
and liabilities in a reasonably timely manner, Trustee may obtain
payment from the Trust.
(c) Trustee may consult with legal counsel (who may also be counsel for
Company generally) with respect to any of its duties or obligations
hereunder.
(d) Trustee may hire agents, accountants, actuaries, or other professionals
to assist it in performing any of its duties or obligations hereunder.
(e) Trustee shall have, without exclusion, all powers conferred in Trustees
by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of
the Trust, Trustee shall have no power to name a beneficiary of the
policy other than the Trust, to assign the policy (as distinct from
conversion of the policy to a different form) other than to a successor
Trustee, or to loan to any person the proceeds of any borrowing against
such policy.
(f) Notwithstanding any powers granted to Trustee pursuant to this Trust
Agreement or to applicable law, Trustee shall not have any power that
could give this Trust the objective of carrying on a business and
dividing the gains therefrom, within the meaning of Section 301.7701-2
of the Procedure and Administrative Regulations promulgated pursuant to
the Internal Revenue Code.
SECTION 9
Compensation and Expenses of Trustee
Company shall pay all administrative and Trustee's fees and expenses. If not so
paid, the fees and expenses shall be paid from the Trust.
SECTION 10
Resignation and Removal of Trustee
(a) Trustee may resign at any time by written notice to Company, which
shall be effective 60 days after receipt of such notice unless Company
and Trustee agree otherwise.
(b) Trustee may be removed by Company on 60 days written notice or upon
shorter notice accepted by Trustee.
(c) Upon a Change of Control, as defined herein, Trustee may not be removed
by Company for 2 years. (d) If Trustee resigns within 2 years after a
Change of Control, as defined herein, Company shall apply to a court of
competent jurisdiction for the appointment of a successor Trustee or
for instructions.
(e) Upon resignation or removal of Trustee and appointment of a successor
Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 60 days after receipt
of notice of resignation, removal or transfer, unless Company extends
the time limit.
4
<PAGE> 28
SECTION 11
Appointment of Successor
(a) If Trustee resigns (or is removed) in accordance with Section 10 (a) or
(b) hereof, Company may appoint any third party, such as a bank trust
department or other party that may be granted
IN WITNESS WHEREOF, this Trust Agreement has been duly executed under seal by
the parties hereto, effective as of the day and year first above written.
ATTEST/WITNESS Healthcare Realty Trust Incorporated,
Settlor
/S/ By: /S/
- -------------------------------- --------------------------------------
Print Name: Laurie W. Matthews Print Name: Roger O. West
Executive Vice President
[SEAL]
ATTEST/WITNESS SunTrust Bank, Nashville, N. A. Trustee
/S/ By: /S/
- -------------------------------- -------------------------------------
Print Name: Gayle J. Nichols Print Name: Gayle R. Pearl
Vice President & Trust Officer
(SEAL)
5
<PAGE> 1
EXHIBIT 10.6
EXECUTIVE VARIABLE INCENTIVE COMPENSATION PLAN
1. PURPOSE OF THE PLAN.
The purpose of the Executive Variable Incentive Compensation Plan (the
"Plan") is to maximize the efficiency and effectiveness of operations by
providing significant incentive compensation opportunities to key executives.
The Plan is intended to: (l) attract, retain and motivate key executives; (2)
link compensation to performance; (3) shift part of future compensation expense
from fixed to variable; and (4) reinforce the Company's objectives.
The Plan is designed to provide significant incentive compensation
opportunities and presumes a market competitive base salary program. Incentive
Awards made under the Plan are in addition to Base Salary and Base Salary
adjustments awarded to maintain market competitiveness. The Plan is designed to
reflect, by variable compensation, the degree to which executives, individually
or collectively, contributed to the realization of the significant short term
objectives of Healthcare Realty Trust Incorporated (the "Company").
2. DEFINITIONS; GENDER AND NUMBER.
2.1 DEFINITIONS.
Whenever used herein, the following terms shall have the respective
meanings set forth below:
"BASE SALARY" means, with respect to each Participant for a
Plan Year, the base rate of compensation paid to a Participant by the Company
for the Plan Year and excludes all other forms of compensation such as benefits,
pension contributions and other cash payments, but does not exclude employee or
employer contributions which are based upon an employee's deferral of
compensation, such as a non-qualified deferred compensation arrangement or a
cash or deferred arrangement under Section 401(k) of the Internal Revenue Code
of 1986.
"BOARD" means the Board of Directors of the Company or the
Executive Committee of the Board of Directors or any other committee thereof as
designated by the Board.
"COMPANY" means Healthcare Realty Trust Incorporated.
"COMPANY PERFORMANCE INDEX" means the percentage, or portion
thereof, determined by the Compensation Committee to measure the degree of
performance that the Compensation Committee attributes to the Payout Percentage
achieved.
"COMPENSATION COMMITTEE" means the Compensation Committee as
designated by the Board, all of the members of which shall be "disinterested
persons" (within the meaning of Rule 16b-3 promulgated by the United States
Securities Exchange Commission ("Rule 16b-3").
"FUNDS FROM OPERATIONS (FFO)" means net income (computed in
accordance with generally accepted accounting principles), after determination
of the Incentive Award pursuant to the Plan, excluding gains (or losses) from
debt restructuring and sales of property, plus depreciation and amortization.
EXECUTIVE VARIABLE INCENTIVE COMPENSATION PLAN -- Page 1
<PAGE> 2
"FFO PER SHARE" means FFO for a Plan Year divided by the
weighted average number of shares of common stock of the Company outstanding
during such Plan Year.
"INCENTIVE AWARD" is the additional cash compensation,
expressed as a percentage of Base Salary, received by Participants in the Plan
when targeted performance results are attained. A Participant's Incentive Award
shall be calculated as provided in Paragraph 8 of this Plan.
"INDIVIDUAL PERFORMANCE INDEX" means, in the case of a
Participant other than the President, the percentage determined by the President
to measure the degree the Participant achieved such Participant's Individual
Performance Objectives for the Plan Year; or in the case of the President, the
percentage determined by the Compensation Committee to measure the degree the
President achieved the President's Individual Performance Objectives for the
Plan Year.
"INDIVIDUAL PERFORMANCE OBJECTIVES" means, in the case of
Participants other than the President, the objective goals established by the
President to be achieved by the respective Participant during the course of the
Plan Year; or, in the case of the President, the objective goals established by
the Compensation Committee to be achieved by the President during the course of
the Plan Year.
"PARTICIPANT" means an executive of the Company who is
eligible to participate in the Plan and who has been designated a Participant by
the Compensation Committee.
"PAYOUT PERCENTAGE" means, for the applicable Plan Year, the
Target Dividend Payment for such Plan Year divided by the FFO per Share for such
Plan Year.
"PERFORMANCE PERCENTAGE" means the percentage of each
Participant's portion of the total Incentive Award to be based upon performance
of the Company or of the individual, as applicable.
"PLAN" means this Executive Variable Incentive Compensation
Plan.
"RESPONSIBILITY FACTOR PERCENTAGE" is the assigned
responsibility factor expressed as a percentage to represent a Participant's
level of responsibility for Company performance.
"TARGET DIVIDEND PAYMENT" means the annual targeted dividend
payment determined on a weighted average per share basis of the common stock
outstanding for the applicable Plan Year as determined by the Compensation
Committee upon adoption of the Plan.
"YEAR" or "PLAN YEAR" means the Company's fiscal year.
2.2 GENDER AND NUMBER.
Except when otherwise indicated by the context, words in the masculine
gender shall include the feminine gender, the singular shall include the plural,
and the plural shall include the singular.
3. ADMINISTRATION.
The Plan is administered by the Compensation Committee. The
Compensation Committee has the sole authority to: (1) add Participants, (2)
approve the Performance Percentages for each Participant, (3) approve the
Responsibility Factor Percentage for each Participant, (4) approve the Company
Performance
EXECUTIVE VARIABLE INCENTIVE COMPENSATION PLAN -- Page 2
<PAGE> 3
Index, (5) approve the Target Dividends and (6) establish any rules or
regulations relating to the Plan and to make any other determinations necessary
to administer the Plan. All modifications or amendments to the Plan shall be
approved by the Compensation Committee. All actions, determinations and
decisions made by the Compensation Committee will be reviewed by the Board and,
upon approval by the Board, will be final, conclusive and binding upon all
parties concerned.
Any action or recommendation by the Compensation Committee will be
based on a majority of those members verbally expressing their vote at a meeting
of the Compensation Committee, or in writing without a meeting. No Participant
may participate in any way in any decisions affecting his personal Incentive
Award. Individuals serving as Compensation Committee members or Board members
will not be liable in any way to any Participant or his designated beneficiaries
as a result of decisions rendered in the proper administration of this Plan.
4. PARTICIPATION.
Employees eligible to participate in this Plan are those executives who
have a major impact on the overall operations of the Company. Upon adoption of
the Plan, the initial Participants shall be designated by action of the
Compensation Committee. The Compensation Committee may add Participants to the
Plan at any time.
Following adoption of the Plan, the Incentive Award calculation for
Participants who have responsibility changes during the Plan Year or who enter
or exit the Plan shall be modified to adjust for the time spent in each position
of responsibility.
5. RESPONSIBILITY FACTOR PERCENTAGE.
Each Participant shall be assigned a Responsibility Factor Percentage
which will be based on the Participant's level of responsibility and potential
impact on corporate profitability. Assignments of Responsibility Factor
Percentages shall be approved by the Compensation Committee. The Responsibility
Factor Percentage for each of the Participants as of the Plan Year of adoption
of this Plan shall be designated by action of the Compensation Committee.
Additional Participants in the Plan shall be approved by the
Compensation Committee prior to the beginning of the Plan Year during which they
are to become a Participant and will be added to the Plan, together with their
respective Responsibility Factor Percentage and Performance Percentages, by
action of the Compensation Committee.
Following adoption of the Plan, if a Participant changes positions
during the Plan Year such that the Participant's Responsibility Factor
Percentage changes, the calculation of the Incentive Award shall be prorated to
reflect the time served in each position.
6. PERFORMANCE PERCENTAGE.
Each Participant shall be assigned Performance Percentages which shall
determine the portion of his Incentive Award which shall be derived from Company
performance and individual performance. The assignments of the Performance
Percentages to the Participants as of the Plan Year of adoption shall be
designated by action of the Compensation Committee.
EXECUTIVE VARIABLE INCENTIVE COMPENSATION PLAN -- Page 3
<PAGE> 4
The Company Performance Index shall be determined by the Compensation
Committee, and shall correspond to a Payout Percentage also determined by the
Compensation Committee.
The President shall have the responsibility of establishing the
Individual Performance Objectives of individual Participants, other than the
President. The Compensation Committee shall have the responsibility of
establishing the Individual Performance Objectives of the President. All
Individual Performance Objectives will be reviewed for approval by the
Compensation Committee and communicated to the Participants in order to allow
them sufficient time to focus on these objectives. The President shall have the
responsibility of determining the Individual Performance Index for a
Participant, other than the President, for a Plan Year. The Compensation
Committee shall have the responsibility of determining the Individual
Performance Index for the President for a Plan Year.
7. ADJUSTMENTS.
In the event that the FFO of the Plan Year in which the Company has
successfully completed an offering of its common stock for cash consideration is
negatively affected, the effect to the FFO shall be considered as a basis for
increasing the Company Performance Index applicable for such Plan Year.
The Compensation Committee shall have the discretion to increase the
Incentive Awards to Participants with respect to the Plan Year and/or the
succeeding Plan Years in the event that the Company exceeds the maximum amount
as determined by the Compensation Committee or the Company successfully
concludes an extraordinary transaction that, in the opinion of the Compensation
Committee, is of significant value to the Company.
8. CALCULATION OF INCENTIVE AWARD.
The Incentive Award for a Participant for a Plan Year shall be (A) the
sum of (i) the Company Performance Index multiplied by the Company portion of
the Participant's Performance Percentage, and (ii) the Individual Performance
Index multiplied by the individual portion of the Participant's Performance
Percentage; multiplied by (B) the product of (i) the Participant's
Responsibility Factor Percentage and (ii) the Participant's Base Salary.
9. PAYMENT OF INCENTIVE AWARD.
Incentive Awards shall be payable in cash as soon as practicable after
the end of the Plan Year, following verification of the mathematical accuracy of
the calculation of all Incentive Awards by the Company's external auditor and
approval of the Compensation Committee.
The Company shall not be liable for payment of interest upon any
Incentive Award.
EXECUTIVE VARIABLE INCENTIVE COMPENSATION PLAN -- Page 4
<PAGE> 5
10. TERMINATION OF EMPLOYMENT
Participants who terminate employment voluntarily or are terminated for
cause in accordance with the terms of their respective employment agreements
shall forfeit their Incentive Awards for the entire Plan Year of termination.
All other Participants who terminate during a Plan Year shall have their
participation in Incentive Awards for the Plan Year of termination determined by
multiplying (i) the amount of Incentive Award such Participant would have
received had such Participant been employed by the Company for the entire Plan
Year, by (ii) a fraction with a numerator equal to the number of days the
Participant was employed during the Plan Year and a denominator of 365.
11. MISCELLANEOUS PROVISIONS.
11.1 NO TRANSFERS. No Incentive Awards payable under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, or charge, and any such attempted action shall be void and
no such Incentive Award shall be in any manner liable for or subject to debts,
contracts, liabilities, engagements, or torts of any Participants. If any
Participant shall become bankrupt or shall attempt to anticipate, alienate,
sell, transfer, assign, pledge, encumber, or charge any Incentive Award payable
under the Plan, then the Compensation Committee in its discretion may hold or
apply such benefit or any part thereof to or for the benefit of such Participant
or his beneficiary, spouse, children, blood relatives, or other dependents, or
any of them, in such manner and in such proportions as the Compensation
Committee may in its sole discretion consider proper.
11.2 EMPLOYMENT CONTRACTS. The Plan is not a contract of employment.
Accordingly, neither the establishment of the Plan nor the awarding of any
Incentive Awards under the Plan shall interfere with or limit, in any way, the
rights of a Participant and the Company pursuant to written contracts of
employment or the rights of the Company to terminate any Participant's
employment, nor confer upon any Participant any right to continue in the employ
of the Company, except as set forth in written contracts of employment between
the Company and the Participant.
11.3 AMENDMENTS. The Compensation Committee may from time to time amend
or modify the Plan, provided that no such action shall adversely affect
Incentive Awards previously established in accordance with the Plan.
11.4 TAX WITHHOLDING. Payments under the Plan shall be subject to
applicable federal, state, and local tax withholding requirements.
11.5 FUNDING. The Plan shall be unfunded. The Company shall not be
required to segregate any assets to pay Incentive Awards. The liability of the
Company to pay any Participant with respect to Incentive Awards shall be based
solely upon the written provisions of the Plan; no such obligation shall be
deemed to be secured by any pledge or encumbrance on any property of the
Company.
EXECUTIVE VARIABLE INCENTIVE COMPENSATION PLAN -- Page 5
<PAGE> 6
IN WITNESS WHEREOF, the Company has caused the Plan to be executed in
its name and behalf on this 1st day of November, 1999 by its officers thereunto
duly authorized.
HEALTHCARE REALTY TRUST
INCORPORATED
By: _______/S/_________________________
Name: David R. Emery
Title: President and Chairman
EXECUTIVE VARIABLE INCENTIVE COMPENSATION PLAN -- Page 6
<PAGE> 7
EXHIBIT "A"
ANNUAL INCENTIVE AWARD CALCULATION
The Incentive Award for a Participant for a Plan Year shall be (A) the
sum of (i) the Company Performance Index multiplied by the Company portion of
the Participant's Performance Percentage, and (ii) the Individual Performance
Index multiplied by the individual portion of the Participant's Performance
Percentage; multiplied by (B) the product of (i) the Participant's
Responsibility Factor Percentage and (ii) the Participant's Base Salary.
STEP 1 PERFORMANCE %
- ------ -------------
Add the award percentages determined by evaluating Company and Individual
Performance
(Company Performance Index X Company portion of the Participant's Performance %)
+ (Individual Performance Index X individual portion of the Participant's
Performance %) = Award % (expressed as a decimal fraction)
STEP 2 RESPONSIBILITY FACTOR
- ------ ---------------------
Multiply the Award % (expressed as a decimal fraction) times the Participant's
Responsibility Factor Percentage (expressed as a decimal fraction) times the
Participant's Base Salary to calculate the Participant's Incentive Award.
Award % X Responsibility Factor % X Base Salary = Incentive Award
<PAGE> 8
EXHIBIT "B"
PAYOUT PERCENTAGE
REQUIRED TO PAY COMPANY PERFORMANCE INDEX
TARGET DIVIDEND
- --------------------------------------------------------------------------------
95% 10%
94% 20%
93% 30%
92% 40%
91% 50%
90% 60%
89% 70%
88% 80%
87% 90%
86% 100%
85% 110%
84% 120%
83% 130%
82% 140%
81% 150%
80% 160%
<80% 170%
Payout Percentages for other than whole integers shall be prorated with the
corresponding Company Performance Index. For Example, a Payout Percentage of
94.5% shall equate to a Company Performance Index of 15%.
<PAGE> 9
TARGET DIVIDENDS
----------------
PLAN YEAR TARGET DIVIDEND
- --------- ---------------
1994 1.7700
1995 1.8525
1996 1.9400
1997 2.0275
1998 2.1275
1999 2.2275
2000 2.3350
2001 2.4445
2002 2.5650
2003 2.6850
PARTICIPANT PERFORMANCE PERCENTAGES
-----------------------------------
<TABLE>
<CAPTION>
PARTICIPANTS COMPANY INDIVIDUAL RESPONSIBILITY FACTOR
- ------------ ------- ---------- ---------------------
<S> <C> <C> <C>
David R. Emery 80% 20% 100%
Roger O. West 80% 20% 100%
Timothy G. Wallace 80% 20% 100%
</TABLE>
<PAGE> 1
EXHIBIT 10.7
HEALTHCARE REALTY TRUST INCORPORATED
2000 EMPLOYEE STOCK PURCHASE PLAN
EFFECTIVE JANUARY 25, 2000
<PAGE> 2
HEALTHCARE REALTY TRUST INCORPORATED
2000 EMPLOYEE STOCK PURCHASE PLAN
PREAMBLE
WHEREAS, Healthcare Realty Trust Incorporated (the "Company")
established the Healthcare Realty Trust Incorporated 1995 Employee Stock
Purchase Plan through which employees of the Company and its affiliates could
purchase from the Company shares of its common stock;
WHEREAS, the Company wishes to continue to provide a plan through which
employees of the Company and its affiliates may purchase Company common stock;
and
WHEREAS, the Company intends that the new plan be an "employee stock
purchase plan" within the meaning of section 423 of the Internal Revenue Code of
1986, and has designed the plan to conform to the provisions of Rule 16b-3 of
the Exchange Act;
NOW, THEREFORE, the Company hereby establishes the Healthcare Realty
Trust Incorporated 2000 Employee Stock Purchase Plan (the "Plan"):
ARTICLE I.
PURPOSE OF PLAN
The purpose of the Plan is to secure for the Company and its
shareholders the benefits of the incentive inherent in the ownership of the
Company's common stock by present and future employees of the Company and its
Affiliates.
ARTICLE II.
DEFINITIONS
2.1 Affiliate. Each corporation that is designated as an Affiliate by
the Company pursuant to Section 5.3.
2.2 Agreement. An agreement between a Participant and the Company or an
Affiliate through which the Participant elects to exercise the Options granted
to him hereunder and authorizes payment of the Option exercise price.
2.3 Board. The board of directors of the Company.
2.4 Code. The Internal Revenue Code of 1986, as amended.
2.5 Committee. The committee designated by the Board as the
"compensation committee" or is otherwise designated by the Board to administer
the Plan.
2.6 Company. Healthcare Realty Trust Incorporated and its successors
and assigns.
HEALTHCARE REALTY TRUST INCORPORATED
2000 EMPLOYEE STOCK PURCHASE PLAN
1
<PAGE> 3
2.7 Eligible Employee. An employee of the Company or an Affiliate,
except for the following:
(a) An employee who has been employed by the Company or an
Affiliate for less than 90 days.
(b) An employee whose customary employment is less than 20 hours
per week.
(c) An employee whose customary employment is for five months or
less in a calendar year.
(d) An employee who would own more than 5% of the total combined
voting power of all classes of stock of the Company or an
Affiliate at the time such employee would be granted an
Option. For the purpose of determining if an employee owns
more than 5% of such stock, he shall be deemed to own (i) any
stock owned (directly or indirectly) by or for his brothers
and sisters (whether by whole or half blood), spouse,
ancestors or lineal descendants, (ii) any stock owned
(directly or indirectly) by or for a corporation, partnership,
estate or trust of which such individual is a shareholder,
partner or beneficiary in proportion to his interest in such
corporation, partnership, estate or trust, and (iii) any stock
the individual may purchase under an outstanding stock option.
2.8 Exchange Act. The Securities Exchange Act of 1934, as amended.
2.9 Exercise Date. The last day of each calendar quarter, which shall
be March 31st, June 30th, September 30th and December 31st of each year.
2.10 Fair Market Value. On any given date, Fair Market Value shall be
the applicable description below (unless, where appropriate, the Committee
determines in good faith the fair market value of the Stock to be otherwise):
(a) If the Stock is traded on the New York Stock Exchange, Fair
Market Value shall be the closing price of the Stock on such
exchange on the trading day on which Fair Market Value is
being determined, or on the next preceding day on which such
Stock is traded if no Stock was traded on such trading day.
(b) If the Stock is not traded on the New York Stock Exchange, but
is reported on the Nasdaq National Market System or another
Nasdaq automated quotation system, and market information is
published on a regular basis, then Fair Market Value shall be
the closing price of the Stock, as so published, on the
trading day on which Fair Market Value is being determined, or
the closing price on the next preceding trading day on
HEALTHCARE REALTY TRUST INCORPORATED
2000 EMPLOYEE STOCK PURCHASE PLAN
2
<PAGE> 4
which such prices were published if no Stock was traded on
such trading day.
(c) If market information is not so published on a regular basis,
then Fair Market Value shall be the average of the high bid
and low asked prices of the Stock in the over-the-counter
market during the trading period during which Fair Market
Value is being determined or during the next preceding trading
period in which such high bid and low asked prices were
recorded, as reported by a generally accepted reporting
service.
(d) If the Stock is not publicly traded, Fair Market Value shall
be the value determined in good faith by the Committee or the
Board, determined without regard to any restriction on the
Stock, other than a restriction which by its terms will never
lapse.
2.11 Grant Date. The first Grant Date shall be the date determined by
the board of directors of the Company at the time the Plan is adopted.
Thereafter, the Grant Date shall be the first day of each calendar year.
2.12 Option. The right that is granted hereunder to a Participant to
purchase from the Company a stated number of shares of Stock at a stated
exercise price.
2.13 Participant. An Eligible Employee who has elected to exercise an
Option and participate in the Plan in accordance with Article 3.
2.14 Payroll Account. A bookkeeping account to which are added the
amounts withheld on behalf of each Participant under regular payroll deductions
authorized by Participants hereunder, and which is reduced by amounts due to the
Company to pay the exercise price of Options exercised hereunder.
2.15 Plan. The Healthcare Realty Trust Incorporated 2000 Employee
Stock Purchase Plan.
2.16 Stock. The common stock of the Company, $0.01 par value.
ARTICLE III.
GRANT AND EXERCISE OF OPTIONS
3.1 General Conditions. On each Grant Date, each employee who is an
Eligible Employee on such date shall, without further action of the Committee,
be granted an Option to purchase whole shares of Stock, provided that no
Eligible Employee may be granted an Option which permits his rights to purchase
Stock under the Plan and all other employee stock purchase plans (described in
section 423(b) of the Code) of the Company and its Affiliates to accrue at a
rate that exceeds $25,000 of Fair Market Value of such Stock (determined on the
date that the Option is granted) for each calendar year in which such Option is
outstanding at any time. Each Option grant is subject to the following terms and
conditions:
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(a) The exercise price of each Option shall be 85% of Fair Market
Value of each share of Stock that is subject to the Option,
based on the Stock's Fair Market Value that is determined on
the Grant Date or, if less, on the date the Option is
exercised.
(b) Each Option, or portion thereof, that has not been exercised
shall expire 27 months after the Grant Date on which the
Option was granted, unless it expires sooner pursuant to
Section 3.1(c).
(c) Each Option that has not yet expired pursuant to Section
3.1(b) shall expire on the date that the Eligible Employee
terminates employment with the Company and all of its
Affiliates or revokes his election pursuant to Section 3.4;
provided, however, if termination is due to the death or
disability (as determined in the discretion of the Committee
by reference to any disability benefit plan of the Company) of
the Eligible Employee, the Participant (or his personal
representative) may elect to revoke his election pursuant to
Section 3.4.
(d) A right to purchase Stock which has accrued under one Option
granted hereunder may not be carried over to any other Option.
3.2 Right to Exercise. An Option shall be exercisable at any time prior
to its expiration in a manner described in Section 3.3. An Eligible Employee
must exercise an Option while he is an employee of the Company or an Affiliate
or within the periods that are specified herein after termination of employment.
3.3 Method of Exercise. An Eligible Employee may exercise an Option
only on an Exercise Date by providing written notice of intent to exercise prior
to or coincident with the applicable Exercise Date and by payment of the
exercise price in cash or such other form that is acceptable to the Committee.
An Eligible Employee may also elect to exercise an Option through a Payroll
Account election described in Section 3.4.
3.4 Payment of Exercise Price from Payroll Account. An Eligible
Employee who desires to pay the exercise price of an Option from his Payroll
Account as described in Section 3.3 must timely execute an Agreement in the form
and manner prescribed by the Committee prior to the applicable Exercise Date.
The Agreement shall provide for authorization of deductions from the Eligible
Employee's regular payroll that is credited to a Payroll Account. Amounts
credited to a Participant's Payroll Account shall be accumulated and reserved
for payment of the exercise price of Options granted hereunder.
(a) The funds held in the Payroll Account shall first be applied
to exercise options with the lowest exercise price. In the
event that all Options have the same exercise price on an
Exercise Date, the funds held in the Payroll Account shall be
first applied to exercise Options in the order they were
granted
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(b) A Participant may initiate, modify or revoke his election to
contribute to his Payroll Account at any time by timely
providing the Committee written notice in the form prescribed
by the Committee. An election to begin or modify contributions
shall be effective on the February 8th or August 8th that
coincides with or next follows such written notice with the
exception of a Participant's initial election in the year the
Plan is adopted, which may be submitted and effective as late
as March 8, 2000. An election to revoke contributions shall be
effective on the first payroll date following written notice
thereof.
(c) Each Participant's election specified under an Agreement shall
remain in effect until modified or revoked by the Participant
in accordance with Section 3.4(b).
(d) The Options granted hereunder for the calendar years 2000 and
2001 are conditioned on the Eligible Employee revoking the
Option granted to him on January 1, 2000, under the Healthcare
Realty Trust Incorporated 1995 Employee Stock Purchase Plan.
Such revocation may be evidenced by written notice to the
Company or by the exercise of an Option hereunder in a manner
specified in Section 3.3
3.5 Issuance of Stock. The Company shall issue whole shares of Stock to
a Participant after each Exercise Date. For Options that are not exercised
through a Payroll Account election, the number of shares to be issued shall be
determined by the instructions contained in the written notice of exercise
described in Section 3.2. For shares acquired through a Payroll Account
election, shares shall be issued as follows:
(a) The Company shall determine the number of whole shares of
Stock to be issued to each Participant with respect to an
Exercise Date by dividing the balance of such Participant's
Payroll Account by the applicable exercise price of the
Option.
(b) The Company shall deduct from a Participant's Payroll Account
the amount necessary to purchase the greatest number of whole
shares of Stock that can be acquired under the applicable
Option.
(c) Any amounts remaining in the Payroll Account after deducting
the exercise price for whole shares of Stock shall generally
be held for use on a subsequent Exercise Date. However, a
Participant who has made contributions to a Payroll Account
and has revoked his election to exercise an Option under the
terms of Section 3.3 may obtain payment of the amounts held in
his Payroll Account from the Company by requesting such
payment in writing to the Committee in the time and manner
specified by the Committee. A Participant who has terminated
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employment shall be paid any amounts remaining in his Payroll
Account after the expiration of all Options hereunder.
3.6 Nontransferability. Any Option granted under this Plan shall not be
transferable except by will or by the laws of descent and distribution. Only the
Participant to whom an Option is granted may exercise such Option, unless he is
deceased. No right or interest of a Participant in any Option shall be liable
for, or subject to, any lien, obligation or liability of such Participant.
3.7 Shareholder Rights. No Participant shall have any rights as a
shareholder with respect to shares subject to his Option prior to the time that
such Option is exercised.
3.8 Issuance and Delivery of Shares. Shares of Stock issued pursuant to
the exercise of Options hereunder shall be delivered to Participants by the
Company (or its transfer agent) as soon as administratively feasible after a
Participant exercises an Option hereunder, executes any applicable shareholder
agreement that the Company requires at the time of exercise and requests
delivery of the shares.
ARTICLE IV.
STOCK SUBJECT TO PLAN
4.1 Source of Shares. Upon the exercise of an Option, the Company may
deliver to the Participant authorized but unissued shares of Stock.
4.2 Maximum Number of Shares. The maximum aggregate number of shares of
Stock that may be issued pursuant to the exercise of Options is 1,000,000
subject to increases and adjustments as provided in Article 6.
4.3 Forfeitures. If an Option is terminated, in whole or in part, the
number of shares of Stock allocated to such Option or portion thereof may be
reallocated to other Options to be granted under this Plan.
ARTICLE V.
ADMINISTRATION OF THE PLAN
5.1 General Authority. The Plan shall be administered by the Committee.
The express grant in the Plan of any specific power to the Committee shall not
be construed as limiting any power or authority of the Committee. No member of
the Committee shall be liable for any act done in good faith with respect to
this Plan or any Agreement or Option. The Company shall bear all expenses of
Plan administration. The interpretation and construction by the Committee of any
terms or provisions of this Plan or of any rule or regulation promulgated in
connection herewith, shall be conclusive and binding on all persons. In addition
to all other authority vested with the Committee under the Plan, the Committee
shall have complete authority to:
(a) Interpret all provisions of this Plan;
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(b) Prescribe the form of any Agreement and notice and manner for
executing or giving the same;
(c) Adopt, amend, and rescind rules for Plan administration; and
(d) Make all determinations it deems advisable for the
administration of this Plan.
5.2 Persons Subject to Section 16(b). Notwithstanding anything in the
Plan to the contrary, the Board, in its absolute discretion, may bifurcate the
Plan so as to restrict, limit or condition the use of any provision of the Plan
to Participants who are members of the Committee subject to Section 16(b) of the
Exchange Act without so restricting, limiting or conditioning the Plan with
respect to other Participants.
5.3 Designation of Affiliates. The Company may from time to time
designate a "parent corporation," as defined in section 424(e) of the Code, or
"subsidiary corporation," as defined in section 424(f) of the Code, to be a
participating corporation in a manner that is consistent with Treasury
Regulation ss. 1.423-2(c)(4). Corporations that are so designated shall be
Affiliates for purposes of this Plan. Such designation shall be evidenced by the
express inclusion of the corporation as an Affiliate within Section 2.1, the
intentional act of the Company or the Committee to communicate in writing the
grant of Options hereunder to employees of a corporation, or such other written
document that is intended to evidence such designation. The Company or Committee
may rescind the designation of a corporation as an Affiliate by adopting a
writing that is intended to evidence such rescission.
ARTICLE VI.
ADJUSTMENT UPON CORPORATE CHANGES
6.1 Adjustments to Shares. The maximum number and kind of shares of
stock with respect to which Options hereunder may be granted and which are the
subject of outstanding Options shall be adjusted by way of increase or decrease
as the Committee determines (in its sole discretion) to be appropriate, in the
event that:
(a) the Company or an Affiliate effects one or more stock
dividends, stock splits, reverse stock splits, subdivisions,
consolidations or other similar events;
(b) the Company or an Affiliate engages in a transaction to which
section 424 of the Code applies; or
(c) there occurs any other event which in the judgment of the
Committee necessitates such action.
Provided, however, that if an event described in paragraph (a) or (b) occurs,
the Committee shall make adjustments to the limits on Options and on the award
of Options specified hereunder that are proportionate to the modifications of
the Stock that are on account of such corporate changes.
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6.2 Substitution of Options on Merger or Acquisition. The Committee may
grant Options in substitution for stock awards, stock options, stock
appreciation rights or similar awards held by an individual who becomes an
employee of the Company or an Affiliate in connection with a transaction to
which section 424(a) of the Code applies. The terms of such substituted Options
shall be determined by the Committee in its sole discretion, subject only to the
limitations of Article 4.
6.3 No Preemptive Rights. The issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
for cash or property, or for labor or services rendered, either upon direct sale
or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, outstanding Options.
6.4 Fractional Shares. Only whole shares of Stock may be acquired
through the exercise of an Option. The Company will return to each Participant's
Payroll Account any amount tendered in the exercise of an Option remaining after
the maximum number of whole shares has been purchased.
ARTICLE VII.
LEGAL COMPLIANCE CONDITIONS
7.1 General. No Option shall be exercisable, no Stock shall be issued,
no certificates for shares of Stock shall be delivered, and no payment shall be
made under this Plan except in compliance with all federal and state laws and
regulations (including, without limitation, withholding tax requirements),
federal and state securities laws and regulations and the rules of all national
securities exchanges or self-regulatory organizations on which the Company's
shares may be listed. The Company shall have the right to rely on an opinion of
its counsel as to such compliance. No Option shall be exercisable, no Stock
shall be issued, no certificate for shares shall be delivered and no payment
shall be made under this Plan until the Company has obtained such consent or
approval as the Committee may deem advisable from any regulatory bodies having
jurisdiction over such matters.
7.2 Stock Holding Periods. In order for tax treatment under section
421(a) of the Code to apply to Stock acquired hereunder, the Participant is
generally required to hold such shares of Stock for two years after the Grant
Date of an Option through which shares of Stock were acquired and for one year
after the transfer of Stock to the Participant. A person holding Stock acquired
hereunder who disposes of shares prior to the expiration of such holding periods
shall notify the Company of such disposition in writing.
7.3 Stock Legends. Any certificate issued to evidence shares of Stock
for which an Option is exercised may bear such legends and statements as the
Company or Committee may deem advisable to assure compliance with federal and
state laws and regulations.
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7.4 Representations by Participants. As a condition to the exercise of
an Option, the Company may require a Participant to represent and warrant at the
time of any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such shares.
At the option of the Company, a stop transfer order against any shares of stock
may be placed on the official stock books and records of the Company, and a
legend indicating that the stock may not be pledged, sold or otherwise
transferred unless an opinion of counsel was provided (concurred in by counsel
for the Company) and stating that such transfer is not in violation of any
applicable law or regulation may be stamped on the stock certificate in order to
assure exemption from registration. The Committee may also require such other
action or agreement by the Participants as may from time to time be necessary to
comply with the federal and state securities laws. This provision shall not
obligate the Company or any Affiliate to undertake registration of options or
stock hereunder.
ARTICLE VIII.
GENERAL PROVISIONS
8.1 Effect on Employment. Neither the adoption of this Plan, its
operation, nor any documents describing or referring to this Plan (or any part
thereof) shall confer upon any employee any right to continue in the employ of
the Company or an Affiliate or in any way affect any right and power of the
Company or an Affiliate to terminate the employment of any employee at any time
with or without assigning a reason therefor.
8.2 Unfunded Plan. The Plan, insofar as it provides for grants, shall
be unfunded, and the Company shall not be required to segregate any assets that
may at any time be represented by grants under this Plan. Any liability of the
Company to any person with respect to any grant under this Plan shall be based
solely upon contractual obligations that may be created hereunder. No such
obligation of the Company shall be deemed to be secured by any pledge of, or
other encumbrance on, any property of the Company.
8.3 Rules of Construction. Headings are given to the articles and
sections of this Plan solely as a convenience to facilitate reference. The
masculine gender when used herein refers to both masculine and feminine. The
reference to any statute, regulation or other provision of law shall be
construed to refer to any amendment to or successor of such provision of law.
8.4 Governing Law. The internal laws of the state of incorporation of
the Company shall apply to all matters arising under this Plan, to the extent
that federal law does not apply.
8.5 Compliance With Section 16 of the Exchange Act. With respect to
persons subject to Section 16 of the Exchange Act, transactions under this Plan
are intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent any provision of this Plan or
action by Committee fails to so comply, it shall be deemed null and void to the
extent permitted by law and deemed advisable by the Committee.
8.6 Amendment. The Board may amend or terminate this Plan at any time;
provided, however, an amendment that would have a material adverse effect on the
rights of a Participant
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under an outstanding Option is not valid with respect to such Option without the
Participant's consent, except as necessary for Options to maintain qualification
under the Code; and provided further that, to the extent that such approval is
required for compliance with Rule 16b-3 of the Exchange Act, the provisions of
the Plan relating to the number of shares granted to persons subject to section
16(b) of the Exchange Act, the timing of such grants and the determination of
the exercise price shall not be amended more than once every six months, other
than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, or the rules thereunder. Provided further that the
shareholders of the Company must, within 12 months before of after the adoption
thereof, approve any amendment that increases the number of shares of Stock in
the aggregate which may be issued pursuant to Options granted under the Plan.
8.7 Effective Date of Plan. This Plan shall be effective and Options
may be granted under this Plan on and after the date of its adoption by the
Board, provided that no Option will be effective or exercisable unless and until
this Plan is approved by shareholders of the Company in a manner that satisfies
Treasury Regulation ss. 1.423-2 within 12 months of the date that the Board took
action to adopt the Plan. All Options granted under the Plan will become void
immediately following the 12-month anniversary of the date the Board adopted the
Plan if such approval by shareholders has not yet been obtained.
IN WITNESS WHEREOF, the undersigned officer has executed this Plan on
this the 7th day of February, 2000.
HEALTHCARE REALTY TRUST
INCORPORATED
/s/ Roger O. West
-------------------------------------------
Roger O. West
Executive Vice President & General Counsel
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EXHIBIT 10.9
HEALTHCARE REALTY TRUST
INCORPORATED
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of January 1, 2000 ("Effective Date") by and between HEALTHCARE REALTY TRUST
INCORPORATED, a Maryland corporation ("Corporation"), and David R.
Emery ("Officer").
RECITAL
Corporation desires to employ Officer as its President and Chief
Executive Officer and Officer is willing to accept such employment by
Corporation, on the terms and subject to the conditions set forth in this
Agreement.
AGREEMENT
THE PARTIES AGREE AS FOLLOWS:
1. DUTIES. During the term of this Agreement, Officer agrees to be
employed by and to serve Corporation as its President and Chief Executive
Officer, and Corporation agrees to employ and retain Officer in such capacities.
Officer shall devote such of his business time, energy, and skill to the affairs
of Corporation as shall be necessary to perform the duties of such positions.
Officer shall report only to Corporation's Board of Directors and at all times
during the term of this Agreement shall have powers and duties at least
commensurate with his position as President and Chief Executive Officer.
Officer's principal place of business with respect to his services to
Corporation shall be within 35 miles of Nashville, Tennessee.
2. TERM OF EMPLOYMENT.
2.1 DEFINITIONS. For purposes of this Agreement the following terms
shall have the following meanings:
(a) "TERMINATION FOR CAUSE" shall mean termination by
Corporation of Officer's employment by Corporation by reason of Officer's
material, substantial and willful dishonesty towards, fraud upon, or deliberate
injury or attempted injury to, Corporation or by reason of Officer's material,
substantial and willful breach of this Agreement which has resulted in material
injury to Corporation. For purposes of this Agreement, a termination of
Officer's employment with the Corporation shall be deemed a Termination Other
Than For Cause rather than a Termination For Cause unless and until established
by Corporation to the contrary by a final, nonappealable decision by a court of
competent jurisdiction. The Corporation shall have the burden of establishing
that any termination of Officer's employment by Corporation is a Termination For
Cause.
(b) "TERMINATION OTHER THAN FOR CAUSE" shall mean any
termination by Corporation of Officer's employment by Corporation (other than in
a Termination for Cause) and shall include Constructive Termination of Officer's
employment, effective upon notice from Officer to Corporation of such
Constructive Termination. A failure or refusal of Corporation to extend the term
of employment of Officer in accordance with Section 2.2 hereof, other than as a
result of circumstances which would warrant a Termination of Cause hereunder,
shall be deemed a Termination Other Than For Cause.
(c) "VOLUNTARY TERMINATION" shall mean termination by Officer of
Officer's employment by Corporation other than (i) Constructive Termination as
described in subsection 2.1(g), (ii) "Termination Upon a Change in Control,"
(iii) termination by reason of Officer's death or disability as described in
<PAGE> 2
Sections 2.5 and 2.6 and (iv) termination by reason of retirement by Officer
upon attainment of eligibility to retire in accordance with the Executive
Retirement Plan as in effect upon the date of this Agreement.
(d) "TERMINATION UPON A CHANGE IN CONTROL" shall mean a
termination by Officer of Officer's employment with Corporation within 24 months
following a "Change in Control."
(e) "CHANGE IN CONTROL" shall mean (i) the time that Corporation
first determines that any person and all other persons who constitute a group
(within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934
("Exchange Act")) have acquired direct or indirect beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act) of 20 percent or more of
Corporation's outstanding securities, unless a majority of the "Continuing
Directors" approves the acquisition not later than ten business days after
Corporation makes that determination, or (ii) the first day on which a majority
of the members of Corporation's Board of Directors are not "Continuing
Directors."
(f) "CONTINUING DIRECTORS" shall mean, as of any date of
determination, any member of the Board of Directors of Corporation who (i) was a
member of that Board of Directors on January l, 1993, (ii) has been a member of
that Board of Directors for the two years immediately preceding such date of
determination, or (iii) was nominated for election or elected to the Board of
Directors with the affirmative vote of the greater of (x) a majority of
Continuing Directors who were members of the Board at the time of such
nomination or election or (y) at least four Continuing Directors.
(g) "CONSTRUCTIVE TERMINATION" shall mean (i) any material
breach of this Agreement by Corporation; (ii) any actual or implied threat of
discharge of Officer by Corporation under circumstances which would not
constitute a Termination for Cause and which results in an involuntary
resignation of employment by Officer; (iii) any substantial reduction in the
authority or responsibility of Officer or other substantial reduction in the
terms and conditions of Officer's employment under circumstances which would not
justify a Termination for Cause and which are not the result of a material
breach by Officer of this Agreement; (iv) any act(s) by Corporation which are
designed or have the effect of rendering Officer's working conditions so
intolerable or demeaning on a recurring basis that a reasonable person would
resign such employment, (v) a material adverse alteration in Officer's reporting
relationships, position, responsibilities, title or status; (vi) a reduction in
Officer's compensation or a substantial reduction in benefits provided to
Officer that are provided for or referenced hereunder; (vii) relocation of
Officer to a location that is more than 35 miles from the location of the
Corporation's headquarters on the date this Agreement is executed.
(h) "DEFERRED COMPENSATION" or "deferred compensation" shall
mean any individual or group plan, program, agreement or other arrangement,
whether or not a "plan" for purposes of the Employee Retirement Income Security
Act of 1974 ("ERISA") and whether or not a retirement plan or supplemental
executive retirement plan or additional retirement plan as contemplated by
Section 3.11 of the Agreement, but which in any event involves an agreement by
the Corporation to make payment(s) to Officer at a future date as compensation
for current services to the Corporation. The term Deferred Compensation or
deferred compensation shall include, but not be limited to, benefits described
in the Healthcare Realty Trust Incorporated Executive Retirement Plan, the 1993
Employees Stock Incentive Plan and the First Performance Based Restricted Stock
Implementation under the 1993 Employees Stock Incentive Plan, or any additional
implementation thereof, each as it now exists or may hereafter be amended.
2.2 BASIC TERM. The term of employment of Officer by Corporation
shall be from January 1, 1999 through December 31, 2004, unless terminated
earlier pursuant to this Section 2. Commencing in 2000, on the first day of
January of each year, the first sentence of this Section 2.2 shall be amended by
deleting the year then appearing therein and inserting in its place the next
subsequent year.
2.3 TERMINATION FOR CAUSE. Termination For Cause may be effected by
Corporation at any time during the term of this Agreement and shall be effected
by written notification to Officer. Upon Termination For Cause, Officer
immediately shall be paid all accrued salary, bonus compensation to the extent
earned, vested deferred compensation (other than pension plan or profit sharing
plan benefits which will be paid in accordance
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with the applicable plan), any benefits under any plans of the Corporation in
which Officer is a participant to the full extent of Officer's rights under such
plans, accrued vacation pay and any appropriate business expenses incurred by
Officer in connection with his duties hereunder, all to the date of termination,
but Officer shall not be paid any other compensation or reimbursement of any
kind, including without limitation, severance compensation.
2.4 TERMINATION OTHER THAN FOR CAUSE. Notwithstanding anything else
in this Agreement, Corporation may effect a Termination Other Than For Cause at
any time upon giving written notice to Officer of such termination. Upon any
Termination Other Than For Cause, Officer shall immediately be paid all accrued
salary, bonus compensation to the extent earned, whether or not vested without
regard to such Termination (other than pension plan or profit sharing plan
benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Corporation in which Officer is a participant to
the full extent of Officer's rights under such plans (including accelerated
release and full vesting of shares reserved for Officer under Corporation's 1993
Employees Stock Incentive Plan, and any implementation thereof), accrued
vacation pay and any appropriate business expenses incurred by Officer in
connection with his duties hereunder, all to the date of termination, and all
severance compensation provided in Section 4.2, but no other compensation or
reimbursement of any kind.
2.5 TERMINATION BY REASON OF DISABILITY. If, during the term of this
Agreement, Officer, in the reasonable judgment of the Board of Directors of
Corporation, has failed to perform his duties under this Agreement on account of
illness or physical or mental incapacity, and such illness or incapacity
continues for a period of more than 12 consecutive months, Corporation shall
have the right to terminate Officer's employment hereunder by written
notification to Officer and payment to Officer of all accrued salary, bonus
compensation to the extent earned, deferred compensation, whether or not vested
without regard to such illness or incapacity (other than pension plan or profit
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of the Corporation in which Officer is a
participant to the full extent of Officer's rights under such plans (including
accelerated release and full vesting of shares reserved for Officer under
Corporation's 1993 Employees Stock Incentive Plan, and any implementation
thereof), accrued vacation pay and any appropriate business expenses incurred by
Officer in connection with his duties hereunder, all to the date of termination,
with the exception of medical and dental benefits which shall continue through
the expiration of this Agreement, but Officer shall not be paid any other
compensation or reimbursement of any kind, including without limitation,
severance compensation. Notwithstanding the foregoing, any Officer who incurs a
Disability within the contemplation of the Executive Retirement Plan shall
accrue such additional post-disability, post-termination benefits as may be
determined in accordance with such Plan.
2.6 DEATH. In the event of Officer's death during the term of this
Agreement, Officer's employment shall be deemed to have terminated as of the
last day of the month during which his death occurs and Corporation shall pay to
his estate or such beneficiaries as Officer may from time to time designate all
accrued salary, bonus compensation to the extent earned, whether or not vested
without regard to such Termination (other than pension plan or profit sharing
plan benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Corporation in which Officer is a participant to
the full extent of Officer's rights under such plans (including accelerated
release and full vesting of shares reserved for Officer under the Corporation's
1993 Employees Stock Incentive Plan, and any implementation thereof), accrued
vacation pay and any appropriate business expenses incurred by Officer in
connection with his duties hereunder, all to the date of termination, but
Officer's estate shall not be paid any other compensation or reimbursement of
any kind, including without limitation, severance compensation.
2.7 VOLUNTARY TERMINATION. In the event of a Voluntary Termination,
Corporation shall immediately pay all accrued salary, bonus compensation to the
extent earned, vested deferred compensation (other than pension plan or profit
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of the Corporation in which Officer is a
participant to the full extent of Officer's rights under such plans, accrued
vacation pay and any appropriate business expenses incurred by Officer in
connection with his duties hereunder, all to the date of termination, but no
other compensation or reimbursement of any kind, including without limitation,
severance compensation.
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2.8 TERMINATION UPON A CHANGE IN CONTROL OR RETIREMENT. In the event
of (i) a Termination Upon a Change in Control or (ii) retirement by Officer upon
attainment of eligibility to retire in accordance with the Executive Retirement
Plan as in effect upon the date of this Agreement, Officer shall immediately be
paid all accrued salary, bonus compensation to the extent earned through the
date of termination, including compensation that was earned and deferred,
whether or not vested without regard to the Change in Control (other than
pension plan or profit sharing plan benefits which will be paid in accordance
with the applicable plan), any benefits under any plans of the Corporation in
which Officer is a participant to the full extent of Officer's rights under such
plans (including accelerated release and full vesting of shares reserved for
Officer under Corporation's 1993 Employees Stock Incentive Plan, and any
implementation thereof), accrued vacation pay and any appropriate business
expenses incurred by Officer in connection with his duties hereunder, all to the
date of termination, and all severance compensation provided in Section 4.1, but
no other compensation or reimbursement of any kind.
2.9 NOTICE OF TERMINATION. Corporation may effect a termination of
this Agreement pursuant to the provisions of this Section 2 upon giving 30 days
written notice to Officer of such termination. Officer may effect a termination
of this Agreement pursuant to the provisions of this Section 2 upon giving 60
days written notice to Corporation of such termination.
2.10 DETERMINATION OF BENEFIT UPON EARLY PAYMENT. In the event a
Participant's deferred compensation benefit becomes vested in accordance with
Sections 2.4, 2.5, 2.6 or 2.8, Officer shall have the following rights and
Corporation shall take appropriate action to amend or modify its compensation
arrangements in order to cause:
(a) any deferred compensation under the Corporation's 1993
Employees Stock Incentive Plan shall be effected by an immediate full vesting of
any awards granted to Officer under the Corporation's 1993 Employee Stock
Incentive Plan, and any implementation thereof; and an immediate release and
full vesting of awards that have been reserved by the Corporation for Officer
under the Corporation's 1993 Employee Stock Incentive Plan, and any
implementation thereof, or otherwise, such release and vesting to be made within
a reasonable time after the relevant event;
(b) any deferred compensation payable under a nonqualified
defined contribution plan shall be made available for payment within an
administratively practicable time after the relevant event, in an amount equal
to the then-current book account balance; and
(c) any deferred compensation payable under a nonqualified
defined benefit plan shall be made available for payment within an
administratively practicable time after the relevant event in an amount equal to
the greater of (i) the benefit, if any, otherwise determined in accordance with
the relevant plan, or (ii) the present value of the then-accrued benefit,
determined by reducing the accrued benefit from age 65 to the date as of which
payment is made, using the actuarial assumptions which have been used for
financial accounting purposes under generally accepted accounting principles.
3. SALARY, BENEFITS AND BONUS COMPENSATION.
3.1 BASE SALARY. As payment for the services to be rendered by
Officer as provided in Section 1 and subject to the terms and conditions of
Section 2, Corporation agrees to pay to Officer a "Base Salary" for the 12
calendar months beginning January 1, 1999 at the rate of $425,000 per annum
payable in 24 equal semi-monthly installments. The Base Salary for each year (or
portion thereof) beginning January 1, 2000 shall be determined by the
Compensation Committee of the Board of Directors (the "Compensation Committee")
which shall authorize an increase in Officer's Base Salary in an amount which,
at a minimum, shall be equal to the cumulative cost-of-living increment on the
Base Salary as reported in the "Consumer Price Index, Nashville, Tennessee, All
Items," published by the U.S. Department of Labor. Officer's Base Salary shall
be reviewed annually by the Compensation Committee.
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3.2 BONUSES. Officer shall be eligible to receive a bonus for each
year (or portion thereof) during the term of this Agreement and any extensions
thereof, with the actual amount of any such bonus to be determined by the
Compensation Committee in accordance with the Corporation's Executive Variable
Incentive Plan. All such bonuses shall be payable within 45 days after the end
of the year to which such bonus relates. All such bonuses shall be reviewed
annually by the Compensation Committee.
3.3 ADDITIONAL BENEFITS. During the term of this Agreement, Officer
shall be entitled to the following fringe benefits:
(a) OFFICER BENEFITS. Officer shall be eligible to participate
in such of Corporation's benefits and deferred compensation plans as are now
generally available or later made generally available to executive officers of
the Corporation, including, without limitation, Corporation's 1993 Employees
Stock Incentive Plan, and any implementation thereof, profit sharing plans,
annual physical examinations, dental and medical plans, personal catastrophe and
disability insurance, financial planning, retirement plans and supplementary
executive retirement plans, if any. For purposes of establishing the length of
service under any benefit plans or programs of Corporation, Officer's employment
with the Corporation will be deemed to have commenced on January 1, 1993.
(b) VACATION. Officer shall be entitled to six weeks of vacation
during each year during the term of this Agreement and any extensions thereof,
prorated for partial years.
(c) LIFE INSURANCE. For the term of this Agreement and any
extensions thereof, Corporation shall at its expense procure and keep in effect
term life insurance on the life of Officer, payable to such beneficiaries as
Officer may from time to time designate, in the aggregate amount of
$2,000,000.00. Such policy shall be owned by Officer or by a member of his
immediate family.
(d) REIMBURSEMENT FOR EXPENSES. During the term of this
Agreement, Corporation shall reimburse Officer for reasonable and properly
documented out-of-pocket business and/or entertainment expenses incurred by
Officer in connection with his duties under this Agreement.
4. SEVERANCE COMPENSATION.
4.1 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION UPON A
CHANGE IN CONTROL. In the event Officer's employment is terminated in a
Termination Upon a Change in Control, Officer shall be paid as severance
compensation his Base Salary (at the rate payable at the time of such
termination), through the remaining term of this Agreement and any extensions
thereof, on the dates specified in Section 3.1; provided, however, that if
Officer is employed by a new employer during such period, the severance
compensation payable to Officer during such period will be reduced by the amount
of compensation that Officer is receiving from the new employer. However,
Officer is under no obligation to mitigate the amount owed Officer pursuant to
this Section 4.1 by seeking other employment or otherwise. Notwithstanding
anything in this Section 4.1 to the contrary, Officer may in Officer's sole
discretion, by delivery of a notice to Corporation within 30 days following a
Termination Upon a Change in Control, elect to receive from Corporation a lump
sum severance payment by bank cashier's check equal to the present value of the
flow of cash payments that would otherwise be paid to Officer pursuant to this
Section 4.1. However, in no event shall payment pursuant to this Section 4.1 be
less than three times Base Salary as defined herein for the applicable period.
Such present value shall be determined as of the date of delivery of the notice
of election by Officer and shall be based on a discount rate equal to the
interest rate on 90-day U.S. Treasury bills, as reported in the Wall Street
Journal (or similar publication), on the date of delivery of the election
notice. If Officer elects to receive a lump sum severance payment, Corporation
shall make such payment to Officer within 10 days following the date on which
Officer notifies Corporation of Officer's election. In addition to the severance
payment payable under this Section 4.1, Officer shall be paid an amount equal
to: (i) three times the average annual bonus earned by Officer in the two years
immediately preceding the date of termination, and (ii) the average annual
incentive amount actually earned by Officer during the two years prior to the
severance. Officer shall also receive (i) full vesting of any awards granted to
Officer under the Corporation's 1993 Employees Stock Incentive Plan, and any
implementation thereof; and (ii) an immediate release of awards that have been
reserved by
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the Corporation for Officer under the Corporation's 1993 Employees Stock
Incentive Plan, and any implementation thereof, or otherwise, and full vesting
of such awards. Officer shall continue to accrue retirement benefits and shall
continue to enjoy any benefits under any plans of the Corporation in which
Officer is a participant to the full extent of Officer's rights under such
plans, including any perquisites provided under this Agreement, through the
remaining term of this Agreement; provided, however, that the benefits under any
such plans of the Corporation in which Officer is a participant, including any
such perquisites, shall cease upon re-employment by a new employer.
4.2 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION OTHER THAN
FOR CAUSE. In the event Officer's employment is terminated in a Termination
Other Than for Cause, Officer shall be paid as severance compensation his Base
Salary (at the rate payable at the time of such termination), for a period of
three years from the date of such termination, on the dates specified in Section
3.1; provided, however, that if Officer is employed by a new employer during
such period, the severance compensation payable to Officer during such period
will be reduced by the amount of compensation that Officer is receiving from the
new employer. Notwithstanding anything in this Section 4.2 to the contrary,
Officer may in Officer's sole discretion, by delivery of a notice to Corporation
within 30 days following a Termination Other Than for Cause, elect to receive
from Corporation a lump sum severance payment by bank cashier's check equal to
the present value of the flow of cash payments that would otherwise be paid to
Officer pursuant to this Section 4.2. However, in no event shall payment
pursuant to this Section 4.2 be less than three times Base Salary as defined
herein for the applicable period. Such present value shall be determined as of
the date of delivery of the notice of election by Officer and shall be based on
a discount rate equal to the interest rate on 90-day U.S. Treasury bills, as
reported in the Wall Street Journal (or similar publication), on the date of
delivery of the election notice. If Officer elects to receive a lump sum
severance payment, Corporation shall make such payment to Officer within ten
days following the date on which Officer notifies Corporation of Officer's
election. In addition to the severance payment payable under this Section 4.2,
Officer shall be paid an amount equal to two times the average annual bonus
earned by Officer in the two years immediately preceding the date of termination
and Officer shall also receive (i) full vesting of any awards granted to Officer
under Corporation's 1993 Employees Stock Incentive Plan, and any implementation
thereof; and (ii) an immediate release of awards that have been reserved for
Officer under the Corporation's 1993 Employees Stock Incentive Plan, and any
implementation thereof, or otherwise, and full vesting of such awards. Officer
shall be entitled to accelerated vesting of any Accrued Benefit under each
Deferred Compensation plan. Notwithstanding the foregoing, continued benefit
accrual shall not apply in the case of any tax-qualified retirement plan if such
accrual would adversely affect the tax-qualified status of such plan; provided,
however, that the benefit which would otherwise have been contributed by the
Corporation to the account of the Officer in any tax-qualified defined
contribution and the single sum value of the benefit plan shall be paid by the
Corporation to the Officer as each such contribution or benefit would have been
made or accrued, as applicable, assuming that the Officer had remained employed
on a full-time basis with a rate of pay equal to his Base Salary. In the case of
a Termination Other Than for Cause by reason of the disability of the
Participant, and if the Participant is retired for Disability under the
Executive Retirement Plan, then the Officer will continue to accrue benefits as
provided in the Executive Retirement Plan at the time he incurs his Disability,
notwithstanding any subsequent nonsubstantial employment.
4.3 NO SEVERANCE COMPENSATION UPON OTHER TERMINATION. In the event
of a Voluntary Termination, Termination For Cause, termination by reason of
Officer's disability pursuant to Section 2.5, or termination by reason of
Officer's death pursuant to Section 2.6, Officer or his estate shall not be paid
any severance compensation and shall receive only the benefits as provided in
the appropriate section of Article II applicable to the respective termination.
4.4 ADDITIONAL PAYMENTS DUE TO CHANGE IN CONTROL.
(a) Gross Up Payment. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by or on behalf of the Corporation to or for the benefit of
Employee as a result of a "change in control," as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), involving the
Corporation or its affiliates (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
4.4 (a "Payment")) would be subject to the excise tax imposed by Section 4999 of
the Code, or any interest or penalties are incurred by Officer with respect to
such excise tax (such excise tax, together
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with any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then Officer shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by Officer
of all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, Officer retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
(b) Tax Opinion. Subject to the provisions of Section 4.4(c),
all determinations required to be made under this Section 4.4, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by a nationally recognized accounting firm or law firm selected by the
Corporation (the "Tax Firm"); provided, however, that the Tax Firm shall not
determine that no Excise Tax is payable by Officer unless it delivers to Officer
a written opinion (the "Tax Opinion") that failure to pay the Excise Tax and to
report the Excise Tax and the payments potentially subject thereto on or with
Officer's applicable federal income tax return will not result in the imposition
of an accuracy-related or other penalty on Officer. All fees and expenses of the
Tax Firm shall be borne solely by the Corporation. Within 15 business days of
the receipt of notice from Officer that there has been a Payment, or such
earlier time as is requested by the Corporation, the Tax Firm shall make all
determinations required under this Section 4.4, shall provide to the Corporation
and Officer a written report setting forth such determinations, together with
detailed supporting calculations, and, if the Tax Firm determines that no Excise
Tax is payable, shall deliver the Tax Opinion to Officer. Any Gross-Up Payment,
as determined pursuant to this Section 4.4, shall be paid by the Corporation to
Officer within fifteen days of the receipt of the Tax Firm's determination.
Subject to the remainder of this Section 4.4, any determination by the Tax Firm
shall be binding upon the Corporation and Officer; provided, however, that
Officer shall only be bound to the extent that the determinations of the Tax
Firm hereunder, including the determinations made in the Tax Opinion, are
reasonable and reasonably supported by applicable law. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Tax Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Corporation should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that it is ultimately determined in accordance with the
procedures set forth in Section 4.4(c) that Officer is required to make a
payment of any Excise Tax, the Tax Firm shall reasonably determine the amount of
the Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Corporation to or for the benefit of Officer. In determining the
reasonableness of Tax Firm's determinations hereunder, and the effect thereof,
Officer shall be provided a reasonable opportunity to review such determinations
with Tax Firm and Officer's tax counsel. Tax Firm's determinations hereunder,
and the Tax Opinion, shall not be deemed reasonable until Officer's reasonable
objections and comments thereto have been satisfactorily accommodated by Tax
Firm.
(c) Notice of IRS Claim. Officer shall notify the Corporation in
writing of any claims by the Internal Revenue Service that, if successful, would
require the payment by the Corporation of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than 30 calendar
days after Officer actually receives notice in writing of such claim and shall
apprise the Corporation of the nature of such claim and the date on which such
claim is requested to be paid; provided, however, that the failure of Officer to
notify the Corporation of such claim (or to provide any required information
with respect thereto) shall not affect any rights granted to Officer under this
Section 4.4 except to the extent that the Corporation is materially prejudiced
in the defense of such claim as a direct result of such failure. Officer shall
not pay such claim prior to the expiration of the 30-day period following the
date on which he gives such notice to the Corporation (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Corporation notifies Officer in writing prior to the expiration of such
period that it desires to contest such claim, Officer shall do all of the
following:
I. give the Corporation any information reasonably requested by
the Corporation relating to such claim;
II. take such action in connection with contesting such claim as
the Corporation shall reasonably request in writing from time
to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
selected by the Corporation and reasonably acceptable to
Officer;
III. cooperate with the Corporation in good faith in order
effectively to contest such claim;
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IV. if the Corporation elects not to assume and control the
defense of such claim, permit the Corporation to participate
in any proceedings relating to such claim;
provided, however, that the Corporation shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold Officer harmless, on
an after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of this
Section 4.4, the Corporation shall have the right, at its sole option, to assume
the defense of and control all proceedings in connection with such contest, in
which case it may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may either direct Officer to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and Officer agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Corporation shall determine; provided, however, that if the Corporation directs
Officer to pay such claim and sue for a refund, the Corporation shall advance
the amount of such payment to Officer, on an interest-free basis and shall
indemnify and hold Officer harmless, on an after-tax basis, from any Excise Tax
or income tax (including interest or penalties with respect thereto) imposed
with respect to such advance or with respect to any imputed income with respect
to such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of Officer with
respect to which such contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, the Corporation's right to assume the
defense of and control the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and Officer shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) Right to Tax Refund. If, after the receipt by Officer of an
amount advanced by the Corporation pursuant to Section 4.4, Officer becomes
entitled to receive any refund with respect to such claim, Officer shall
(subject to the Corporation's complying with the requirements of Section 4.4(c))
promptly pay to the Corporation the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by Officer of an amount advanced by the Corporation pursuant to Section
4.4(c), a determination is made that Officer is not entitled to a refund with
respect to such claim and the Corporation does not notify Officer in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall, to the extent of such denial,
be forgiven and shall not be required to be repaid and the amount of forgiven
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
5. NON-COMPETITION; DISCLOSURE OF INVESTMENTS. During the term of this
Agreement, including the period, if any, during which Officer shall be entitled
to severance compensation pursuant to Section 4.2, Officer shall not engage in
any activity competitive with the Corporation. Simultaneously with Officer's
execution of this Agreement and upon each anniversary of the Effective Date,
Officer shall notify the Chairman of the Compensation Committee of the nature
and extent of Officer's investments, stock holdings, employment as an employee,
director, or any similar interest in any business or enterprise other than
Corporation; provided, however, that Officer shall have no obligation to
disclose any investment under $100,000 in value or any holdings of publicly
traded securities which are not in excess of one percent of the outstanding
class of such securities. Notwithstanding any provision herein to the contrary,
the restrictions and covenants of this Section 5 shall not apply in the event of
a Termination Upon a Change in Control.
6. MISCELLANEOUS.
6.1 Payment Obligations. Corporation's obligation to pay Officer the
compensation and to make the arrangements provided herein shall be
unconditional, and Officer shall have no obligation whatsoever to mitigate
damages hereunder. If litigation after a Change in Control shall be brought to
enforce or interpret any provision contained herein, Corporation, to the extent
permitted by applicable law and the Corporation's Articles of Incorporation and
Bylaws, hereby indemnifies Officer for Officer's reasonable attorneys' fees and
disbursements incurred in such litigation.
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6.2 CONFIDENTIALITY. Officer agrees that all confidential and
proprietary information relating to the business of Corporation shall be kept
and treated as confidential both during and after the term of this Agreement,
except as may be permitted in writing by Corporation's Board of Directors or as
such information is within the public domain or comes within the public domain
without any breach of this Agreement.
6.3 WAIVER. The waiver of the breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of the same or other provision hereof.
6.4 ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise provided
herein, this Agreement represents the entire understanding among the parties
with respect to the subject matter hereof, and this Agreement supersedes any and
all prior understandings, agreements, plans and negotiations, whether written or
oral, with respect to the subject matter hereof, including without limitation,
any understandings, agreements or obligations respecting any past or future
compensation, bonuses, reimbursements or other payments to Officer from
Corporation. All modifications to the Agreement must be in writing and signed by
the party against whom enforcement of such modification is sought.
6.5 NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by telegraph or first class
mail, certified or registered with return receipt requested, and shall be deemed
to have been duly given three days after mailing or 12 hours after transmission
of a telegram to the respective persons named below:
If to Corporation:
Healthcare Realty Trust Incorporated
3310 West End Avenue
Nashville, Tennessee 37203
Phone: (615) 269-8175
Fax: (615) 269-8122
If to Officer:
Mr. David R. Emery
108 Bonaventure Place
Nashville, Tennessee 37205
Any party may change such party's address for notices by notice duly give
pursuant to this Section 6.5.
6.6 HEADINGS. The Section headings herein are intended for reference
and shall not by themselves determine the construction or interpretation of this
Agreement.
6.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Tennessee.
6.8 ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement, or breach thereof, shall be settled by arbitration in
Nashville, Tennessee in accordance with the Rules of the American Arbitration
Association, and judgment upon any proper award rendered by the Arbitrators may
be entered in any court having jurisdiction thereof. There shall be three
arbitrators, one to be chosen directly by each party at will, and the third
arbitrator to be selected by the two arbitrators so chosen. To the extent
permitted by the Rules of the American Arbitration Association, the selected
arbitrators may grant equitable relief. Each party shall pay the fees of the
arbitrator selected by him and of his own attorneys, and the expenses of his
witnesses and all other expenses connected with the presentation of his case.
The cost of the arbitration including the cost of the record or transcripts
thereof, if any, administrative fees, and all other fees and costs shall be
borne equally by the parties. To the extent that Officer prevails with respect
to any portion of an arbitration award, Officer shall be reimbursed by the
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Corporation for the costs and expenses incurred by Officer in connection with
the arbitration in an amount proportionate to the award to Officer as compared
to the amount in dispute.
6.9 SEVERABILITY. Should a court or other body of competent
jurisdiction determine that any provision of this Agreement is excessive in
scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, and all other provisions of this Agreement
shall be deemed valid and enforceable to the extent possible.
6.10 SURVIVAL OF CORPORATION'S OBLIGATIONS. Corporation's
obligations hereunder shall not be terminated by reason of any liquidation,
dissolution, bankruptcy, cessation of business, or similar event relating to the
Corporation. This Agreement shall not be terminated by any merger or
consolidation or other reorganization of the Corporation. In the event any such
merger, consolidation or reorganization shall be accomplished by transfer of
stock or by transfer of assets or otherwise, the provisions of this Agreement
shall be binding upon and inure to the benefit of the surviving or resulting
corporation or person. This Agreement shall be binding upon and inure to the
benefit of the executors, administrators, heirs, successors and assigns of the
parties; provided, however, that except as herein expressly provided, this
Agreement shall not be assignable either by the Corporation (except to an
affiliate of the Corporation in which event Corporation shall remain liable if
the affiliate fails to meet any obligations to make payments or provide benefits
or otherwise) or by Officer.
6.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
6.12 WITHHOLDINGS. All compensation and benefits to Officer
hereunder shall be reduced only by all federal, state, local and other
withholdings and similar taxes and payments that are required by applicable law.
Except as otherwise specifically agreed by Officer, no other offsets or
withholdings shall apply to reduce the payment of compensation and benefits
hereunder.
6.13 INDEMNIFICATION. In addition to any rights to indemnification
to which Officer is entitled to under the Corporation's Articles of
Incorporation and Bylaws, Corporation shall indemnify Officer at all times
during and after the term of this Agreement to the maximum extent permitted
under Section 2-418 of the General Corporation Law of the State of Maryland or
any successor provision thereof and any other applicable state law, and shall
pay Officer's expenses in defending any civil or criminal action, suit, or
proceeding in advance of the final disposition of such action, suit, or
proceeding, to the maximum extent permitted under such applicable state laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
CORPORATION:
HEALTHCARE REALTY TRUST INCORPORATED
By: /S/
------------------------------------------------
Name: Roger O. West
Title: Executive Vice President
Date: November 1, 1999
OFFICER:
/S/
---------------------------------------------------
David R. Emery
Date: November 1, 1999
<PAGE> 1
EXHIBIT 10.10
HEALTHCARE REALTY TRUST
INCORPORATED
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of January 1, 2000 ("Effective Date") by and between HEALTHCARE REALTY TRUST
INCORPORATED, a Maryland corporation ("Corporation"), and Roger O.
West ("Officer").
RECITAL
Corporation desires to employ Officer as its Executive Vice President
and General Counsel and Officer is willing to accept such employment by
Corporation, on the terms and subject to the conditions set forth in this
Agreement.
AGREEMENT
THE PARTIES AGREE AS FOLLOWS:
1. DUTIES. During the term of this Agreement, Officer agrees to be
employed by and to serve Corporation as its Executive Vice President and General
Counsel, and Corporation agrees to employ and retain Officer in such capacities.
Officer shall devote such of his business time, energy, and skill to the affairs
of Corporation as shall be necessary to perform the duties of such positions.
Officer shall report only to Corporation's Board of Directors and/or President
and at all times during the term of this Agreement shall have powers and duties
at least commensurate with his position as Executive Vice President and General
Counsel. Officer's principal place of business with respect to his services to
Corporation shall be within 35 miles of Nashville, Tennessee.
2. TERM OF EMPLOYMENT.
2.1 DEFINITIONS. For purposes of this Agreement the following terms
shall have the following meanings:
(a) "TERMINATION FOR CAUSE" shall mean termination by
Corporation of Officer's employment by Corporation by reason of Officer's
material, substantial and willful dishonesty towards, fraud upon, or deliberate
injury or attempted injury to, Corporation or by reason of Officer's material,
substantial and willful breach of this Agreement which has resulted in material
injury to Corporation. For purposes of this Agreement, a termination of
Officer's employment with the Corporation shall be deemed a Termination Other
Than For Cause rather than a Termination For Cause unless and until established
by Corporation to the contrary by a final, nonappealable decision by a court of
competent jurisdiction. The Corporation shall have the burden of establishing
that any termination of Officer's employment by Corporation is a Termination For
Cause.
(b) "TERMINATION OTHER THAN FOR CAUSE" shall mean any
termination by Corporation of Officer's employment by Corporation (other than in
a Termination for Cause) and shall include Constructive Termination of Officer's
employment, effective upon notice from Officer to Corporation of such
Constructive Termination. A failure or refusal of Corporation to extend the term
of employment of Officer in accordance with Section 2.2 hereof, other than as a
result of circumstances which would warrant a Termination of Cause hereunder,
shall be deemed a Termination Other Than For Cause.
(c) "VOLUNTARY TERMINATION" shall mean termination by Officer of
Officer's employment by Corporation other than (i) Constructive Termination as
described in subsection 2.1(g), (ii)
<PAGE> 2
"Termination Upon a Change in Control," (iii) termination by reason of Officer's
death or disability as described in Sections 2.5 and 2.6 and (iv) termination by
reason of retirement by Officer upon attainment of eligibility to retire in
accordance with the Executive Retirement Plan as in effect upon the date of this
Agreement.
(d) "TERMINATION UPON A CHANGE IN CONTROL" shall mean a
termination by Officer of Officer's employment with Corporation within 24 months
following a "Change in Control."
(e) "CHANGE IN CONTROL" shall mean (i) the time that Corporation
first determines that any person and all other persons who constitute a group
(within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934
("Exchange Act")) have acquired direct or indirect beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act) of 20 percent or more of
Corporation's outstanding securities, unless a majority of the "Continuing
Directors" approves the acquisition not later than ten business days after
Corporation makes that determination, or (ii) the first day on which a majority
of the members of Corporation's Board of Directors are not "Continuing
Directors."
(f) "CONTINUING DIRECTORS" shall mean, as of any date of
determination, any member of the Board of Directors of Corporation who (i) was a
member of that Board of Directors on January l, 1993, (ii) has been a member of
that Board of Directors for the two years immediately preceding such date of
determination, or (iii) was nominated for election or elected to the Board of
Directors with the affirmative vote of the greater of (x) a majority of
Continuing Directors who were members of the Board at the time of such
nomination or election or (y) at least four Continuing Directors.
(g) "CONSTRUCTIVE TERMINATION" shall mean (i) any material
breach of this Agreement by Corporation; (ii) any actual or implied threat of
discharge of Officer by Corporation under circumstances which would not
constitute a Termination for Cause and which results in an involuntary
resignation of employment by Officer; (iii) any substantial reduction in the
authority or responsibility of Officer or other substantial reduction in the
terms and conditions of Officer's employment under circumstances which would not
justify a Termination for Cause and which are not the result of a material
breach by Officer of this Agreement; (iv) any act(s) by Corporation which are
designed or have the effect of rendering Officer's working conditions so
intolerable or demeaning on a recurring basis that a reasonable person would
resign such employment, (v) a material adverse alteration in Officer's reporting
relationships, position, responsibilities, title or status; (vi) a reduction in
Officer's compensation or a substantial reduction in benefits provided to
Officer that are provided for or referenced hereunder; (vii) relocation of
Officer to a location that is more than 35 miles from the location of the
Corporation's headquarters on the date this Agreement is executed.
(h) "DEFERRED COMPENSATION" or "deferred compensation" shall
mean any individual or group plan, program, agreement or other arrangement,
whether or not a "plan" for purposes of the Employee Retirement Income Security
Act of 1974 ("ERISA") and whether or not a retirement plan or supplemental
executive retirement plan or additional retirement plan as contemplated by
Section 3.11 of the Agreement, but which in any event involves an agreement by
the Corporation to make payment(s) to Officer at a future date as compensation
for current services to the Corporation. The term Deferred Compensation or
deferred compensation shall include, but not be limited to, benefits described
in the Healthcare Realty Trust Incorporated Executive Retirement Plan, the 1993
Employees Stock Incentive Plan and the First Performance Based Restricted Stock
Implementation under the 1993 Employees Stock Incentive Plan, or any additional
implementation thereof, each as it now exists or may hereafter be amended.
2.2 BASIC TERM. The term of employment of Officer by Corporation
shall be from January 1, 1999 through December 31, 2004, unless terminated
earlier pursuant to this Section 2. Commencing in 2000, on the first day of
January of each year, the first sentence of this Section 2.2 shall be amended by
deleting the year then appearing therein and inserting in its place the next
subsequent year.
2.3 TERMINATION FOR CAUSE. Termination For Cause may be effected by
Corporation at any time during the term of this Agreement and shall be effected
by written notification to Officer. Upon Termination For Cause, Officer
immediately shall be paid all accrued salary, bonus compensation to the extent
earned, vested
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deferred compensation (other than pension plan or profit sharing plan benefits
which will be paid in accordance with the applicable plan), any benefits under
any plans of the Corporation in which Officer is a participant to the full
extent of Officer's rights under such plans, accrued vacation pay and any
appropriate business expenses incurred by Officer in connection with his duties
hereunder, all to the date of termination, but Officer shall not be paid any
other compensation or reimbursement of any kind, including without limitation,
severance compensation.
2.4 TERMINATION OTHER THAN FOR CAUSE. Notwithstanding anything else
in this Agreement, Corporation may effect a Termination Other Than For Cause at
any time upon giving written notice to Officer of such termination. Upon any
Termination Other Than For Cause, Officer shall immediately be paid all accrued
salary, bonus compensation to the extent earned, whether or not vested without
regard to such Termination (other than pension plan or profit sharing plan
benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Corporation in which Officer is a participant to
the full extent of Officer's rights under such plans (including accelerated
release and full vesting of shares reserved for Officer under Corporation's 1993
Employees Stock Incentive Plan, and any implementation thereof), accrued
vacation pay and any appropriate business expenses incurred by Officer in
connection with his duties hereunder, all to the date of termination, and all
severance compensation provided in Section 4.2, but no other compensation or
reimbursement of any kind.
2.5 TERMINATION BY REASON OF DISABILITY. If, during the term of this
Agreement, Officer, in the reasonable judgment of the Board of Directors of
Corporation, has failed to perform his duties under this Agreement on account of
illness or physical or mental incapacity, and such illness or incapacity
continues for a period of more than 12 consecutive months, Corporation shall
have the right to terminate Officer's employment hereunder by written
notification to Officer and payment to Officer of all accrued salary, bonus
compensation to the extent earned, deferred compensation, whether or not vested
without regard to such illness or incapacity (other than pension plan or profit
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of the Corporation in which Officer is a
participant to the full extent of Officer's rights under such plans (including
accelerated release and full vesting of shares reserved for Officer under
Corporation's 1993 Employees Stock Incentive Plan, and any implementation
thereof), accrued vacation pay and any appropriate business expenses incurred by
Officer in connection with his duties hereunder, all to the date of termination,
with the exception of medical and dental benefits which shall continue through
the expiration of this Agreement, but Officer shall not be paid any other
compensation or reimbursement of any kind, including without limitation,
severance compensation. Notwithstanding the foregoing, any Officer who incurs a
Disability within the contemplation of the Executive Retirement Plan shall
accrue such additional post-disability, post-termination benefits as may be
determined in accordance with such Plan.
2.6 DEATH. In the event of Officer's death during the term of this
Agreement, Officer's employment shall be deemed to have terminated as of the
last day of the month during which his death occurs and Corporation shall pay to
his estate or such beneficiaries as Officer may from time to time designate all
accrued salary, bonus compensation to the extent earned, whether or not vested
without regard to such Termination (other than pension plan or profit sharing
plan benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Corporation in which Officer is a participant to
the full extent of Officer's rights under such plans (including accelerated
release and full vesting of shares reserved for Officer under the Corporation's
1993 Employees Stock Incentive Plan, and any implementation thereof), accrued
vacation pay and any appropriate business expenses incurred by Officer in
connection with his duties hereunder, all to the date of termination, but
Officer's estate shall not be paid any other compensation or reimbursement of
any kind, including without limitation, severance compensation.
2.7 VOLUNTARY TERMINATION. In the event of a Voluntary Termination,
Corporation shall immediately pay all accrued salary, bonus compensation to the
extent earned, vested deferred compensation (other than pension plan or profit
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of the Corporation in which Officer is a
participant to the full extent of Officer's rights under such plans, accrued
vacation pay and any appropriate business expenses incurred by Officer in
connection with his duties hereunder, all to the date of termination, but no
other compensation or reimbursement of any kind, including without limitation,
severance compensation.
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2.8 TERMINATION UPON A CHANGE IN CONTROL OR RETIREMENT. In the event
of (i) a Termination Upon a Change in Control or (ii) retirement by Officer upon
attainment of eligibility to retire in accordance with the Executive Retirement
Plan as in effect upon the date of this Agreement, Officer shall immediately be
paid all accrued salary, bonus compensation to the extent earned through the
date of termination, including compensation that was earned and deferred,
whether or not vested without regard to the Change in Control (other than
pension plan or profit sharing plan benefits which will be paid in accordance
with the applicable plan), any benefits under any plans of the Corporation in
which Officer is a participant to the full extent of Officer's rights under such
plans (including accelerated release and full vesting of shares reserved for
Officer under Corporation's 1993 Employees Stock Incentive Plan, and any
implementation thereof), accrued vacation pay and any appropriate business
expenses incurred by Officer in connection with his duties hereunder, all to the
date of termination, and all severance compensation provided in Section 4.1, but
no other compensation or reimbursement of any kind.
2.9 NOTICE OF TERMINATION. Corporation may effect a termination of
this Agreement pursuant to the provisions of this Section 2 upon giving 30 days
written notice to Officer of such termination. Officer may effect a termination
of this Agreement pursuant to the provisions of this Section 2 upon giving 60
days written notice to Corporation of such termination.
2.10 DETERMINATION OF BENEFIT UPON EARLY PAYMENT. In the event a
Participant's deferred compensation benefit becomes vested in accordance with
Sections 2.4, 2.5, 2.6 or 2.8, Officer shall have the following rights and
Corporation shall take appropriate action to amend or modify its compensation
arrangements in order to cause:
(a) any deferred compensation under the Corporation's 1993
Employees Stock Incentive Plan shall be effected by an immediate full vesting of
any awards granted to Officer under the Corporation's 1993 Employee Stock
Incentive Plan, and any implementation thereof; and an immediate release and
full vesting of awards that have been reserved by the Corporation for Officer
under the Corporation's 1993 Employee Stock Incentive Plan, and any
implementation thereof, or otherwise, such release and vesting to be made within
a reasonable time after the relevant event;
(b) any deferred compensation payable under a nonqualified
defined contribution plan shall be made available for payment within an
administratively practicable time after the relevant event, in an amount equal
to the then-current book account balance; and
(c) any deferred compensation payable under a nonqualified
defined benefit plan shall be made available for payment within an
administratively practicable time after the relevant event in an amount equal to
the greater of (i) the benefit, if any, otherwise determined in accordance with
the relevant plan, or (ii) the present value of the then-accrued benefit,
determined by reducing the accrued benefit from age 65 to the date as of which
payment is made, using the actuarial assumptions which have been used for
financial accounting purposes under generally accepted accounting principles.
3. SALARY, BENEFITS AND BONUS COMPENSATION.
3.1 BASE SALARY. As payment for the services to be rendered by
Officer as provided in Section 1 and subject to the terms and conditions of
Section 2, Corporation agrees to pay to Officer a "Base Salary" for the 12
calendar months beginning January 1, 1999 at the rate of $275,000 per annum
payable in 24 equal semi-monthly installments. The Base Salary for each year (or
portion thereof) beginning January 1, 2000 shall be determined by the
Compensation Committee of the Board of Directors (the "Compensation Committee")
which shall authorize an increase in Officer's Base Salary in an amount which,
at a minimum, shall be equal to the cumulative cost-of-living increment on the
Base Salary as reported in the "Consumer Price Index, Nashville, Tennessee, All
Items," published by the U.S. Department of Labor. Officer's Base Salary shall
be reviewed annually by the Compensation Committee.
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3.2 BONUSES. Officer shall be eligible to receive a bonus for each
year (or portion thereof) during the term of this Agreement and any extensions
thereof, with the actual amount of any such bonus to be determined by the
Compensation Committee in accordance with the Corporation's Executive Variable
Incentive Plan. All such bonuses shall be payable within 45 days after the end
of the year to which such bonus relates. All such bonuses shall be reviewed
annually by the Compensation Committee.
3.3 ADDITIONAL BENEFITS. During the term of this Agreement, Officer
shall be entitled to the following fringe benefits:
(a) OFFICER BENEFITS. Officer shall be eligible to participate
in such of Corporation's benefits and deferred compensation plans as are now
generally available or later made generally available to executive officers of
the Corporation, including, without limitation, Corporation's 1993 Employees
Stock Incentive Plan, and any implementation thereof,, profit sharing plans,
annual physical examinations, dental and medical plans, personal catastrophe and
disability insurance, financial planning, retirement plans and supplementary
executive retirement plans, if any. For purposes of establishing the length of
service under any benefit plans or programs of Corporation, Officer's employment
with the Corporation will be deemed to have commenced on May 1, 1994.
(b) VACATION. Officer shall be entitled to six weeks of vacation
during each year during the term of this Agreement and any extensions thereof,
prorated for partial years.
(c) LIFE INSURANCE. For the term of this Agreement and any
extensions thereof, Corporation shall at its expense procure and keep in effect
term life insurance on the life of Officer, payable to such beneficiaries as
Officer may from time to time designate, in the aggregate amount of $1,500,000.
Such policy shall be owned by Officer or by a member of his immediate family.
(d) REIMBURSEMENT FOR EXPENSES. During the term of this
Agreement, Corporation shall reimburse Officer for reasonable and properly
documented out-of-pocket business and/or entertainment expenses incurred by
Officer in connection with his duties under this Agreement.
4. SEVERANCE COMPENSATION.
4.1 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION UPON A
CHANGE IN CONTROL. In the event Officer's employment is terminated in a
Termination Upon a Change in Control, Officer shall be paid as severance
compensation his Base Salary (at the rate payable at the time of such
termination), through the remaining term of this Agreement and any extensions
thereof, on the dates specified in Section 3.1; provided, however, that if
Officer is employed by a new employer during such period, the severance
compensation payable to Officer during such period will be reduced by the amount
of compensation that Officer is receiving from the new employer. However,
Officer is under no obligation to mitigate the amount owed Officer pursuant to
this Section 4.1 by seeking other employment or otherwise. Notwithstanding
anything in this Section 4.1 to the contrary, Officer may in Officer's sole
discretion, by delivery of a notice to Corporation within 30 days following a
Termination Upon a Change in Control, elect to receive from Corporation a lump
sum severance payment by bank cashier's check equal to the present value of the
flow of cash payments that would otherwise be paid to Officer pursuant to this
Section 4.1. However, in no event shall payment pursuant to this Section 4.1 be
less than three times Base Salary as defined herein for the applicable period.
Such present value shall be determined as of the date of delivery of the notice
of election by Officer and shall be based on a discount rate equal to the
interest rate on 90-day U.S. Treasury bills, as reported in the Wall Street
Journal (or similar publication), on the date of delivery of the election
notice. If Officer elects to receive a lump sum severance payment, Corporation
shall make such payment to Officer within 10 days following the date on which
Officer notifies Corporation of Officer's election. In addition to the severance
payment payable under this Section 4.1, Officer shall be paid an amount equal
to: (i) three times the average annual bonus earned by Officer in the two years
immediately preceding the date of termination, and (ii) the average annual
incentive amount actually earned by Officer during the two years prior to the
severance. Officer shall also receive (i) full vesting of any awards granted to
Officer under the Corporation's 1993 Employees Stock Incentive Plan, and any
implementation thereof; and (ii) an immediate release of awards that have been
reserved by
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the Corporation for Officer under the Corporation's 1993 Employees Stock
Incentive Plan, and any implementation thereof, or otherwise, and full vesting
of such awards. Officer shall continue to accrue retirement benefits and shall
continue to enjoy any benefits under any plans of the Corporation in which
Officer is a participant to the full extent of Officer's rights under such
plans, including any perquisites provided under this Agreement, through the
remaining term of this Agreement; provided, however, that the benefits under any
such plans of the Corporation in which Officer is a participant, including any
such perquisites, shall cease upon re-employment by a new employer.
4.2 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION OTHER THAN
FOR CAUSE. In the event Officer's employment is terminated in a Termination
Other Than for Cause, Officer shall be paid as severance compensation his Base
Salary (at the rate payable at the time of such termination), for a period of
three years from the date of such termination, on the dates specified in Section
3.1; provided, however, that if Officer is employed by a new employer during
such period, the severance compensation payable to Officer during such period
will be reduced by the amount of compensation that Officer is receiving from the
new employer. Notwithstanding anything in this Section 4.2 to the contrary,
Officer may in Officer's sole discretion, by delivery of a notice to Corporation
within 30 days following a Termination Other Than for Cause, elect to receive
from Corporation a lump sum severance payment by bank cashier's check equal to
the present value of the flow of cash payments that would otherwise be paid to
Officer pursuant to this Section 4.2. However, in no event shall payment
pursuant to this Section 4.2 be less than three times Base Salary as defined
herein for the applicable period. Such present value shall be determined as of
the date of delivery of the notice of election by Officer and shall be based on
a discount rate equal to the interest rate on 90-day U.S. Treasury bills, as
reported in the Wall Street Journal (or similar publication), on the date of
delivery of the election notice. If Officer elects to receive a lump sum
severance payment, Corporation shall make such payment to Officer within ten
days following the date on which Officer notifies Corporation of Officer's
election. In addition to the severance payment payable under this Section 4.2,
Officer shall be paid an amount equal to two times the average annual bonus
earned by Officer in the two years immediately preceding the date of termination
and Officer shall also receive (i) full vesting of any awards granted to Officer
under Corporation's 1993 Employees Stock Incentive Plan, and any implementation
thereof; and (ii) an immediate release of awards that have been reserved for
Officer under the Corporation's 1993 Employees Stock Incentive Plan, and any
implementation thereof, or otherwise, and full vesting of such awards. Officer
shall be entitled to accelerated vesting of any Accrued Benefit under each
Deferred Compensation plan. Notwithstanding the foregoing, continued benefit
accrual shall not apply in the case of any tax-qualified retirement plan if such
accrual would adversely affect the tax-qualified status of such plan; provided,
however, that the benefit which would otherwise have been contributed by the
Corporation to the account of the Officer in any tax-qualified defined
contribution and the single sum value of the benefit plan shall be paid by the
Corporation to the Officer as each such contribution or benefit would have been
made or accrued, as applicable, assuming that the Officer had remained employed
on a full-time basis with a rate of pay equal to his Base Salary. In the case of
a Termination Other Than for Cause by reason of the disability of the
Participant, and if the Participant is retired for Disability under the
Executive Retirement Plan, then the Officer will continue to accrue benefits as
provided in the Executive Retirement Plan at the time he incurs his Disability,
notwithstanding any subsequent nonsubstantial employment.
4.3 NO SEVERANCE COMPENSATION UPON OTHER TERMINATION. In the event
of a Voluntary Termination, Termination For Cause, termination by reason of
Officer's disability pursuant to Section 2.5, or termination by reason of
Officer's death pursuant to Section 2.6, Officer or his estate shall not be paid
any severance compensation and shall receive only the benefits as provided in
the appropriate section of Article II applicable to the respective termination.
4.4 ADDITIONAL PAYMENTS DUE TO CHANGE IN CONTROL.
(a) Gross Up Payment. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by or on behalf of the Corporation to or for the benefit of
Employee as a result of a "change in control," as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), involving the
Corporation or its affiliates (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
4.4 (a "Payment")) would be subject to the excise tax imposed by Section 4999 of
the Code, or any interest or penalties are incurred by Officer with respect to
such excise tax (such excise tax, together
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with any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then Officer shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by Officer
of all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, Officer retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
(b) Tax Opinion. Subject to the provisions of Section 4.4(c),
all determinations required to be made under this Section 4.4, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by a nationally recognized accounting firm or law firm selected by the
Corporation (the "Tax Firm"); provided, however, that the Tax Firm shall not
determine that no Excise Tax is payable by Officer unless it delivers to Officer
a written opinion (the "Tax Opinion") that failure to pay the Excise Tax and to
report the Excise Tax and the payments potentially subject thereto on or with
Officer's applicable federal income tax return will not result in the imposition
of an accuracy-related or other penalty on Officer. All fees and expenses of the
Tax Firm shall be borne solely by the Corporation. Within 15 business days of
the receipt of notice from Officer that there has been a Payment, or such
earlier time as is requested by the Corporation, the Tax Firm shall make all
determinations required under this Section 4.4, shall provide to the Corporation
and Officer a written report setting forth such determinations, together with
detailed supporting calculations, and, if the Tax Firm determines that no Excise
Tax is payable, shall deliver the Tax Opinion to Officer. Any Gross-Up Payment,
as determined pursuant to this Section 4.4, shall be paid by the Corporation to
Officer within fifteen days of the receipt of the Tax Firm's determination.
Subject to the remainder of this Section 4.4, any determination by the Tax Firm
shall be binding upon the Corporation and Officer; provided, however, that
Officer shall only be bound to the extent that the determinations of the Tax
Firm hereunder, including the determinations made in the Tax Opinion, are
reasonable and reasonably supported by applicable law. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Tax Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Corporation should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that it is ultimately determined in accordance with the
procedures set forth in Section 4.4(c) that Officer is required to make a
payment of any Excise Tax, the Tax Firm shall reasonably determine the amount of
the Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Corporation to or for the benefit of Officer. In determining the
reasonableness of Tax Firm's determinations hereunder, and the effect thereof,
Officer shall be provided a reasonable opportunity to review such determinations
with Tax Firm and Officer's tax counsel. Tax Firm's determinations hereunder,
and the Tax Opinion, shall not be deemed reasonable until Officer's reasonable
objections and comments thereto have been satisfactorily accommodated by Tax
Firm.
(c) Notice of IRS Claim. Officer shall notify the Corporation in
writing of any claims by the Internal Revenue Service that, if successful, would
require the payment by the Corporation of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than 30 calendar
days after Officer actually receives notice in writing of such claim and shall
apprise the Corporation of the nature of such claim and the date on which such
claim is requested to be paid; provided, however, that the failure of Officer to
notify the Corporation of such claim (or to provide any required information
with respect thereto) shall not affect any rights granted to Officer under this
Section 4.4 except to the extent that the Corporation is materially prejudiced
in the defense of such claim as a direct result of such failure. Officer shall
not pay such claim prior to the expiration of the 30-day period following the
date on which he gives such notice to the Corporation (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Corporation notifies Officer in writing prior to the expiration of such
period that it desires to contest such claim, Officer shall do all of the
following:
I. give the Corporation any information reasonably requested by
the Corporation relating to such claim;
II. take such action in connection with contesting such claim as
the Corporation shall reasonably request in writing from time
to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
selected by the Corporation and reasonably acceptable to
Officer;
III. cooperate with the Corporation in good faith in order
effectively to contest such claim;
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IV. if the Corporation elects not to assume and control the
defense of such claim, permit the Corporation to participate
in any proceedings relating to such claim;
provided, however, that the Corporation shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold Officer harmless, on
an after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of this
Section 4.4, the Corporation shall have the right, at its sole option, to assume
the defense of and control all proceedings in connection with such contest, in
which case it may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may either direct Officer to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and Officer agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Corporation shall determine; provided, however, that if the Corporation directs
Officer to pay such claim and sue for a refund, the Corporation shall advance
the amount of such payment to Officer, on an interest-free basis and shall
indemnify and hold Officer harmless, on an after-tax basis, from any Excise Tax
or income tax (including interest or penalties with respect thereto) imposed
with respect to such advance or with respect to any imputed income with respect
to such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of Officer with
respect to which such contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, the Corporation's right to assume the
defense of and control the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and Officer shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) Right to Tax Refund. If, after the receipt by Officer of an
amount advanced by the Corporation pursuant to Section 4.4, Officer becomes
entitled to receive any refund with respect to such claim, Officer shall
(subject to the Corporation's complying with the requirements of Section 4.4(c))
promptly pay to the Corporation the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by Officer of an amount advanced by the Corporation pursuant to Section
4.4(c), a determination is made that Officer is not entitled to a refund with
respect to such claim and the Corporation does not notify Officer in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall, to the extent of such denial,
be forgiven and shall not be required to be repaid and the amount of forgiven
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
5. NON-COMPETITION; DISCLOSURE OF INVESTMENTS. During the term of this
Agreement, including the period, if any, during which Officer shall be entitled
to severance compensation pursuant to Section 4.2, Officer shall not engage in
any activity competitive with the Corporation. Simultaneously with Officer's
execution of this Agreement and upon each anniversary of the Effective Date,
Officer shall notify the Chairman of the Compensation Committee of the nature
and extent of Officer's investments, stock holdings, employment as an employee,
director, or any similar interest in any business or enterprise other than
Corporation; provided, however, that Officer shall have no obligation to
disclose any investment under $100,000 in value or any holdings of publicly
traded securities which are not in excess of one percent of the outstanding
class of such securities. Notwithstanding any provision herein to the contrary,
the restrictions and covenants of this Section 5 shall not apply in the event of
a Termination Upon a Change in Control.
6. MISCELLANEOUS.
6.1 Payment Obligations. Corporation's obligation to pay Officer the
compensation and to make the arrangements provided herein shall be
unconditional, and Officer shall have no obligation whatsoever to mitigate
damages hereunder. If litigation after a Change in Control shall be brought to
enforce or interpret any provision contained herein, Corporation, to the extent
permitted by applicable law and the Corporation's Articles of Incorporation and
Bylaws, hereby indemnifies Officer for Officer's reasonable attorneys' fees and
disbursements incurred in such litigation.
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6.2 CONFIDENTIALITY. Officer agrees that all confidential and
proprietary information relating to the business of Corporation shall be kept
and treated as confidential both during and after the term of this Agreement,
except as may be permitted in writing by Corporation's Board of Directors or as
such information is within the public domain or comes within the public domain
without any breach of this Agreement.
6.3 WAIVER. The waiver of the breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of the same or other provision hereof.
6.4 ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise provided
herein, this Agreement represents the entire understanding among the parties
with respect to the subject matter hereof, and this Agreement supersedes any and
all prior understandings, agreements, plans and negotiations, whether written or
oral, with respect to the subject matter hereof, including without limitation,
any understandings, agreements or obligations respecting any past or future
compensation, bonuses, reimbursements or other payments to Officer from
Corporation. All modifications to the Agreement must be in writing and signed by
the party against whom enforcement of such modification is sought.
6.5 NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by telegraph or first class
mail, certified or registered with return receipt requested, and shall be deemed
to have been duly given three days after mailing or 12 hours after transmission
of a telegram to the respective persons named below:
If to Corporation:
Healthcare Realty Trust Incorporated
3310 West End Avenue
Nashville, Tennessee 37203
Phone: (615) 269-8175
Fax: (615) 269-8122
If to Officer:
Mr. Roger O. West
9014 Split Log Road
Brentwood, Tennessee 37027
Any party may change such party's address for notices by notice duly give
pursuant to this Section 6.5.
6.6 HEADINGS. The Section headings herein are intended for reference
and shall not by themselves determine the construction or interpretation of this
Agreement.
6.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Tennessee.
6.8 ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement, or breach thereof, shall be settled by arbitration in
Nashville, Tennessee in accordance with the Rules of the American Arbitration
Association, and judgment upon any proper award rendered by the Arbitrators may
be entered in any court having jurisdiction thereof. There shall be three
arbitrators, one to be chosen directly by each party at will, and the third
arbitrator to be selected by the two arbitrators so chosen. To the extent
permitted by the Rules of the American Arbitration Association, the selected
arbitrators may grant equitable relief. Each party shall pay the fees of the
arbitrator selected by him and of his own attorneys, and the expenses of his
witnesses and all other expenses connected with the presentation of his case.
The cost of the arbitration including the cost of the record or transcripts
thereof, if any, administrative fees, and all other fees and costs shall be
borne equally by the parties. To the extent that Officer prevails with respect
to any portion of an arbitration award, Officer shall be reimbursed by the
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Corporation for the costs and expenses incurred by Officer in connection with
the arbitration in an amount proportionate to the award to Officer as compared
to the amount in dispute.
6.9 SEVERABILITY. Should a court or other body of competent
jurisdiction determine that any provision of this Agreement is excessive in
scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, and all other provisions of this Agreement
shall be deemed valid and enforceable to the extent possible.
6.10 SURVIVAL OF CORPORATION'S OBLIGATIONS. Corporation's
obligations hereunder shall not be terminated by reason of any liquidation,
dissolution, bankruptcy, cessation of business, or similar event relating to the
Corporation. This Agreement shall not be terminated by any merger or
consolidation or other reorganization of the Corporation. In the event any such
merger, consolidation or reorganization shall be accomplished by transfer of
stock or by transfer of assets or otherwise, the provisions of this Agreement
shall be binding upon and inure to the benefit of the surviving or resulting
corporation or person. This Agreement shall be binding upon and inure to the
benefit of the executors, administrators, heirs, successors and assigns of the
parties; provided, however, that except as herein expressly provided, this
Agreement shall not be assignable either by the Corporation (except to an
affiliate of the Corporation in which event Corporation shall remain liable if
the affiliate fails to meet any obligations to make payments or provide benefits
or otherwise) or by Officer.
6.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
6.12 WITHHOLDINGS. All compensation and benefits to Officer
hereunder shall be reduced only by all federal, state, local and other
withholdings and similar taxes and payments that are required by applicable law.
Except as otherwise specifically agreed by Officer, no other offsets or
withholdings shall apply to reduce the payment of compensation and benefits
hereunder.
6.13 INDEMNIFICATION. In addition to any rights to indemnification
to which Officer is entitled to under the Corporation's Articles of
Incorporation and Bylaws, Corporation shall indemnify Officer at all times
during and after the term of this Agreement to the maximum extent permitted
under Section 2-418 of the General Corporation Law of the State of Maryland or
any successor provision thereof and any other applicable state law, and shall
pay Officer's expenses in defending any civil or criminal action, suit, or
proceeding in advance of the final disposition of such action, suit, or
proceeding, to the maximum extent permitted under such applicable state laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
CORPORATION:
HEALTHCARE REALTY TRUST INCORPORATED
By: /S/
------------------------------------------------
Name David R. Emery
Title: President and Chairman
Date: November 1, 1999
OFFICER:
/S/
---------------------------------------------------
Roger O. West
Date: November 1, 1999
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EXHIBIT 10.11
HEALTHCARE REALTY TRUST
INCORPORATED
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of January 1, 2000 ("Effective Date") by and between HEALTHCARE REALTY TRUST
INCORPORATED, a Maryland corporation ("Corporation"), and Timothy G. Wallace
("Officer").
RECITAL
Corporation desires to employ Officer as its Executive Vice President -
Chief Financial Officer and Officer is willing to accept such employment by
Corporation, on the terms and subject to the conditions set forth in this
Agreement.
AGREEMENT
THE PARTIES AGREE AS FOLLOWS:
1. DUTIES. During the term of this Agreement, Officer agrees to be
employed by and to serve Corporation as its Executive Vice President - Chief
Financial Officer, and Corporation agrees to employ and retain Officer in such
capacities. Officer shall devote such of his business time, energy, and skill to
the affairs of Corporation as shall be necessary to perform the duties of such
positions. Officer shall report only to Corporation's Board of Directors and/or
President and at all times during the term of this Agreement shall have powers
and duties at least commensurate with his position as Executive Vice President -
Chief Financial Officer. Officer's principal place of business with respect to
his services to Corporation shall be within 35 miles of Nashville, Tennessee.
2. TERM OF EMPLOYMENT.
2.1 DEFINITIONS. For purposes of this Agreement the following terms
shall have the following meanings:
(a) "TERMINATION FOR CAUSE" shall mean termination by
Corporation of Officer's employment by Corporation by reason of Officer's
material, substantial and willful dishonesty towards, fraud upon, or deliberate
injury or attempted injury to, Corporation or by reason of Officer's material,
substantial and willful breach of this Agreement which has resulted in material
injury to Corporation. For purposes of this Agreement, a termination of
Officer's employment with the Corporation shall be deemed a Termination Other
Than For Cause rather than a Termination For Cause unless and until established
by Corporation to the contrary by a final, nonappealable decision by a court of
competent jurisdiction. The Corporation shall have the burden of establishing
that any termination of Officer's employment by Corporation is a Termination For
Cause.
(b) "TERMINATION OTHER THAN FOR CAUSE" shall mean any
termination by Corporation of Officer's employment by Corporation (other than in
a Termination for Cause) and shall include Constructive Termination of Officer's
employment, effective upon notice from Officer to Corporation of such
Constructive Termination. A failure or refusal of Corporation to extend the term
of employment of Officer in accordance with Section 2.2 hereof, other than as a
result of circumstances which would warrant a Termination of Cause hereunder,
shall be deemed a Termination Other Than For Cause.
(c) "VOLUNTARY TERMINATION" shall mean termination by Officer of
Officer's employment by Corporation other than (i) Constructive Termination as
described in subsection 2.1(g), (ii)
<PAGE> 2
"Termination Upon a Change in Control," (iii) termination by reason of Officer's
death or disability as described in Sections 2.5 and 2.6 and (iv) termination by
reason of retirement by Officer upon attainment of eligibility to retire in
accordance with the Executive Retirement Plan as in effect upon the date of this
Agreement.
(d) "TERMINATION UPON A CHANGE IN CONTROL" shall mean a
termination by Officer of Officer's employment with Corporation within 24 months
following a "Change in Control."
(e) "CHANGE IN CONTROL" shall mean (i) the time that Corporation
first determines that any person and all other persons who constitute a group
(within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934
("Exchange Act")) have acquired direct or indirect beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act) of 20 percent or more of
Corporation's outstanding securities, unless a majority of the "Continuing
Directors" approves the acquisition not later than ten business days after
Corporation makes that determination, or (ii) the first day on which a majority
of the members of Corporation's Board of Directors are not "Continuing
Directors."
(f) "CONTINUING DIRECTORS" shall mean, as of any date of
determination, any member of the Board of Directors of Corporation who (i) was a
member of that Board of Directors on January l, 1993, (ii) has been a member of
that Board of Directors for the two years immediately preceding such date of
determination, or (iii) was nominated for election or elected to the Board of
Directors with the affirmative vote of the greater of (x) a majority of
Continuing Directors who were members of the Board at the time of such
nomination or election or (y) at least four Continuing Directors.
(g) "CONSTRUCTIVE TERMINATION" shall mean (i) any material
breach of this Agreement by Corporation; (ii) any actual or implied threat of
discharge of Officer by Corporation under circumstances which would not
constitute a Termination for Cause and which results in an involuntary
resignation of employment by Officer; (iii) any substantial reduction in the
authority or responsibility of Officer or other substantial reduction in the
terms and conditions of Officer's employment under circumstances which would not
justify a Termination for Cause and which are not the result of a material
breach by Officer of this Agreement; (iv) any act(s) by Corporation which are
designed or have the effect of rendering Officer's working conditions so
intolerable or demeaning on a recurring basis that a reasonable person would
resign such employment, (v) a material adverse alteration in Officer's reporting
relationships, position, responsibilities, title or status; (vi) a reduction in
Officer's compensation or a substantial reduction in benefits provided to
Officer that are provided for or referenced hereunder; (vii) relocation of
Officer to a location that is more than 35 miles from the location of the
Corporation's headquarters on the date this Agreement is executed.
(h) "DEFERRED COMPENSATION" or "deferred compensation" shall
mean any individual or group plan, program, agreement or other arrangement,
whether or not a "plan" for purposes of the Employee Retirement Income Security
Act of 1974 ("ERISA") and whether or not a retirement plan or supplemental
executive retirement plan or additional retirement plan as contemplated by
Section 3.11 of the Agreement, but which in any event involves an agreement by
the Corporation to make payment(s) to Officer at a future date as compensation
for current services to the Corporation. The term Deferred Compensation or
deferred compensation shall include, but not be limited to, benefits described
in the Healthcare Realty Trust Incorporated Executive Retirement Plan, the 1993
Employees Stock Incentive Plan and the First Performance Based Restricted Stock
Implementation under the 1993 Employees Stock Incentive Plan, or any additional
implementation thereof, each as it now exists or may hereafter be amended.
2.2 BASIC TERM. The term of employment of Officer by Corporation
shall be from January 1, 1999 through December 31, 2004, unless terminated
earlier pursuant to this Section 2. Commencing in 2000, on the first day of
January of each year, the first sentence of this Section 2.2 shall be amended by
deleting the year then appearing therein and inserting in its place the next
subsequent year.
2.3 TERMINATION FOR CAUSE. Termination For Cause may be effected by
Corporation at any time during the term of this Agreement and shall be effected
by written notification to Officer. Upon Termination For Cause, Officer
immediately shall be paid all accrued salary, bonus compensation to the extent
earned, vested
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deferred compensation (other than pension plan or profit sharing plan benefits
which will be paid in accordance with the applicable plan), any benefits under
any plans of the Corporation in which Officer is a participant to the full
extent of Officer's rights under such plans, accrued vacation pay and any
appropriate business expenses incurred by Officer in connection with his duties
hereunder, all to the date of termination, but Officer shall not be paid any
other compensation or reimbursement of any kind, including without limitation,
severance compensation.
2.4 TERMINATION OTHER THAN FOR CAUSE. Notwithstanding anything else
in this Agreement, Corporation may effect a Termination Other Than For Cause at
any time upon giving written notice to Officer of such termination. Upon any
Termination Other Than For Cause, Officer shall immediately be paid all accrued
salary, bonus compensation to the extent earned, whether or not vested without
regard to such Termination (other than pension plan or profit sharing plan
benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Corporation in which Officer is a participant to
the full extent of Officer's rights under such plans (including accelerated
release and full vesting of shares reserved for Officer under Corporation's 1993
Employees Stock Incentive Plan, and any implementation thereof), accrued
vacation pay and any appropriate business expenses incurred by Officer in
connection with his duties hereunder, all to the date of termination, and all
severance compensation provided in Section 4.2, but no other compensation or
reimbursement of any kind.
2.5 TERMINATION BY REASON OF DISABILITY. If, during the term of this
Agreement, Officer, in the reasonable judgment of the Board of Directors of
Corporation, has failed to perform his duties under this Agreement on account of
illness or physical or mental incapacity, and such illness or incapacity
continues for a period of more than 12 consecutive months, Corporation shall
have the right to terminate Officer's employment hereunder by written
notification to Officer and payment to Officer of all accrued salary, bonus
compensation to the extent earned, deferred compensation, whether or not vested
without regard to such illness or incapacity (other than pension plan or profit
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of the Corporation in which Officer is a
participant to the full extent of Officer's rights under such plans (including
accelerated release and full vesting of shares reserved for Officer under
Corporation's 1993 Employees Stock Incentive Plan, and any implementation
thereof), accrued vacation pay and any appropriate business expenses incurred by
Officer in connection with his duties hereunder, all to the date of termination,
with the exception of medical and dental benefits which shall continue through
the expiration of this Agreement, but Officer shall not be paid any other
compensation or reimbursement of any kind, including without limitation,
severance compensation. Notwithstanding the foregoing, any Officer who incurs a
Disability within the contemplation of the Executive Retirement Plan shall
accrue such additional post-disability, post-termination benefits as may be
determined in accordance with such Plan.
2.6 DEATH. In the event of Officer's death during the term of this
Agreement, Officer's employment shall be deemed to have terminated as of the
last day of the month during which his death occurs and Corporation shall pay to
his estate or such beneficiaries as Officer may from time to time designate all
accrued salary, bonus compensation to the extent earned, whether or not vested
without regard to such Termination (other than pension plan or profit sharing
plan benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Corporation in which Officer is a participant to
the full extent of Officer's rights under such plans (including accelerated
release and full vesting of shares reserved for Officer under the Corporation's
1993 Employees Stock Incentive Plan, and any implementation thereof), accrued
vacation pay and any appropriate business expenses incurred by Officer in
connection with his duties hereunder, all to the date of termination, but
Officer's estate shall not be paid any other compensation or reimbursement of
any kind, including without limitation, severance compensation.
2.7 VOLUNTARY TERMINATION. In the event of a Voluntary Termination,
Corporation shall immediately pay all accrued salary, bonus compensation to the
extent earned, vested deferred compensation (other than pension plan or profit
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of the Corporation in which Officer is a
participant to the full extent of Officer's rights under such plans, accrued
vacation pay and any appropriate business expenses incurred by Officer in
connection with his duties hereunder, all to the date of termination, but no
other compensation or reimbursement of any kind, including without limitation,
severance compensation.
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2.8 TERMINATION UPON A CHANGE IN CONTROL OR RETIREMENT. In the event
of (i) a Termination Upon a Change in Control or (ii) retirement by Officer upon
attainment of eligibility to retire in accordance with the Executive Retirement
Plan as in effect upon the date of this Agreement, Officer shall immediately be
paid all accrued salary, bonus compensation to the extent earned through the
date of termination, including compensation that was earned and deferred,
whether or not vested without regard to the Change in Control (other than
pension plan or profit sharing plan benefits which will be paid in accordance
with the applicable plan), any benefits under any plans of the Corporation in
which Officer is a participant to the full extent of Officer's rights under such
plans (including accelerated release and full vesting of shares reserved for
Officer under Corporation's 1993 Employees Stock Incentive Plan, and any
implementation thereof), accrued vacation pay and any appropriate business
expenses incurred by Officer in connection with his duties hereunder, all to the
date of termination, and all severance compensation provided in Section 4.1, but
no other compensation or reimbursement of any kind.
2.9 NOTICE OF TERMINATION. Corporation may effect a termination of
this Agreement pursuant to the provisions of this Section 2 upon giving 30 days
written notice to Officer of such termination. Officer may effect a termination
of this Agreement pursuant to the provisions of this Section 2 upon giving 60
days written notice to Corporation of such termination.
2.10 DETERMINATION OF BENEFIT UPON EARLY PAYMENT. In the event a
Participant's deferred compensation benefit becomes vested in accordance with
Sections 2.4, 2.5, 2.6 or 2.8, Officer shall have the following rights and
Corporation shall take appropriate action to amend or modify its compensation
arrangements in order to cause :
(a) any deferred compensation under the Corporation's 1993
Employees Stock Incentive Plan shall be effected by an immediate full vesting of
any awards granted to Officer under the Corporation's 1993 Employee Stock
Incentive Plan, and any implementation thereof; and an immediate release and
full vesting of awards that have been reserved by the Corporation for Officer
under the Corporation's 1993 Employee Stock Incentive Plan, and any
implementation thereof, or otherwise, such release and vesting to be made within
a reasonable time after the relevant event;
(b) any deferred compensation payable under a nonqualified
defined contribution plan shall be made available for payment within an
administratively practicable time after the relevant event, in an amount equal
to the then-current book account balance; and
(c) any deferred compensation payable under a nonqualified
defined benefit plan shall be made available for payment within an
administratively practicable time after the relevant event in an amount equal to
the greater of (i) the benefit, if any, otherwise determined in accordance with
the relevant plan, or (ii) the present value of the then-accrued benefit,
determined by reducing the accrued benefit from age 65 to the date as of which
payment is made, using the actuarial assumptions which have been used for
financial accounting purposes under generally accepted accounting principles.
3. SALARY, BENEFITS AND BONUS COMPENSATION.
3.1 BASE SALARY. As payment for the services to be rendered by
Officer as provided in Section 1 and subject to the terms and conditions of
Section 2, Corporation agrees to pay to Officer a "Base Salary" for the 12
calendar months beginning January 1, 1999 at the rate of $275,000 per annum
payable in 24 equal semi-monthly installments. The Base Salary for each year (or
portion thereof) beginning January 1, 2000 shall be determined by the
Compensation Committee of the Board of Directors (the "Compensation Committee")
which shall authorize an increase in Officer's Base Salary in an amount which,
at a minimum, shall be equal to the cumulative cost-of-living increment on the
Base Salary as reported in the "Consumer Price Index, Nashville, Tennessee, All
Items," published by the U.S. Department of Labor. Officer's Base Salary shall
be reviewed annually by the Compensation Committee.
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3.2 BONUSES. Officer shall be eligible to receive a bonus for each
year (or portion thereof) during the term of this Agreement and any extensions
thereof, with the actual amount of any such bonus to be determined by the
Compensation Committee in accordance with the Corporation's Executive Variable
Incentive Plan. All such bonuses shall be payable within 45 days after the end
of the year to which such bonus relates. All such bonuses shall be reviewed
annually by the Compensation Committee.
3.3 ADDITIONAL BENEFITS. During the term of this Agreement, Officer
shall be entitled to the following fringe benefits:
(a) OFFICER BENEFITS. Officer shall be eligible to participate
in such of Corporation's benefits and deferred compensation plans as are now
generally available or later made generally available to executive officers of
the Corporation, including, without limitation, Corporation's 1993 Employees
Stock Incentive Plan, and any implementation thereof,, profit sharing plans,
annual physical examinations, dental and medical plans, personal catastrophe and
disability insurance, financial planning, retirement plans and supplementary
executive retirement plans, if any. For purposes of establishing the length of
service under any benefit plans or programs of Corporation, Officer's employment
with the Corporation will be deemed to have commenced on January 1, 1993.
(b) VACATION. Officer shall be entitled to six weeks of vacation
during each year during the term of this Agreement and any extensions thereof,
prorated for partial years.
(c) LIFE INSURANCE. For the term of this Agreement and any
extensions thereof, Corporation shall at its expense procure and keep in effect
term life insurance on the life of Officer, payable to such beneficiaries as
Officer may from time to time designate, in the aggregate amount of
$1,500,000.00. Such policy shall be owned by Officer or by a member of his
immediate family.
(d) REIMBURSEMENT FOR EXPENSES. During the term of this
Agreement, Corporation shall reimburse Officer for reasonable and properly
documented out-of-pocket business and/or entertainment expenses incurred by
Officer in connection with his duties under this Agreement.
4. SEVERANCE COMPENSATION.
4.1 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION UPON A
CHANGE IN CONTROL. In the event Officer's employment is terminated in a
Termination Upon a Change in Control, Officer shall be paid as severance
compensation his Base Salary (at the rate payable at the time of such
termination), through the remaining term of this Agreement and any extensions
thereof, on the dates specified in Section 3.1; provided, however, that if
Officer is employed by a new employer during such period, the severance
compensation payable to Officer during such period will be reduced by the amount
of compensation that Officer is receiving from the new employer. However,
Officer is under no obligation to mitigate the amount owed Officer pursuant to
this Section 4.1 by seeking other employment or otherwise. Notwithstanding
anything in this Section 4.1 to the contrary, Officer may in Officer's sole
discretion, by delivery of a notice to Corporation within 30 days following a
Termination Upon a Change in Control, elect to receive from Corporation a lump
sum severance payment by bank cashier's check equal to the present value of the
flow of cash payments that would otherwise be paid to Officer pursuant to this
Section 4.1. However, in no event shall payment pursuant to this Section 4.1 be
less than three times Base Salary as defined herein for the applicable period.
Such present value shall be determined as of the date of delivery of the notice
of election by Officer and shall be based on a discount rate equal to the
interest rate on 90-day U.S. Treasury bills, as reported in the Wall Street
Journal (or similar publication), on the date of delivery of the election
notice. If Officer elects to receive a lump sum severance payment, Corporation
shall make such payment to Officer within 10 days following the date on which
Officer notifies Corporation of Officer's election. In addition to the severance
payment payable under this Section 4.1, Officer shall be paid an amount equal
to: (i) three times the average annual bonus earned by Officer in the two years
immediately preceding the date of termination, and (ii) the average annual
incentive amount actually earned by Officer during the two years prior to the
severance. Officer
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shall also receive (i) full vesting of any awards granted to Officer under the
Corporation's 1993 Employees Stock Incentive Plan, and any implementation
thereof; and (ii) an immediate release of awards that have been reserved by the
Corporation for Officer under the Corporation's 1993 Employees Stock Incentive
Plan, and any implementation thereof, or otherwise, and full vesting of such
awards. Officer shall continue to accrue retirement benefits and shall continue
to enjoy any benefits under any plans of the Corporation in which Officer is a
participant to the full extent of Officer's rights under such plans, including
any perquisites provided under this Agreement, through the remaining term of
this Agreement; provided, however, that the benefits under any such plans of the
Corporation in which Officer is a participant, including any such perquisites,
shall cease upon re-employment by a new employer.
4.2 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION OTHER THAN
FOR CAUSE. In the event Officer's employment is terminated in a Termination
Other Than for Cause, Officer shall be paid as severance compensation his Base
Salary (at the rate payable at the time of such termination), for a period of
three years from the date of such termination, on the dates specified in Section
3.1; provided, however, that if Officer is employed by a new employer during
such period, the severance compensation payable to Officer during such period
will be reduced by the amount of compensation that Officer is receiving from the
new employer. Notwithstanding anything in this Section 4.2 to the contrary,
Officer may in Officer's sole discretion, by delivery of a notice to Corporation
within 30 days following a Termination Other Than for Cause, elect to receive
from Corporation a lump sum severance payment by bank cashier's check equal to
the present value of the flow of cash payments that would otherwise be paid to
Officer pursuant to this Section 4.2. However, in no event shall payment
pursuant to this Section 4.2 be less than three times Base Salary as defined
herein for the applicable period. Such present value shall be determined as of
the date of delivery of the notice of election by Officer and shall be based on
a discount rate equal to the interest rate on 90-day U.S. Treasury bills, as
reported in the Wall Street Journal (or similar publication), on the date of
delivery of the election notice. If Officer elects to receive a lump sum
severance payment, Corporation shall make such payment to Officer within ten
days following the date on which Officer notifies Corporation of Officer's
election. In addition to the severance payment payable under this Section 4.2,
Officer shall be paid an amount equal to two times the average annual bonus
earned by Officer in the two years immediately preceding the date of termination
and Officer shall also receive (i) full vesting of any awards granted to Officer
under Corporation's 1993 Employees Stock Incentive Plan, and any implementation
thereof; and (ii) an immediate release of awards that have been reserved for
Officer under the Corporation's 1993 Employees Stock Incentive Plan, and any
implementation thereof, or otherwise, and full vesting of such awards. Officer
shall be entitled to accelerated vesting of any Accrued Benefit under each
Deferred Compensation plan. Notwithstanding the foregoing, continued benefit
accrual shall not apply in the case of any tax-qualified retirement plan if such
accrual would adversely affect the tax-qualified status of such plan; provided,
however, that the benefit which would otherwise have been contributed by the
Corporation to the account of the Officer in any tax-qualified defined
contribution and the single sum value of the benefit plan shall be paid by the
Corporation to the Officer as each such contribution or benefit would have been
made or accrued, as applicable, assuming that the Officer had remained employed
on a full-time basis with a rate of pay equal to his Base Salary. In the case of
a Termination Other Than for Cause by reason of the disability of the
Participant, and if the Participant is retired for Disability under the
Executive Retirement Plan, then the Officer will continue to accrue benefits as
provided in the Executive Retirement Plan at the time he incurs his Disability,
notwithstanding any subsequent nonsubstantial employment.
4.3 NO SEVERANCE COMPENSATION UPON OTHER TERMINATION. In the event
of a Voluntary Termination, Termination For Cause, termination by reason of
Officer's disability pursuant to Section 2.5, or termination by reason of
Officer's death pursuant to Section 2.6, Officer or his estate shall not be paid
any severance compensation and shall receive only the benefits as provided in
the appropriate section of Article II applicable to the respective termination.
4.4 ADDITIONAL PAYMENTS DUE TO CHANGE IN CONTROL.
(a) Gross Up Payment. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by or on behalf of the Corporation to or for the benefit of
Employee as a result of a "change in control," as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), involving the
Corporation or its affiliates (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional
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payments required under this Section 4.4 (a "Payment")) would be subject to the
excise tax imposed by Section 4999 of the Code, or any interest or penalties are
incurred by Officer with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then Officer shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by Officer
of all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, Officer retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
(b) Tax Opinion. Subject to the provisions of Section 4.4(c),
all determinations required to be made under this Section 4.4, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by a nationally recognized accounting firm or law firm selected by the
Corporation (the "Tax Firm"); provided, however, that the Tax Firm shall not
determine that no Excise Tax is payable by Officer unless it delivers to Officer
a written opinion (the "Tax Opinion") that failure to pay the Excise Tax and to
report the Excise Tax and the payments potentially subject thereto on or with
Officer's applicable federal income tax return will not result in the imposition
of an accuracy-related or other penalty on Officer. All fees and expenses of the
Tax Firm shall be borne solely by the Corporation. Within 15 business days of
the receipt of notice from Officer that there has been a Payment, or such
earlier time as is requested by the Corporation, the Tax Firm shall make all
determinations required under this Section 4.4, shall provide to the Corporation
and Officer a written report setting forth such determinations, together with
detailed supporting calculations, and, if the Tax Firm determines that no Excise
Tax is payable, shall deliver the Tax Opinion to Officer. Any Gross-Up Payment,
as determined pursuant to this Section 4.4, shall be paid by the Corporation to
Officer within fifteen days of the receipt of the Tax Firm's determination.
Subject to the remainder of this Section 4.4, any determination by the Tax Firm
shall be binding upon the Corporation and Officer; provided, however, that
Officer shall only be bound to the extent that the determinations of the Tax
Firm hereunder, including the determinations made in the Tax Opinion, are
reasonable and reasonably supported by applicable law. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Tax Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Corporation should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that it is ultimately determined in accordance with the
procedures set forth in Section 4.4(c) that Officer is required to make a
payment of any Excise Tax, the Tax Firm shall reasonably determine the amount of
the Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Corporation to or for the benefit of Officer. In determining the
reasonableness of Tax Firm's determinations hereunder, and the effect thereof,
Officer shall be provided a reasonable opportunity to review such determinations
with Tax Firm and Officer's tax counsel. Tax Firm's determinations hereunder,
and the Tax Opinion, shall not be deemed reasonable until Officer's reasonable
objections and comments thereto have been satisfactorily accommodated by Tax
Firm.
(c) Notice of IRS Claim. Officer shall notify the Corporation in
writing of any claims by the Internal Revenue Service that, if successful, would
require the payment by the Corporation of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than 30 calendar
days after Officer actually receives notice in writing of such claim and shall
apprise the Corporation of the nature of such claim and the date on which such
claim is requested to be paid; provided, however, that the failure of Officer to
notify the Corporation of such claim (or to provide any required information
with respect thereto) shall not affect any rights granted to Officer under this
Section 4.4 except to the extent that the Corporation is materially prejudiced
in the defense of such claim as a direct result of such failure. Officer shall
not pay such claim prior to the expiration of the 30-day period following the
date on which he gives such notice to the Corporation (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Corporation notifies Officer in writing prior to the expiration of such
period that it desires to contest such claim, Officer shall do all of the
following:
I. give the Corporation any information reasonably requested by
the Corporation relating to such claim;
II. take such action in connection with contesting such claim as
the Corporation shall reasonably request in writing from time
to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
selected by the Corporation and reasonably acceptable to
Officer;
7
<PAGE> 8
III. cooperate with the Corporation in good faith in order
effectively to contest such claim;
IV. if the Corporation elects not to assume and control the
defense of such claim, permit the Corporation to participate
in any proceedings relating to such claim;
provided, however, that the Corporation shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold Officer harmless, on
an after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of this
Section 4.4, the Corporation shall have the right, at its sole option, to assume
the defense of and control all proceedings in connection with such contest, in
which case it may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may either direct Officer to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and Officer agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Corporation shall determine; provided, however, that if the Corporation directs
Officer to pay such claim and sue for a refund, the Corporation shall advance
the amount of such payment to Officer, on an interest-free basis and shall
indemnify and hold Officer harmless, on an after-tax basis, from any Excise Tax
or income tax (including interest or penalties with respect thereto) imposed
with respect to such advance or with respect to any imputed income with respect
to such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of Officer with
respect to which such contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, the Corporation's right to assume the
defense of and control the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and Officer shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) Right to Tax Refund. If, after the receipt by Officer of an
amount advanced by the Corporation pursuant to Section 4.4, Officer becomes
entitled to receive any refund with respect to such claim, Officer shall
(subject to the Corporation's complying with the requirements of Section 4.4(c))
promptly pay to the Corporation the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by Officer of an amount advanced by the Corporation pursuant to Section
4.4(c), a determination is made that Officer is not entitled to a refund with
respect to such claim and the Corporation does not notify Officer in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall, to the extent of such denial,
be forgiven and shall not be required to be repaid and the amount of forgiven
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
5. NON-COMPETITION; DISCLOSURE OF INVESTMENTS. During the term of this
Agreement, including the period, if any, during which Officer shall be entitled
to severance compensation pursuant to Section 4.2, Officer shall not engage in
any activity competitive with the Corporation. Simultaneously with Officer's
execution of this Agreement and upon each anniversary of the Effective Date,
Officer shall notify the Chairman of the Compensation Committee of the nature
and extent of Officer's investments, stock holdings, employment as an employee,
director, or any similar interest in any business or enterprise other than
Corporation; provided, however, that Officer shall have no obligation to
disclose any investment under $100,000 in value or any holdings of publicly
traded securities which are not in excess of one percent of the outstanding
class of such securities. Notwithstanding any provision herein to the contrary,
the restrictions and covenants of this Section 5 shall not apply in the event of
a Termination Upon a Change in Control.
6. MISCELLANEOUS.
6.1 Payment Obligations. Corporation's obligation to pay Officer the
compensation and to make the arrangements provided herein shall be
unconditional, and Officer shall have no obligation whatsoever to mitigate
damages hereunder. If litigation after a Change in Control shall be brought to
enforce or interpret any provision contained herein, Corporation, to the extent
permitted by applicable law and the Corporation's Articles of Incorporation and
Bylaws, hereby indemnifies Officer for Officer's reasonable attorneys' fees and
disbursements incurred in such litigation.
8
<PAGE> 9
6.2 CONFIDENTIALITY. Officer agrees that all confidential and
proprietary information relating to the business of Corporation shall be kept
and treated as confidential both during and after the term of this Agreement,
except as may be permitted in writing by Corporation's Board of Directors or as
such information is within the public domain or comes within the public domain
without any breach of this Agreement.
6.3 WAIVER. The waiver of the breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of the same or other provision hereof.
6.4 ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise provided
herein, this Agreement represents the entire understanding among the parties
with respect to the subject matter hereof, and this Agreement supersedes any and
all prior understandings, agreements, plans and negotiations, whether written or
oral, with respect to the subject matter hereof, including without limitation,
any understandings, agreements or obligations respecting any past or future
compensation, bonuses, reimbursements or other payments to Officer from
Corporation. All modifications to the Agreement must be in writing and signed by
the party against whom enforcement of such modification is sought.
6.5 NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by telegraph or first class
mail, certified or registered with return receipt requested, and shall be deemed
to have been duly given three days after mailing or 12 hours after transmission
of a telegram to the respective persons named below:
If to Corporation:
Healthcare Realty Trust Incorporated
3310 West End Avenue
Nashville, Tennessee 37203
Phone: (615) 269-8175
Fax: (615) 269-8122
If to Officer:
Mr. Timothy G. Wallace
424 Maplewood Drive
Franklin, Tennessee 37064
Any party may change such party's address for notices by notice duly give
pursuant to this Section 6.5.
6.6 HEADINGS. The Section headings herein are intended for reference
and shall not by themselves determine the construction or interpretation of this
Agreement.
6.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Tennessee.
6.8 ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement, or breach thereof, shall be settled by arbitration in
Nashville, Tennessee in accordance with the Rules of the American Arbitration
Association, and judgment upon any proper award rendered by the Arbitrators may
be entered in any court having jurisdiction thereof. There shall be three
arbitrators, one to be chosen directly by each party at will, and the third
arbitrator to be selected by the two arbitrators so chosen. To the extent
permitted by the Rules of the American Arbitration Association, the selected
arbitrators may grant equitable relief. Each party shall pay the fees of the
arbitrator selected by him and of his own attorneys, and the expenses of his
witnesses and all other expenses connected with the presentation of his case.
The cost of the arbitration including the cost of the record or transcripts
thereof, if any, administrative fees, and all other fees and costs shall be
borne equally by the parties. To the extent that Officer prevails with respect
to any portion of an arbitration award, Officer shall be reimbursed by the
9
<PAGE> 10
Corporation for the costs and expenses incurred by Officer in connection with
the arbitration in an amount proportionate to the award to Officer as compared
to the amount in dispute.
6.9 SEVERABILITY. Should a court or other body of competent
jurisdiction determine that any provision of this Agreement is excessive in
scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, and all other provisions of this Agreement
shall be deemed valid and enforceable to the extent possible.
6.10 SURVIVAL OF CORPORATION'S OBLIGATIONS. Corporation's
obligations hereunder shall not be terminated by reason of any liquidation,
dissolution, bankruptcy, cessation of business, or similar event relating to the
Corporation. This Agreement shall not be terminated by any merger or
consolidation or other reorganization of the Corporation. In the event any such
merger, consolidation or reorganization shall be accomplished by transfer of
stock or by transfer of assets or otherwise, the provisions of this Agreement
shall be binding upon and inure to the benefit of the surviving or resulting
corporation or person. This Agreement shall be binding upon and inure to the
benefit of the executors, administrators, heirs, successors and assigns of the
parties; provided, however, that except as herein expressly provided, this
Agreement shall not be assignable either by the Corporation (except to an
affiliate of the Corporation in which event Corporation shall remain liable if
the affiliate fails to meet any obligations to make payments or provide benefits
or otherwise) or by Officer.
6.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
Agreement.
6.12 WITHHOLDINGS. All compensation and benefits to Officer
hereunder shall be reduced only by all federal, state, local and other
withholdings and similar taxes and payments that are required by applicable law.
Except as otherwise specifically agreed by Officer, no other offsets or
withholdings shall apply to reduce the payment of compensation and benefits
hereunder.
6.13 INDEMNIFICATION. In addition to any rights to indemnification
to which Officer is entitled to under the Corporation's Articles of
Incorporation and Bylaws, Corporation shall indemnify Officer at all times
during and after the term of this Agreement to the maximum extent permitted
under Section 2-418 of the General Corporation Law of the State of Maryland or
any successor provision thereof and any other applicable state law, and shall
pay Officer's expenses in defending any civil or criminal action, suit, or
proceeding in advance of the final disposition of such action, suit, or
proceeding, to the maximum extent permitted under such applicable state laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
CORPORATION:
HEALTHCARE REALTY TRUST INCORPORATED
By: /S/
------------------------------------------------
Name: David R. Emery
Title: President and Chairman
Date: November 1, 1999
OFFICER:
By: /S/
------------------------------------------------
Timothy G. Wallace
Date: November 1, 1999
10
<PAGE> 1
EXHIBIT 10.15
AMENDMENT NO. 2
TERM LOAN CREDIT AGREEMENT
THIS AMENDMENT NO. 2 dated as of January 14, 2000 (the "Amendment") to
the Term Loan Credit Agreement referenced below, is by and among HEALTHCARE
REALTY TRUST INCORPORATED, a Maryland corporation, and CAPSTONE CAPITAL
CORPORATION, a Maryland corporation, as Borrowers, the banks identified therein
and BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A.), as
Administrative Agent. Terms used but not otherwise defined shall have the
meaning provided in the Term Loan Credit Agreement.
WITNESSETH
WHEREAS, a $200 million term loan facility, consisting of a $187.4
million Tranche A Term Loan to Healthcare Realty Trust Incorporated ("HRT") and
a $12.6 million Tranche B Term Loan to Capstone Capital Corporation ("CCT", and
together with HRT, the "Borrowers"), was established pursuant to the terms of
that Credit Agreement dated as of October 15, 1998 (as amended and modified, the
"Term Loan Credit Agreement") among HRT and CCT, as Borrowers, the banks
identified therein, and NationsBank, N.A., (now known as Bank of America, N.A.),
as Administrative Agent;
WHEREAS, approximately $113,700,000 remains outstanding on the Tranche
A Term Loan and the Tranche B Term Loan has been paid;
WHEREAS, HRT has requested extension of the Tranche A Term Loan and
certain other modifications to the Term Loan Credit Agreement;
WHEREAS, the Banks have agreed to the requested extension and
modifications on the terms and conditions set forth herein;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The Term Loan Credit Agreement is amended and modified in the
following respects:
1.1 The Tranche A Maturity Date is extended to April 14, 2000.
1.2 The definition of "Applicable Percentage" in Section 1.1 of the
Term Loan Credit Agreement is amended to read as follows:
"Applicable Percentage" means, for any day, a per
annum rate equal to (a) in the case of Eurodollar Loans, 2.00%
and (b) in the case of Base Rate Loans, 1.00%.
2. The parties hereto agree that if on March 14, 2000 Bank of America,
N.A. holds more than $25 million of the aggregate principal amount of the
Tranche A Term Loan, then (a) the Applicable Percentage for Eurodollar Loans
shall be increased to 2.50% and (b) the Applicable Percentage for Base Rate
Loans shall be increased to 1.50%, in each case, on and from such date.
3. This Amendment shall be effective upon execution hereof by the Banks
and the Borrowers.
<PAGE> 2
4. HRT covenants and agrees that, within five (5) days following the
date of this Amendment, it will pay to the Agent, for the ratable benefit of the
Banks holding the Tranche A Term Loan, an extension fee of 25 basis points
(0.25%) on the outstanding principal balance of the Tranche A Term Loan as of
the date of this Amendment.
5. HRT will deliver to the Agent on or before January 31, 2000
certified copies of resolutions and other documentation evidencing approval of
the transactions contemplated in this Amendment and a legal opinion of counsel
for the Borrowers, in form reasonably satisfactory to the Agent and the Banks,
and including, among other things, enforceability of this Amendment.
6. Except as modified hereby, all of the terms and provisions of the
Term Loan Credit Agreement (including schedules and exhibits) shall remain in
full force and effect.
7. The Borrowers agree to pay all reasonable costs and expenses of the
Agent in connection with the preparation, execution and delivery of this
Amendment, including the reasonable fees and expenses of Moore & Van Allen,
PLLC.
8. This Amendment may be executed in any number of counterparts, each
of which when so executed and delivered shall be deemed an original, and it
shall not be necessary in making proof of this Amendment to produce or account
for more than one such counterpart.
9. This Amendment shall be governed by and construed in accordance with
the laws of the State of North Carolina.
[Remainder of Page Intentionally Left Blank]
2
<PAGE> 3
IN WITNESS WHEREOF, each of the undersigned parties has caused this
Amendment to be executed as of the day and year first above written.
BORROWERS: HEALTHCARE REALTY TRUST INCORPORATED,
a Maryland corporation
By: /S/
------------------------------------------------
Name: Roger O. West
Title: Executive Vice President
AGENT: BANK OF AMERICA, N.A. (formerly known as
NationsBank, N.A.), as Agent under the Term Loan
Credit Agreement
By: /S/
------------------------------------------------
Name: Ashley M. Crabtree
Title: Managing Director
BANKS: BANK OF AMERICA, N.A. (formerly known as
NationsBank, N.A.)
By: /S/
------------------------------------------------
Name: Ashley M. Crabtree
Title: Managing Director
Title:
3
<PAGE> 4
ACKNOWLEDGED & AGREED:
GUARANTORS: DURHAM MEDICAL OFFICE BUILDING, INC.,
a Texas corporation
HEALTHCARE REALTY SERVICES INCORPORATED,
an Alabama corporation
HR ASSETS, INC., a Texas corporation
FIR CAPITAL, INC., a Texas corporation
HR FUNDING, INC., a Texas corporation
HR INTERESTS, INC., a Texas corporation
HR OF TEXAS, INC., a Maryland corporation
HRT OF ALABAMA, INC., an Alabama corporation
HRT OF DELAWARE, INC., a Delaware corporation
HRT OF FLORIDA, INC., a Florida corporation
HRT OF ROANOKE, INC. a Virginia corporation
HRT OF TENNESSEE, INC., a Tennessee corporation
HRT OF VIRGINIA, INC., a Virginia corporation
PENNSYLVANIA HRT, INC., a Pennsylvania corporation
HR of SAN ANTONIO, INC., a Texas corporation
By: /S/
------------------------------------------------
Name: Roger O. West
Title: Executive Vice President
for each of the foregoing subsidiaries
PASADENA MEDICAL PLAZA SSJ, LTD.,
a Florida limited partnership
By: Healthcare Realty Trust Incorporated,
a Maryland corporation
By: /S/
------------------------------------------------
Name: Roger O. West
Title: Executive Vice President
SAN ANTONIO SSP, LTD., a Texas limited partnership
By: HR of San Antonio, Inc., a Texas corporation, as General
Partner
By: /S/
------------------------------------------------
Name: Roger O. West
Title: Executive Vice President
HR ACQUISITION I CORPORATION,
f/k/a Capstone Capital Corporation,
a Maryland corporation
CAPSTONE CAPITAL OF ALABAMA, INC.,
an Alabama corporation
4
<PAGE> 5
CAPSTONE-CAPITAL OF BAYTOWN, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF BONITA BAY, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF CALIFORNIA, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF CAPE CORAL, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF KENTUCKY, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF LAS VEGAS, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF LOS ANGELES, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF MASSACHUSETTS, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF OCOEE, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF PENNSYLVANIA, INC.,
a Pennsylvania corporation
CAPSTONE CAPITAL OF PORT ORANGE, INC.,
an Alabama corporation
CAPSTONE CAPITAL PROPERTIES, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF SARASOTA, INC.,
an Alabama corporation
CAPSTONE CAPITAL SENIOR HOUSING, INC.,
an Alabama corporation
CAPSTONE CAPITAL OF TEXAS, INC
an Alabama corporation
CAPSTONE CAPITAL OF VIRGINIA, INC.,
an Alabama corporation
By: /S/
------------------------------------------------
Name: Roger O. West
Title: Executive Vice President
for each of the foregoing subsidiaries of HR Acquisition I
Corporation;
CAPSTONE OF BONITA BAY, LTD., an Alabama
limited partnership
By: CAPSTONE CAPITAL OF BONITA BAY, INC., an Alabama
corporation, as General Partner
By: /S/
------------------------------------------------
Name: Roger O. West
Title: Executive Vice President
5
<PAGE> 6
CAPSTONE OF CAPE CORAL, LTD., an Alabama limited partnership
By: CAPSTONE CAPITAL OF CAPE CORAL. INC..
an Alabama corporation, as General Partner
By: /S/
------------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAPSTONE OF LAS VEGAS, LTD., an Alabama limited partnership
BY: CAPSTONE CAPITAL OF LAS VEGAS, INC.,
an Alabama corporation, as General Partner
By: /S/
------------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAPSTONE OF LOS ANGELES, LTD., an Alabama
limited partnership
By: CAPSTONE CAPITAL OF LOS ANGELES, INC., an Alabama
Corporation, as General Partner
By: /S/
------------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAPSTONE OF OCOEE, LTD., an Alabama limited partnership
By: CAPSTONE CAPITAL OF OCOEE, INC., an Alabama corporation,
as General Partner
By: /S/
------------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAPSTONE OF PORT ORANGE, LTD., an Alabama
limited partnership
By: CAPSTONE CAPITAL OF PORT ORANGE, INC.,
an Alabama corporation, as General Partner
By: /S/
------------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAPSTONE CAPITAL OF SAN ANTONIO, LTD.,
an Alabama limited partnership
By: CAPSTONE CAPITAL OF TEXAS, INC., an Alabama corporation,
as General Partner
By: /S/
------------------------------------------------
Name: Roger O. West
Title: Executive Vice President
6
<PAGE> 7
CAPSTONE OF SARASOTA, LTD., an Alabama limited partnership
By: CAPSTONE CAPITAL OF SARASOTA, INC.,
an Alabama corporation, as General Partner
By: /S/
------------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAPSTONE OF VIRGINIA LIMITED PARTNERSHIP, an
Alabama limited partnership
BY CAPSTONE CAPITAL OF VIRGINIA, INC., an Alabama
corporation, as General Partner
By: /S/
------------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAP-BAY IV, LTD., an Alabama limited partnership
BY: CAPSTONE CAPITAL SENIOR HOUSING, INC., an
Alabama corporation, as General Partner
By: /S/
------------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAP-BAY V, LTD., an Alabama limited partnership
By: CAPSTONE CAPITAL SENIOR HOUSING, INC., an
Alabama corporation, as General Partner
By: /S/
------------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAP-BAY VII, LTD., an Alabama limited
partnership
By: CAPSTONE CAPITAL SENIOR HOUSING, INC.,
an Alabama corporation, as General Partner
By: /S/
------------------------------------------------
Name: Roger O. West
Title: Executive Vice President
CAP-BAY VIII, LTD., an Alabama limited
partnership
By: CAPSTONE CAPITAL SENIOR HOUSING, INC.,
an Alabama Corporation, as General Partner
By: /S/
------------------------------------------------
Name: Roger O. West
Title: Executive Vice President
7
<PAGE> 1
EXHIBIT 13
Annual Report to Shareholders
<PAGE> 2
EXHIBIT 13
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,
---------------------------------------------------------------------------
1999 1998 (2) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues $ 187,257 $ 92,429 $ 59,796 $ 38,574 $ 33,361
Interest expense $ 38,603 $ 13,057 $ 7,969 $ 7,344 $ 5,083
Net income $ 86,027 $ 40,479 $ 31,212 $ 19,732 $ 18,258
Net income per share - Basic $ 2.02 $ 1.66 $ 1.71 $ 1.52 $ 1.41
Net income per share - Diluted $ 1.99 $ 1.63 $ 1.68 $ 1.49 $ 1.41
Weighted average shares outstanding - Basic 39,326,594 24,043,942 18,222,243 13,014,286 12,931,082
Weighted average shares outstanding - Diluted 39,810,306 24,524,600 18,572,492 13,261,291 12,970,326
BALANCE SHEET DATA (AS OF THE END OF THE PERIOD):
Real estate properties, net $ 1,315,150 $ 1,337,439 $ 466,273 $ 416,034 $ 318,480
Total assets $ 1,607,964 $ 1,612,423 $ 488,514 $ 427,505 $ 336,778
Notes and bonds payable $ 563,884 $ 559,924 $ 101,300 $ 168,618 $ 92,970
Total stockholders' equity $ 1,017,903 $ 1,017,704 $ 376,472 $ 245,964 $ 234,448
OTHER DATA:
Funds from operations - Basic (1) $ 105,727 $ 59,667 $ 42,337 $ 28,036 $ 25,490
Funds from operations - Diluted (1) $ 105,727 $ 59,731 $ 42,337 $ 28,036 $ 25,490
Funds from operations per share - Basic (1) $ 2.69 $ 2.48 $ 2.32 $ 2.15 $ 1.97
Funds from operations per share - Diluted (1) $ 2.66 $ 2.44 $ 2.28 $ 2.11 $ 1.97
Dividends declared and paid per share $ 2.15 $ 2.07 $ 1.99 $ 1.91 $ 1.83
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) See Note 11 to Consolidated Financial Statements.
(2) See Note 2 to Consolidated Financial Statements.
<PAGE> 3
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
1999 Compared to 1998
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>
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>
<CAPTION>
<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>
The results of operations of the Company have been significantly
affected by the Capstone merger. As a result of this transaction in 1998, the
Company acquired 111 properties and 75 mortgages with a fair value of $804.2
million and $211.6 million, respectively. The merger was effective October 15,
1998; therefore, 1998 consolidated revenues and expenses of the Company reflect
the effect of the Capstone assets acquired and liabilities assumed for only 2.5
months in 1998 versus the entire year for 1999. The Capstone investments, along
with commitments acquired in the merger, resulted in additional master lease
rent, straight line rent and property operating income, net of operating
expenses, for the year ended December 31, 1999, of $73.5 million, a $59.0
million or 407.1% increase from 1998. Mortgage interest income in 1999
resulting from these Capstone investments was $24.2 million, a $20.4 million or
543.3% increase from 1998. Interest and other income attributed to the Capstone
acquisition for the years ended 1999 and 1998 was $1.4 million and $0.4
million, respectively, a 286.2% increase. Depreciation and amortization expense
for the year ended December 31, 1999 attributed to the Capstone acquisition was
$24.8 million compared to $2.9 million in 1998, a $21.9 million or 739.0%
increase.
For the year ended December 31, 1999, net income was $86.0 million, or
$2.02 per basic share of common stock ($1.99 per diluted share), on total
revenues of $187.3 million compared to net income of $40.5 million, or $1.66
per basic share of common stock ($1.63 per diluted share), on total revenues of
$92.4 million, for the year ended December 31, 1998. Funds from operations
("FFO") was $105.7 million, or $2.69 per basic share ($2.66 per diluted share),
for the year ended December 31, 1999 compared to $59.7 million, or $2.48 per
basic share ($2.44 per diluted share), in 1998.
<PAGE> 4
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Master lease rental income $ 92,070 $ 47,512
Property operating income 57,778 35,269
Straight line rent 6,885 1,265
---------------------------
Total rental income 156,733 84,046
Mortgage interest income 26,254 5,120
Management fees 2,727 2,056
Interest and other income 1,543 1,207
---------------------------
187,257 92,429
---------------------------
EXPENSES
General and administrative 7,287 11,126
Property operating expenses 21,077 11,978
Interest 38,603 13,057
Depreciation 38,566 15,965
Amortization 473 499
---------------------------
106,006 52,625
---------------------------
Net income before net gain on real estate disposals 81,251 39,804
Net gain on real estate disposals 4,776 675
---------------------------
Net income $ 86,027 $ 40,479
===========================
</TABLE>
Total revenues for the year ended December 31, 1999 compared to the
year ended December 31, 1998, increased $94.8 million or 102.6%.
Master lease rent, straight line rent and property operating income
increased $72.7 million or 86.5%. Excluding the effect of the Capstone merger,
master lease rent, straight line rent and property operating income increased
$4.8 million or 7.0%. During 1999, the Company acquired two revenue-producing
properties, and 11 properties under construction were completed and began
operations.
Mortgage interest income increased $21.1 million or 412.8% for the
year ended December 31, 1999 compared to 1998 substantially due to the Capstone
merger.
Interest and other income for the year ended December 31, 1999 was
$1.5 million compared to $1.2 million for the year ended December 31, 1998.
Excluding the effect of the Capstone merger, interest and other income
decreased $0.7 million from 1998 to 1999. In 1998, the Company recognized
development fee income from a third party project of $0.5 million, and the
Company's average cash balance was higher in 1998 resulting in more interest
income for the year.
Third party management fees for the year ended December 31, 1999
compared to 1998 increased $0.7 million or 32.6% due primarily to the addition
of over 50 buildings with approximately 0.9 million square feet under property
management.
Total expenses for the year ended December 31, 1999 were $106.0
million compared to $52.6 million for 1998, an increase of $53.4 million or
101.4%.
Interest expense for the year ended December 31, 1999, compared to
1998, increased $25.5 million or 195.6%. In conjunction with the Capstone
merger in 1998, the Company repaid the outstanding balances under both
Capstone's and its own unsecured credit facilities and entered into a $265.0
million unsecured credit facility and a $200.0 million unsecured term loan. The
average outstanding balances under its credit facilities and term loan for the
year ended 1999 compared to 1998 was $368.1 million and $82.3 million,
respectively, increasing interest expense in 1999 by approximately $18.6
million. The subordinated convertible debentures and mortgage notes payable
assumed by the Company in the Capstone merger resulted in an increase of $8.6
million in interest expense for the year ended December 31, 1999, compared to
1998. These increases to interest expense discussed above were offset by
decreases to interest expense due to an increase in capitalized interest of
$0.5 million from 1998 to 1999 and a decrease of $1.3 million to interest
expense on the Company's unsecured notes due to scheduled repayments.
Depreciation expense increased $22.6 million due substantially to the
properties acquired in the Capstone merger. Excluding the effect of the
Capstone merger, depreciation expense increased $0.8 million, resulting
primarily from the acquisition of 11 properties during 1998 and 1999.
Property operating expenses for the year ended December 31, 1999,
compared to 1998, increased $9.1 million or 76.0% due mainly to the properties
acquired in the Capstone merger.
General and administrative expenses decreased $3.8 million or 34.5%
for the year ended December 31, 1999, compared to 1998. During 1998, the
Company recognized a $6.3 million write-off for certain capitalized software
costs, leasehold improvements, organization and other deferred costs which were
deemed to have no continuing value
<PAGE> 5
and for incremental internal costs incurred in conjunction with the Capstone
merger. After consideration of the write-off, the net $2.5 million increase was
primarily due to the increased number of employees for property management,
development, and other service-based activities, an increase and expansion of
the corporate office lease, and the write-off of certain project costs during
1999.
During 1999, the Company sold five facilities and one partnership
interest in a facility resulting in net gains of $4.8 million, while the
Company's 1998 dispositions resulted in net gains of $0.7 million.
1998 Compared to 1997
The results of operations of the Company were significantly affected
by the Capstone merger. For the year ended December 31, 1998, net income
increased approximately $12.3 million due to the Capstone merger. As a result
of this transaction, the Company acquired 111 properties and 75 mortgages with
a fair value of $804.2 million and $211.6 million, respectively. These
investments resulted in additional master lease rent, straight line rent,
mortgage interest income and property operating income, net of operating
expenses, for the year of $18.2 million, as well as, additional interest and
other income of $0.4 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 $92.4 million compared to net income of $31.2 million, or $1.71 per
basic share of common stock ($1.68 per diluted share), on total revenues of
$59.8 million, for the year ended December 31, 1997. Funds from operation 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>
REVENUES
Master lease rental income $ 47,512 $ 40,298
Property operating income 35,269 14,631
Straight line rent 1,265 0
---------------------------
Total rental income 84,046 54,929
Mortgage interest income 5,120 84
Management fees 2,056 1,499
Interest and other income 1,207 3,284
---------------------------
92,429 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 before net gain on real estate disposals 39,804 31,212
Net gain on real estate disposals 675 0
---------------------------
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 $32.6 million or 54.6%. Excluding the
effect of the Capstone merger, total revenues for the year ended December 31,
1998 compared to the year ended December 31, 1997 increased $12.9 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.
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
$1.2 million compared to $3.3 million for the year ended December 31, 1997.
Excluding the effect of the Capstone merger, interest and other income
<PAGE> 6
decreased $2.4 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 its own 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.
During 1998, the Company sold one facility and a tract of land
resulting in net gains of $0.7 million.
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 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. At December 31, 1999, the Company had available borrowing capacity
of $13.0 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 (now
Bank of America). The Term Loan Facility, as amended, bears interest at LIBOR
plus 2.00%, payable quarterly, and matures on April 14, 2000. Effective January
14, 2000, the Company amended its Term Loan Facility agreement with Bank of
America. If the balance on the Term Loan Facility exceeds $25.0 million on
March 14, 2000, the interest rate will increase to LIBOR plus 2.50%. Since the
Capstone merger, the Company has received proceeds from the sale of assets and
from mortgage prepayments and reduced the unpaid balance of the Term Loan
Facility from $200.0 million to $113.7 million.
In 1995, the Company privately placed $90.0 million of unsecured notes
(the "Unsecured Notes") bearing interest at 7.41%, payable semi-annually ($3.6
million for 2000), that mature on September 1, 2002. The Company must repay
$18.0 million of principal annually. At December 31, 1999, $54.0 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 $78.2 million at December 31, 1999. In 2000, 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, 2000, the Company can issue an aggregate of
approximately $123.8 million of securities remaining under the currently
effective registration statement. Due to the current market price of the
Company's stock, the Company does not presently plan to offer stock under its
registration statement. 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, debt securities, but the availability and terms of any
such issuance will depend upon market and other conditions.
<PAGE> 7
The Company generated net cash from operations in 1999 of $91.8
million, an increase of $70.0 million from 1998 and $51.4 million from 1997.
The increase from 1998 results primarily from the increase in net income. The
decrease in 1998 from 1997 resulted 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.
As of December 31, 1999, the Company had an investment of
approximately $20.0 million in six build-to-suit developments in progress,
which have a total remaining funding commitment of approximately $37.6 million.
Further, the Company had commitments to purchase or provide funding for the
construction of other properties totaling $12.4 million at December 31, 1999.
The Company also had six mortgages under development at December 31, 1999,
which have a total remaining funding commitment of approximately $1.9 million.
The Company intends to fund these commitments with internally generated cash
flow, proceeds from the sale of additional assets, proceeds from additional
prepayments of mortgage notes receivable, and additional capital market
financing.
At December 31, 1999, the Company had stockholders' equity of $1.0
billion. The debt to total capitalization ratio was approximately .352 to 1 at
January 31, 2000.
On January 25, 2000, the Company declared an increase in its quarterly
common stock dividend from $.545 per share ($2.18 annualized) to $.55 per share
($2.20 annualized) payable to stockholders of record on February 4, 2000. This
dividend was paid on February 16, 2000. 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 2000 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 beyond 2000.
During 2000, 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
any increases in the property operating expenses or taxes would significantly
impact the operating results of the Company 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 2000, 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 cash flows, the proceeds of mortgage loan
repayments, sales of real estate investments and mortgage notes receivable, and
capital market financings. The Company is presently negotiating additional
capital market financing, the proceeds of which are expected to repay the Term
Loan Facility, the Unsecured Credit Facility and to fund other general
corporate purposes. 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 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 one to 23 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.
<PAGE> 8
Year 2000 Issue
During 1999, the Company completed its remediation and testing of
systems in connection with the Year 2000 issue. As a result of these efforts,
the Company experienced no disruptions or malfunctions at any of its
properties. The Company incurred costs of less than $50,000 in connection with
testing and remediation for the Year 2000 issue.
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, 1999 and 1998, the fair value of the Company's
variable rate debt approximates its carrying value of $365.7 million and $350.2
million, respectively. By definition, because the interest rate is variable,
the carrying amount of variable rate debt will always approximate its fair
value. Assuming the December 31, 1999 and 1998 carrying value of $365.7 million
and $350.2 million, respectively, is held constant, the hypothetical increase
in interest expense resulting from a one percentage point increase in interest
rates, would be $3.7 million and $3.5 million, respectively. The interest rate
on variable rate debt is based on and variable with European interbank interest
rates (LIBOR).
At December 31, 1999 and 1998, the carrying value of the Company's
fixed rate debt is $198.2 million and $209.7 million, respectively, and the
fair value of the Company's fixed rate debt is approximately $190.9 million and
$209.7 million, respectively. The fair value is based on the present value of
future cash flows discounted at the market rate of interest. Market risk,
expressed as the hypothetical increase in fair value resulting from a one
percentage point increase in interest rates, is $4.1 million and $7.2 million,
respectively, for aggregate fixed rate debt.
At December 31, 1999 and 1998, the carrying value of the Company's
fixed rate mortgage notes receivable is $253.5 million and $237.6 million,
respectively, and the fair value is approximately $232.1 million and $237.6
million, respectively. The fair value is based on the present value of future
cash flows discounted at an assumed market rate of interest. Because no market
rates of interest are published for these assets, the market rate of interest
is assumed to be the same spread to U.S. Treasury yields for comparable
maturities that existed when the mortgage notes receivable were acquired in the
Capstone merger on October 15, 1998, adjusted to published U.S. Treasury
yields. Market risk, at December 31, 1999 and 1998, expressed as the
hypothetical decrease in fair value resulting from a one percentage point
increase in interest rates, is $10.6 million and $10.7 million, respectively,
on the aggregate portfolio of fixed rate 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 Item 1 of the Company's Form 10-K for the fiscal
year ended December 31, 1999.
<PAGE> 9
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, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1999. 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 auditing standards
generally accepted in the United States. 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, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young, LLP
Nashville, Tennessee
January 25, 2000
<PAGE> 10
Consolidated
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------------
(Dollars in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real estate properties:
Land $ 150,591 $ 140,617
Buildings and improvements 1,223,387 1,169,941
Personal property 5,165 4,825
Construction in progress 20,003 72,172
-----------------------------------
1,399,146 1,387,555
Less accumulated depreciation (83,996) (50,116)
-----------------------------------
Total real estate properties, net 1,315,150 1,337,439
Cash and cash equivalents 3,396 12,710
Restricted cash 990 1,701
Mortgage notes receivable 253,459 237,617
Other assets, net 34,969 22,956
-----------------------------------
Total assets $ 1,607,964 $ 1,612,423
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes and bonds payable $ 563,884 $ 559,924
Accounts payable and accrued liabilities 17,658 22,824
Other liabilities 8,519 11,971
-----------------------------------
Total liabilities 590,061 594,719
-----------------------------------
Commitments -- --
Stockholders' equity:
Preferred stock, $.01 par value; 50,000,000 shares authorized;
issued and outstanding 1999 and 1998 - 3,000,000 30 30
Common stock, $.01 par value; 150,000,000 shares authorized;
issued and outstanding 1999 - 40,004,579; 1998 - 39,792,775 400 398
Additional paid-in capital 1,054,405 1,049,039
Deferred compensation (9,509) (10,662)
Cumulative net income 215,373 129,346
Cumulative dividends (242,796) (150,447)
-----------------------------------
Total stockholders' equity 1,017,903 1,017,704
-----------------------------------
Total liabilities and stockholders' equity $ 1,607,964 $ 1,612,423
===================================
</TABLE>
See accompanying notes.
<PAGE> 11
Consolidated
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
(Dollars in thousands, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Master lease rental income $ 92,070 $ 47,512 $ 40,298
Property operating income 57,778 35,269 14,631
Straight line rent 6,885 1,265 0
Mortgage interest income 26,254 5,120 84
Management fees 2,727 2,056 1,499
Interest and other income 1,543 1,207 3,284
-----------------------------------------
187,257 92,429 59,796
-----------------------------------------
EXPENSES
General and administrative 7,287 11,126 3,807
Property operating expenses 21,077 11,978 5,008
Interest 38,603 13,057 7,969
Depreciation 38,566 15,965 11,468
Amortization 473 499 332
-----------------------------------------
106,006 52,625 28,584
-----------------------------------------
Net income before net gain on
real estate disposals 81,251 39,804 31,212
Net gain on real estate disposals 4,776 675 0
-----------------------------------------
Net income $ 86,027 $ 40,479 $ 31,212
=========================================
Net income per share - Basic $ 2.02 $ 1.66 $ 1.71
=========================================
Net income per share - Diluted $ 1.99 $ 1.63 $ 1.68
=========================================
Shares outstanding - Basic 39,326,594 24,043,942 18,222,243
=========================================
Shares outstanding - Diluted 39,810,306 24,524,600 18,572,492
=========================================
</TABLE>
See accompanying notes.
<PAGE> 12
Consolidated
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Cumulative Total
(Dollars in thousands, Preferred Common Paid-In Deferred Net Cumulative Stockholders'
except per share data) Stock Stock Capital Compensation Income Dividends Equity
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Issuance of common stock -- 2 5,345 -- -- -- 5,347
Shares awarded as deferred
stock compensation -- -- 21 (21) -- -- --
Deferred stock compensation
amortization -- -- -- 1,174 -- -- 1,174
Net income -- -- -- -- 86,027 -- 86,027
Dividends - common
($2.15 per share) -- -- -- -- -- (85,693) (85,693)
Dividends - preferred
($2.22 per share) -- -- -- -- -- (6,656) (6,656)
-------------------------------------------------------------------------------------------
Balance at December 31, 1999 $30 $400 $1,054,405 $ (9,509) $215,373 $(242,796) $1,017,903
===========================================================================================
</TABLE>
See accompanying notes.
<PAGE> 13
Consolidated Statements of
CASH FLOWS
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 86,027 $ 40,479 $ 31,212
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 41,225 17,122 12,073
Deferred compensation 1,153 1,247 672
Increase (decrease) in deferred income (743) (907) 114
Decrease in other liabilities (749) (2,474) --
Increase in other assets (17,638) (7,957) (2,346)
Decrease in accounts payable and accrued liabilities (5,781) (27,133) (1,340)
Increase in straight line rent (6,885) (1,265) --
Charge to operations -- 3,373 --
Gain on sales of real estate (4,776) (675) --
--------------------------------------
Net cash provided by operating activities 91,833 21,810 40,385
--------------------------------------
INVESTING ACTIVITIES
Acquisition and development of real estate properties (55,664) (94,066) (61,813)
Acquisition and development of mortgages (27,475) (27,851) (4,708)
Proceeds from mortgage repayments 18,749 8,522 --
Proceeds from sale of real estate 46,929 11,895 --
Receipt (disbursement) of security deposits (481) 134 (976)
Purchase of Capstone, net of cash acquired -- 5,437 --
--------------------------------------
Net cash used in investing activities (17,942) (95,929) (67,497)
--------------------------------------
FINANCING ACTIVITIES
Borrowings on notes and bonds payable 125,200 425,000 35,300
Repayments on notes and bonds payable (121,608) (338,689) (102,618)
Decrease in notes receivable 350 451 --
Dividends paid (92,349) (42,941) (35,764)
Proceeds from issuance of common stock 5,202 37,683 134,165
--------------------------------------
Net cash provided by (used in) financing activities (83,205) 81,504 31,083
--------------------------------------
Increase (decrease) in cash and cash equivalents (9,314) 7,385 3,971
Cash and cash equivalents, beginning of period 12,710 5,325 1,354
--------------------------------------
Cash and cash equivalents, end of period $ 3,396 $ 12,710 $ 5,325
======================================
</TABLE>
See accompanying notes.
<PAGE> 14
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, 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, 1999, the Company had invested or committed to invest in 285
properties and mortgages located in 34 states, affiliated with 74
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 included 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>
<CAPTION>
<S> <C>
Buildings and improvements 31.5 or 39.0 years
Personal property 3.0 to 7.0 years
</TABLE>
Restricted Cash
Restricted cash includes security deposits and other funds set aside
for capital expenditures on certain investments of the Company.
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 5.9 years. Interest rates, which range from 8% to 13%, are
generally adjustable each year to reflect actual increases in the Consumer
Price Index subject to a minimum increase of 4% of the current interest rate.
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 $2.0 million and $1.1
million at December 31, 1999 and 1998, respectively.
<PAGE> 15
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.
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
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 properties and mortgages throughout the
United States.
Reclassification
Certain reclassifications have been made in the financial statements
for the years ended 1998 and 1997 to conform to the 1999 presentation. These
reclassifications had no effect on the results of operations as previously
reported.
2. CAPSTONE MERGER
On October 15, 1998, the Company acquired Capstone Capital Corporation
("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 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
============
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 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):
<PAGE> 16
<TABLE>
<CAPTION>
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 2000 to 2023. 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, 1999 were (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
Healthsouth $ 24,060 $ 4,727 $ 0
Columbia/HCA Healthcare Corporation 23,211 17,125 13,899
Tenet Healthcare 17,942 13,713 13,297
Phycor 9,228 8,899 8,218
</TABLE>
Future minimum lease and guaranty payments under the noncancelable
operating leases and financial support arrangements as of December 31, 1999 are
as follows (in thousands):
<TABLE>
<S> <C>
2000 $ 143,330
2001 141,504
2002 139,479
2003 138,986
2004 143,082
2005 and thereafter 735,816
------------
$ 1,442,197
</TABLE>
<PAGE> 17
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, 1999 (dollars in thousands).
<TABLE>
<CAPTION>
NUMBER OF BUILDINGS AND
FACILITIES IMPROVEMENTS PERSONAL ACCUMULATED
(1) LAND AND CIP PROPERTY TOTAL DEPRECIATION
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ANCILLARY HOSPITAL FACILITIES:
Alabama 6 $ 5,792 $ 37,173 $ 0 $ 42,965 $ 1,405
California 9 18,375 60,556 44 78,975 6,374
Florida 12 6,042 90,627 122 96,791 7,540
Texas 11 8,989 62,760 276 72,025 8,674
Virginia 9 13,832 65,429 94 79,355 5,533
Other states 13 10,545 102,710 67 113,322 6,794
--------------------------------------------------------------------------------------
60 63,575 419,255 603 483,433 36,320
SKILLED NURSING FACILITIES:
Michigan 5 193 12,338 183 12,714 2,507
Virginia 5 1,060 22,589 0 23,649 836
Colorado 3 2,886 23,522 0 26,408 1,662
Pennsylvania 3 479 20,138 0 20,617 748
Tennessee 2 228 8,107 0 8,335 537
Texas 2 1,795 17,671 0 19,466 1,340
Other states 7 4,625 39,124 32 43,781 4,001
--------------------------------------------------------------------------------------
27 11,266 143,489 215 154,970 11,631
PHYSICIAN CLINICS:
Florida 10 12,260 43,905 51 56,216 3,816
Virginia 6 621 3,188 0 3,809 244
Maine 5 4,284 26,502 0 30,786 979
Tennessee 5 2,943 7,728 0 10,671 347
Texas 2 5,796 15,581 20 21,397 1,238
Other states 8 4,674 40,733 1 45,408 1,767
--------------------------------------------------------------------------------------
36 30,578 137,637 72 168,287 8,391
COMPREHENSIVE AMBULATORY CARE
CENTERS:
Florida 6 2,593 36,637 0 39,230 1,437
Texas 2 1,643 20,008 69 21,720 3,351
Other states 5 9,196 54,595 7 63,798 1,746
--------------------------------------------------------------------------------------
13 13,432 111,240 76 124,748 6,534
AMBULATORY SURGERY CENTERS:
Florida 1 2,200 3,944 0 6,144 8
Missouri 1 1,686 3,621 0 5,307 132
Nevada 1 940 2,861 0 3,801 400
Texas 1 510 1,514 15 2,039 330
Other states 3 558 3,494 9 4,061 286
--------------------------------------------------------------------------------------
7 5,894 15,434 24 21,352 1,156
INPATIENT REHABILITATION FACILITIES
Alabama 1 0 17,722 0 17,722 562
Florida 1 0 11,703 0 11,703 372
Pennsylvania 6 4,718 107,529 0 112,247 3,780
Texas 1 1,117 11,800 0 12,917 436
--------------------------------------------------------------------------------------
9 5,835 148,754 0 154,589 5,150
ASSISTED LIVING FACILITIES:
Florida 3 1,171 18,957 0 20,128 78
Missouri 4 206 5,909 0 6,115 219
Pennsylvania 7 1,490 28,908 0 30,398 991
Texas 8 0 70,824 0 70,824 2,603
Virginia 3 889 15,846 0 16,735 586
Other states 7 2,899 43,635 0 46,534 1,437
--------------------------------------------------------------------------------------
32 6,655 184,079 0 190,734 5,914
OTHER:
Arizona 1 582 2,952 0 3,534 96
Florida 2 911 3,843 0 4,754 147
Missouri 1 2,040 8,857 0 10,897 343
Texas 3 1,667 14,361 441 16,469 1,913
Virginia 6 2,385 26,314 129 28,828 1,831
Other states 5 5,771 27,173 38 32,982 2,851
--------------------------------------------------------------------------------------
18 13,356 83,500 608 97,464 7,181
Corporate property 0 0 2 3,567 3,569 1,719
--------------------------------------------------------------------------------------
Total property 202 $ 150,591 $ 1,243,390 $ 5,165 $ 1,399,146 $ 83,996
======================================================================================
</TABLE>
(1) Includes 6 lessee developments.
<PAGE> 18
5. NOTES AND BONDS PAYABLE
Notes and bonds payable at December 31, 1999 and 1998 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Unsecured credit facility $ 252,000 $ 171,000
Term loan facility 113,700 179,200
Unsecured notes 54,000 72,000
6.55% convertible subordinated debentures, net 73,836 73,219
10.50% convertible subordinated debentures, net 3,573 3,823
Mortgage notes payable 59,775 60,682
Other note payable 7,000 --
------------------------------
$ 563,884 $ 559,924
==============================
</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, 1999, the Company had available borrowing capacity
of $13.0 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 Bank of America (formerly NationsBank). Effective January 14, 2000, the
Company amended its Term Loan Facility agreement with Bank of America. The Term
Loan Facility, as amended, bears interest at LIBOR plus 2.00%, payable
quarterly, and matures on April 14, 2000. If the balance on the Term Loan
Facility exceeds $25.0 million on March 14, 2000, the interest rate will
increase to LIBOR plus 2.50%. 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, 1999, 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,
1999, the Company had approximately $73.8 million aggregate principal amount of
6.55% Debentures outstanding with a face amount of $74.7 million and unaccreted
discount of $0.9 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.
Also, as part of the Capstone merger, the Company assumed and recorded
at fair value $3.8 million aggregate face amount of 10.5% Convertible
Subordinated Debentures (the "10.5% Debentures") of Capstone. At December 31,
1999, the Company had approximately $3.6 million aggregate principal amount of
10.5% Debentures outstanding with a face amount of $3.4 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
<PAGE> 19
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.
Mortgage Notes
As part of the Capstone merger, the Company assumed six nonrecourse
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 1999 1999
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Life Insurance Co. $ 23.3 8.500% Ancillary hospital facility $ 41.2 $ 22.6
Life Insurance Co. 4.7 7.625% Ancillary hospital facility 10.4 4.4
Life Insurance Co. 17.1 8.125% Two Ambulatory surgery centers 35.7 16.6
& one ancillary hospital facility
Bank 17.0 8.500% Six skilled nursing facilities 28.8 16.2
------------------------------------------------------------------------------------------------
$ 62.1 $116.1 $ 59.8
================================================================================================
</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 Notes
On July 31, 1999, the Company entered into a $7.0 million note with a
commercial institution. The note bears interest at 7.53%, is payable in equal
semi-annual installments of principal and interest and fully amortizes in July
2005.
Other Long-Term Debt Information
Future maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
2000 $ 149,092
2001 271,653
2002 98,075
2003 1,971
2004 17,061
2005 and thereafter 26,032
------------
$ 563,884
============
</TABLE>
During the years ended December 31, 1999, 1998 and the 1997, interest
paid totaled $41.5 million, $11.1 million and $9.0 million, and capitalized
interest totaled $1.9 million, $1.4 million and $0.7 million, respectively.
6. STOCKHOLDERS' EQUITY
The Company had common and preferred shares outstanding as of the
three years ended December 31, 1999 as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Common Shares
Balance, beginning of period 39,792,775 19,285,927 13,898,777
Issuance of stock 210,754 20,226,981 5,235,761
Shares awarded as deferred stock compensation 1,050 148,357 143,716
Shares issued from warrants -- 131,510 7,673
--------------------------------------------------
Balance, end of period 40,004,579 39,792,775 19,285,927
==================================================
Preferred Shares
Balance, beginning of period 3,000,000 -- --
Issuance of stock -- 3,000,000 --
--------------------------------------------------
Balance, end of period 3,000,000 3,000,000 --
==================================================
</TABLE>
<PAGE> 20
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, par value $.01 per share, in a stock-for-stock merger with Capstone
Capital Corporation (see Note 2). Upon dissolution of the Company, the
preferred stock is senior to common stock with respect to dividend rights and
rights upon dissolution. Holders of preferred stock are entitled to receive
cumulative preferential cash dividends of 8 7/8 % per annum of the liquidation
preference of $25.00 per share payable quarterly, in arrears. Preferred stock
is not redeemable prior to September 30, 2002. On or after September 2002, the
Company, at its option, may redeem preferred stock, in whole or in part, at any
time or from time to time, at the redemption price. The holder of each share of
preferred stock has one vote, together with the holders of common stock, on all
matters on which stockholders may vote.
In July 1998, warrants for 128,149 shares of common stock were
exercised. At December 31, 1999 and 1998, the Company has no 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 Company's previous
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 $71.9 million of indebtedness outstanding under the
Company's previous 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 were invested in additional
property acquisitions, build-to-suit property development and for general
corporate purposes.
7. 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 executives' 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.
Retirement Plan Information
Net expense for both the Executive Retirement Plan and the Retirement
Plan for Outside Directors (the "Plans") for the two years ended December 31,
1999 is comprised of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service cost $ 233 $ 775
Interest cost 141 103
Other (27) 10
-------------------------------
$ 347 $ 888
===============================
</TABLE>
<PAGE> 21
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,
1999 and 1998 (in thousands).
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Benefit obligation at beginning of year $ 2,553 $ 1,213
Service cost 233 775
Interest cost 141 103
Other (27) 10
Actuarial gain (loss) (576) 452
-------------------------------
Benefit obligation at end of year 2,324 2,553
Unrecognized net actuarial (gain) loss 214 (362)
-------------------------------
Net pension liability in accrued liabilities $ 2,538 $ 2,191
===============================
</TABLE>
Accounting for the Executive Retirement Plan for the years ended
December 31, 1999 and 1998 assumes discount rates of 8.03% and 7.04%,
respectively, and a compensation increase rate of 2.7%. Accounting for the
Retirement Plan for Outside Directors assumes discount rates of 8.03% and
7.04%, respectively.
8. 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,
1999 and 1998, the Company had a total of 2,480,326 and 2,464,441 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, 1999 and 1998, the Company had issued a total of 520,017 and 520,017, and
had specifically reserved, but not issued, a total of 445,000 and 445,000
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 1999 and 1998,
compensation expense resulting from the amortization of the value of these
shares was $1.1 million and $1.2 million, respectively.
Non-Employee Directors' Stock Plan
Pursuant to 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, 1999 and 1998, the Company had a total of 94,750
and 95,800 authorized shares under the 1995 Directors' Plan, respectively, that
had not been issued. As of December 31, 1999 and 1998, the Company had issued a
total of 14,523 and 13,473 shares, respectively, pursuant to the 1995
Directors' Plan. For 1999 and 1998, compensation expense resulting from the
amortization of the value of these shares was $30,943 and $89,792 respectively.
1995 Employee Stock Purchase Plan
As of December 31, 1999 and 1998, the Company had a total of 772,819
and 851,232 shares authorized under the 1995 Employee Stock Purchase Plan (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. The Employee Purchase Plan
results in no compensation expense to the Company.
A summary of Employee Purchase Plan activity and related information
for the years ended December 31 is as follows:
<PAGE> 22
<TABLE>
<CAPTION>
All Options
-------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, beginning of year 85,716 65,573 71,073
Granted 144,886 74,472 69,930
Exercised (5,524) (12,289) (40,631)
Forfeited (37,775) (31,799) (23,723)
Expired (28,698) (10,241) (11,076)
-------------------------------------------------------
Outstanding and exercisable at end of year 158,605 85,716 65,573
Weighted-average fair value of options granted during the year
(calculated as of the grant date) $ 0.76 $ 5.94 $ 3.12
Weighted-average exercise price of options exercised during the year $ 18.00 $ 20.69 $ 19.48
Weighted-average exercise price of options outstanding (calculated as
of December 31) $ 22.57 $ 19.10 $ 21.58
Range of exercise prices of options outstanding (calculated as of
December 31) $ 19.52-$23.76 $ 18.43-$19.52 $ 19.71-$22.47
Weighted-average contractual life of outstanding options (calculated
as of December 31, in years) 1.0 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
1999, 1998 and 1997; risk-free interest rates of 6.24%, 5.00% and 6.00%; a
dividend yield of 9.87%, 7.13% and 8.02%; a volatility factor of the expected
market price of the Company's Common Stock of .178, .139 and .096; and an
expected life of the option of 1.13 years, respectively.
The pro forma effect on net income and earnings per share for the
three years in the period ended December 31, 1999, calculated in accordance
with Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" is as follows (dollars in thousands, except for per
share data):
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C>
Proforma net income $ 85,917 $ 40,037 $ 30,994
Proforma earnings per share
Basic $ 2.02 $ 1.64 $ 1.70
Assuming dilution $ 1.99 $ 1.61 $ 1.67
</TABLE>
The Company is proposing a 2000 Employee Stock Purchase Plan which
will be voted on at the Company's annual shareholders' meeting in May 2000.
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. As of December 31, 1998, all
Warrants had either been exercised or cancelled.
At December 31, 1999 and 1998, the Company had authorized 3,347,895
and 3,430,112 shares, respectively, for future issuance under stock plans.
The Company has revised its discretionary bonus incentive plan to
include restricted stock as part of bonuses for employees in management
positions. These restricted stock shares will vest over periods ranging from
three to five years. If an employee terminates employment with the Company
before the end of the vesting period, the shares are forfeited at no cost to
the Company. The Company's first bonus under this plan was issued March 1,
2000.
9. 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, 1999.
<PAGE> 23
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC EPS
Average Shares Outstanding 39,857,587 24,573,885 18,605,876
Actual Restricted Stock Shares (530,993) (529,943) (383,633)
-------------------------------------------------------
Denominator - Basic 39,326,594 24,043,942 18,222,243
=======================================================
Net Income $ 86,026,559 $ 40,478,407 $ 31,312,289
Preferred Stock Dividend (6,655,726) (554,688) 0
-------------------------------------------------------
Numerator - Basic $ 79,370,833 $ 39,923,719 $ 31,212,289
=======================================================
Per share amount $ 2.02 $ 1.66 $ 1.71
=======================================================
DILUTED EPS
Average Shares Outstanding 39,857,587 24,573,885 18,605,876
Actual Restricted Stock Shares (530,993) (529,943) (383,633)
Dilution for Convertible Debentures 0 40,017 0
Restricted Shares - Treasury 482,496 405,235 276,890
Dilution For Employee Stock Purchase Plan 1,216 15,597 25,032
Dilution for Warrants 0 19,809 48,327
-------------------------------------------------------
Denominator - Diluted 39,810,306 24,524,600 18,572,492
=======================================================
Numerator - Basic $ 79,370,833 $ 39,923,719 $ 31,212,289
Convertible Subordinated Debenture Interest 0 63,638 0
-------------------------------------------------------
Numerator - Diluted $ 79,370,833 $ 39,987,357 $ 31,212,289
=======================================================
Per share amount $ 1.99 $ 1.63 $ 1.68
=======================================================
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
As of December 31, 1999, the Company had a net investment of
approximately $20.0 million in six build-to-suit developments in progress,
which have a total remaining funding commitment of approximately $37.6 million.
Further, the Company has commitments to purchase or provide funding for the
construction of other properties totaling $12.4 million at December 31, 1999.
The Company also has six mortgages under development at December 31, 1999,
which have a total remaining funding commitment of approximately $1.9 million.
As 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 agreements are met. Upon issuance, these shares are valued at
$28.0714 per share, the valuation as of the date of the Capstone merger. The
Company issued 150,000 shares during 1999 pursuant to these agreements.
On March 22, 1999, HR Acquisition I Corporation, formerly known as
Capstone Capital Corporation ("HRT"), a wholly-owned subsidiary of the Company,
filed suit against Medistar Corporation and its affiliate, Medix Construction
Company in United States District Court for the Northern District of Alabama,
Southern Division. HRT is seeking damages in excess of two million dollars
arising out of the development and construction of four real estate projects
located in different parts of the United States. Medistar and Medix served as
the developer and contractor, respectively, for the projects. HRT has asserted
claims for damages relating to, among others, alleged breaches of the
development and contracting obligations, failure to perform in accordance with
contract terms and specifications, and other deficiencies in performance by
Medistar and Medix. On June 10, 1999, Medistar and Medix filed its answer and
counterclaim asserting a variety of alleged legal theories, claims for damages
for alleged deficiencies by HRT and the Company in the performance of alleged
obligations, and for damage to their business reputation. Attempts at mediation
have not resulted in a settlement of the disputes. The Company's prosecution of
its claims and defense of the counterclaims will be vigorous. While the Company
cannot predict the range of possible loss or outcome, the Company believes
that, even though the asserted cross claims seek substantial monetary damages,
the allegations made by Medistar and Medix are not factually or legally
meritorious, are subject to sustainable defenses and are, to a significant
extent, covered by liability insurance.
<PAGE> 24
11. 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 except per share data) 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME (1) $ 86,027 $ 40,479
NON-RECURRING ITEMS (2) 0 6,308
GAIN OR LOSS ON DISPOSITIONS (3) (4,776) (675)
STRAIGHT LINE RENTS (6,885) (1,264)
PREFERRED STOCK DIVIDEND (6,656) (555)
DEPRECIATION
Real estate 38,017 15,374
Office F, F & E 0 0
Leasehold improvements 0 0
Other non-revenue producing assets 0 0
--------------------------------
38,017 15,374
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 19,700 19,188
--------------------------------
Funds From Operations - Basic $ 105,727 $ 59,667
================================
Convertible Subordinated Debenture Interest 0 64
================================
Funds From Operations - Diluted $ 105,727 $ 59,731
================================
Shares Outstanding - Basic 39,326,594 24,043,942
================================
Shares Outstanding - Diluted 39,810,306 24,524,600
================================
Funds From Operations Per Share - Basic $ 2.69 $ 2.48
================================
Funds From Operations Per Share - Diluted $ 2.66 $ 2.44
================================
</TABLE>
(1) 1999 and 1998 amounts include $1.2 million and $1.3 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.
(3) Represents net gains from sales of real estate properties.
Return of Capital
Distributions in excess of earnings and profits generally constitute a
return of capital. For the years ended December 31, 1999, 1998 and 1997,
dividends paid per share of common stock were $2.15, $2.07 and $1.99,
respectively, which consisted of ordinary income per share of $2.00, $2.07 and
$1.72 and return of capital per share of $0.15, $0.00 and $0.27 respectively.
For the years ended December 31, 1999 and 1998, dividends paid per share of
preferred stock were $2.22 and $0.46, respectively, all of which was ordinary
income.
<PAGE> 25
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, receivables and payables are a
reasonable estimate of their fair value at December 31, 1999 and 1998 due to
their short term nature. The fair value of notes and bonds payable is estimated
using cash flow analyses at December 31, 1999 and 1998, based on the Company's
current interest rates for similar types of borrowing arrangements. The
carrying amount of the Company's notes and bonds payable at December 31, 1999
is approximately $7.3 million greater than the fair value. The carrying amount
of the Company's mortgage notes receivable at December 31, 1999 is
approximately $21.4 million greater than the fair value. The fair value is
based on the present value of future cash flows discounted at an assumed market
rate of interest. Because no market rates of interest are published for these
assets, the market rate of interest is assumed to be the same spread to U.S.
Treasury yields for comparable maturities that existed when the mortgage notes
receivable were acquired in the Capstone merger on October 15, 1998, adjusted
to published U.S. Treasury yields. At December 31, 1998, the carrying value of
notes and bonds payable and mortgage notes receivable approximated fair value.
13. SUBSEQUENT EVENTS
On January 25, 2000, the Company declared an increase in its quarterly
common stock dividend from $.545 per share ($2.18 annualized) to $.55 per share
($2.20 annualized) payable on February 16, 2000 to shareholders of record on
February 4, 2000. The Company also announced its quarterly preferred stock
dividend of $.55469 per share ($2.22 annualized) payable on February 29, 2000
to shareholders of record on February 4, 2000.
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial information includes certain reclassifications to
conform to the December 31, 1999 presentation. This information for the years
ended December 31, 1999 and 1998 is summarized below:
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------
(In thousands, except per share data) March 31 June 30 September 30 December 31
- -------------------------------------------------------------------------------------------------------------------
1999
<S> <C> <C> <C> <C>
Total revenue $ 45,148 $ 46,160 $ 46,518 $ 49,431
---------------------------------------------------------------
Net income $ 20,742 $ 20,592 $ 20,230 $ 24,463
---------------------------------------------------------------
Funds from operations - Basic $ 25,730 $ 26,362 $ 26,530 $ 27,105
---------------------------------------------------------------
Funds from operations - Diluted $ 25,730 $ 26,420 $ 26,610 $ 27,105
---------------------------------------------------------------
Net income per share - Basic $ 0.49 $ 0.48 $ 0.47 $ 0.58
---------------------------------------------------------------
Net income per share - Diluted $ 0.48 $ 0.48 $ 0.47 $ 0.57
---------------------------------------------------------------
Funds from operations per share - Basic $ 0.66 $ 0.67 $ 0.68 $ 0.69
---------------------------------------------------------------
Funds from operations per share - Diluted $ 0.65 $ 0.66 $ 0.67 $ 0.68
---------------------------------------------------------------
1998
Total revenue $ 17,333 $ 17,730 $ 18,325 $ 39,041
---------------------------------------------------------------
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
---------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
SUBSIDIARY* STATE OF INCORPORATION
- ---------- ----------------------
<S> <C>
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
Property Technology Services, Inc. Tennessee
</TABLE>
- ---------------
* All of the above listed subsidiaries are wholly owned by the Company.
<TABLE>
<CAPTION>
AFFILIATES OF HR ACQUISITION I CORPORATION:* STATE OF ORGANIZATION
---------------------
<S> <C>
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
</TABLE>
- ---------------
* All of the above listed subsidiaries are wholly owned by HR Acquisition
I Corporation.
- --------
1 Formerly known as Capstone Capital Corporation
<PAGE> 2
<TABLE>
<CAPTION>
OTHER AFFILIATES* STATE OF ORGANIZATION
---------------------
<S> <C>
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** Texas
</TABLE>
- ---------------
* 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>
San Antonio SSP, Ltd. 25.3% Texas
Pasadena Medical Plaza, SSJ, Ltd. 51.0% Florida
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 Capital 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.
<PAGE> 1
EXHIBIT 23
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
25, 2000 included in the 1999 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). These schedules are
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 25, 2000 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.
/s/ ERNST & YOUNG LLP
Nashville, Tennessee
March 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HEALTHCARE REALTY TRUST INC FOR THE YEAR ENDED DECEMBER
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,396
<SECURITIES> 0
<RECEIVABLES> 19,666
<ALLOWANCES> 995
<INVENTORY> 0
<CURRENT-ASSETS> 22,067
<PP&E> 1,399,146
<DEPRECIATION> 83,996
<TOTAL-ASSETS> 1,607,964
<CURRENT-LIABILITIES> 26,177
<BONDS> 563,884
0
30
<COMMON> 400
<OTHER-SE> 1,017,473
<TOTAL-LIABILITY-AND-EQUITY> 1,607,964
<SALES> 178,829
<TOTAL-REVENUES> 187,257
<CGS> 67,403
<TOTAL-COSTS> 106,006
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 576
<INTEREST-EXPENSE> 38,603
<INCOME-PRETAX> 86,027
<INCOME-TAX> 0
<INCOME-CONTINUING> 86,027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,027
<EPS-BASIC> 2.02
<EPS-DILUTED> 1.99
</TABLE>
