<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transaction period from to
COMMISSION FILE NUMBER 1-12566
---------------
G&L REALTY CORP.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 95-4449388
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
439 N. BEDFORD DRIVE
BEVERLY HILLS, CALIFORNIA 90210
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 273-9930
---------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
------------------- ON WHICH REGISTERED
---------------------
Common Stock, $.01 par value New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant (based on the closing price of such stock, as reported on the
New York Stock Exchange, on April 2, 1997) was $69,062,500.
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value (the "Common Stock"), as of April 2, 1997, was 4,062,500 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference the Registrant's Notice of Annual Meeting
of Stockholders and Proxy Statement relating to the 1997 Annual Meeting of
Stockholders (the "Proxy Statement").
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
<TABLE>
<C> <S> <C>
PART I PAGE
------ ----
Item 1. Business....................................................... 1
Item 2. Properties..................................................... 5
Item 3. Legal Proceedings.............................................. 20
Item 4. Submission of Matters to a Vote of Security Holders............ 20
PART II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................ 21
Item 6. Selected Financial Data........................................ 22
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................... 24
Item 8. Financial Statements and Supplementary Data.................... 31
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 31
PART III
--------
Item 10. Directors and Executive Officers............................... 31
Item 11. Executive Compensation......................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and Management. 31
Item 13. Certain Relationships and Related Transactions................. 31
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K............................................................ 32
</TABLE>
i
<PAGE>
PART I
ITEM 1. BUSINESS
The Company is a self-administered and self-managed REIT that finances,
acquires, develops, manages and leases health care properties. The Company's
business currently consists of investments, either directly or through joint
ventures, in health care properties (primarily through its Medical Office
Building Division) and in debt obligations secured by health care properties
(primarily through its Senior Care Division).
Medical Office Building Division
The Medical Office Building ("MOB") Division's business strategy is to
acquire, develop, manage and lease a portfolio of medical office buildings and
related health care facilities, parking facilities and retail space. The
Company's MOB Division currently seeks growth opportunities nationwide in
major population centers through acquisition or development of additional
medical office properties directly or through strategic joint ventures. The
MOB Division's portfolio currently consists of approximately 725,000 rentable
square feet located in Southern California. The Company directly owns 15
properties exclusive of vacant land (the "Properties"), including 13 high
quality medical office buildings, an adjacent parking facility and one
hospital. Several of the Properties include retail space on the ground level.
As of February 1, 1997, the Properties were approximately 80.8% leased to over
280 tenants. In June 1996, the Company acquired Tustin Medical Plaza in
Tustin, California. Tustin Medical Plaza includes two medical office
buildings, a parcel of vacant land and a hospital (the "Tustin Properties")
which was vacant when purchased. Leases for the Tustin Hospital are currently
being negotiated. As of February 1, 1997, the Company's Properties, excluding
Tustin Hospital, had an occupancy rate of approximately 93.8%.
The Company recently entered into an operating agreement with PHP Healthcare
Corporation, a NYSE listed company ("PHP") forming a new joint venture named
"GL/PHP, LLC", a Delaware limited liability company, (the "PHP Joint
Venture"). The Company holds an 80.5% interest in the unconsolidated joint
venture, which owns six primary health care facilities located in New Jersey
consisting of approximately 80,000 aggregate rentable square feet. Until July
31, 1997 PHP has an option to purchase the Company's interest in the PHP Joint
Venture.
Senior Care Division
The Senior Care Division's business strategy is to originate short term
(typically 6-24 months) loans secured by senior care facilities throughout the
United States. Since its inception in June 1995, the Senior Care Division has
made seven loans totaling $26.9 million of which four have been repaid through
the issuance of revenue bonds. As of February 1, 1997, the Senior Care
Division had three loans aggregating $12.5 million outstanding. In October
1995, the Company invested $19.9 million to acquire outstanding Series A and
Series B bonds with an aggregate face value of $26.0 million issued by the
Massachusetts Industrial Finance Agency and secured by three nursing homes in
Massachusetts. (In March 1997 the Company sold these bonds.) These loans and
bonds generate cash flow from principal and interest payments received from
outstanding loans. The Company may receive future revenues in the form of
subordinated notes in lieu of interest or loan fees.
In November 1996, the Company expanded its activities in the Senior Care
Division by entering into an unconsolidated operating venture with Nomura
Asset Capital Corporation ("Nomura"), named GLN Capital Co., LLC (the "GLN
Venture"), having an anticipated maximum leveraged investment capacity for
short term loans of $200.0 million. GMAC-CM has previously funded four loans
with the Company and has committed to provide a credit line to the GLN Venture
of up to $50.0 million, which will be secured by loans originated by the GLN
Venture.
1
<PAGE>
The Company's Senior Care Division currently seeks growth opportunities
nationwide through short term financing and participating loans to facilitate
the purchase of senior care facilities. Sellers of senior care facilities
generally fall into one of two categories: (a) small independent operators who
are struggling to maintain operating margins in a consolidating industry, and
(b) large owner operators seeking to divest themselves of real estate
operations and concentrate on facility management and ancillary services. The
Company believes that the extensive operating requirements and budgetary
constraints of Federal, state and local governments, have caused competitive
pressures that particularly impact small operators and which in turn are
causing a consolidation of the senior care industry. Large operators have also
been affected by the consolidation of the senior care industry and often seek
to sell their senior care facilities while retaining management service
contracts, providing these large operators with ongoing revenues in connection
with their management services.
Nonprofit entities are particularly attracted to investments in senior care
facilities because of their unique ability to finance acquisitions through the
issuance of tax-exempt bonds, providing nonprofit entities with a relatively
lower cost of capital as compared to for-profit purchasers. In addition, in
certain states health care facilities owned by nonprofit entities are exempt
from taxes on real property.
General
Daniel M. Gottlieb and Steven D. Lebowitz, the two senior officers and
founders of the Company, have over 40 years of combined experience in
acquiring, developing, managing and leasing medical office properties. Messrs.
Gottlieb and Lebowitz own, in the aggregate, approximately 22.6% of the equity
of the Company, inclusive of their interests ("Units") in G&L Realty
Partnership, L.P., a Delaware limited partnership (the "Operating
Partnership"). The Company is the sole general partner of, and owns an 89.1%
interest in, the Operating Partnership. Substantially all of the Company's
assets are held by, and operations are conducted through, the Operating
Partnership or other entities created for financing purposes.
The Company's executive offices are located at 439 North Bedford Drive,
Beverly Hills, California 90210, and its telephone number is (310) 273-9930.
The Company is a Maryland corporation that was incorporated on September 15,
1993.
Recent Developments
In February 1997, the Company formed the PHP Joint Venture which purchased
six primary health care facilities located throughout New Jersey consisting of
approximately 80,000 aggregate square feet for $22.4 million. The Company
funded its 80.5% equity contribution to the PHP Joint Venture with a loan
provided by the GLN Venture. The Company does not hold the requisite level of
control and therefore does not consolidate the PHP Joint Venture in its
financial statements. Until July 31, 1997, PHP has an option to purchase the
Company's interest in the PHP Joint Venture. PHP has leased the properties
from the PHP Joint Venture for 25 years and has a three year contract as a
preferred provider to Blue Cross/Blue Shield of New Jersey. Charles P. Reilly,
a director of the Company and Chairman of the Compensation Committee of the
Board of Directors of the Company, is Chairman of the Board of Directors of
PHP.
In February 1997, the Company funded its first senior care loan through the
GLN Venture, a $6.4 million participating loan to CoreCare Behavioral
Management. The loan has a term of 18 months and is secured by a first deed of
trust on the Institute of Pennsylvania Hospital in Philadelphia, Pennsylvania,
which CoreCare acquired in connection with the loan by the GLN Venture.
In March 1997, the Company sold Series A and B bonds issued by the
Massachusetts Industrial Finance Agency to the GLN Venture for $7.7 million
and assigned $14 million of indebtedness owed to GMAC-CM. The bonds, which
were purchased for $19.9 million in October 1995, had an outstanding balance
of $27.7 million, including principal and accrued, unpaid interest, at the
time of sale.
2
<PAGE>
Tax Status
The Company believes that it has operated in such a manner as to qualify for
taxation as a "REIT" under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended (the "Code"), commencing with its taxable year ended
December 31, 1993, and the Company intends to continue to operate in such a
manner. As long as the Company qualifies for taxation as a REIT under the
Code, the Company generally will not be taxed at the corporate level. If the
Company fails to qualify as a REIT in any taxable year, the Company will be
subject to Federal income tax (including any applicable alternative minimum
tax) on its taxable income at regular corporate rates. Even if the Company
qualifies for taxation as a REIT, the Company may be subject to certain state
and local taxes on its income and property and to Federal income and excise
taxes on its undistributed income.
Employees
As of March 31, 1997, the Company employed 28 persons including on-site
building employees and professional employees engaged in asset management and
administration. The Company considers its relations with its employees to be
good.
3
<PAGE>
ORGANIZATIONAL STRUCTURE
The current structure of the Company and the ownership of interests in the
Operating Partnership and other related entities directly or indirectly
controlled by the Company, through which the Company does business, are shown
in the following chart.
[ORGANIZATIONAL STRUCTURE CHART APPEARS HERE]
- --------
(1) G&L Realty Financing II, Inc. is the sole general partner and 1% owner of
the Realty Financing Partnership.
(2) G&L Medical, Inc. is the sole general partner and 1% owner of the Medical
Partnership.
(3) The Operating Partnership is the sole limited partner and 99% owner of the
Medical Partnership.
(4) The Operating Partnership is the sole limited partner and 99% owner of the
Realty Financing Partnership.
(5) The Company is the sole general partner and 89% owner of the Operating
Partnership. Of its 89% interest, 1% is held as general partner and 88% is
held as a limited partner. The Operating Partnership's remaining 11%
partnership interest is owned by individual limited partners.
4
<PAGE>
ITEM 2. PROPERTIES
The Properties are 13 high quality medical office buildings, an adjacent
parking facility, one hospital and incidental retail space. As of February 1,
1997, the Properties were approximately 80.8% leased to over 280 tenants. In
June 1996, the Company acquired Tustin Hospital, for which leases are
currently being negotiated. The Company's Properties, not including Tustin
Hospital, had an occupancy rate of approximately 93.8% as of February 1, 1997.
The Company's tenants are primarily established medical practitioners
representing a cross section of medical practices.
DESCRIPTION OF THE PROPERTIES AND TENANTS
Company Properties
The Company, through the MOB Division, acquires, develops, manages and
leases medical office buildings and related health care facilities. Developing
and managing medical office properties differs from developing and managing
conventional office buildings due to the special requirements of the tenants
and their patients. As a variety of medical procedures are now performed in
doctors' offices, many medical office buildings have become sophisticated
ambulatory centers that allow for out-patient surgery and procedures. In
addition, medical office buildings generally have higher maintenance
requirements in the public areas due to heavy foot traffic, many short
appointments which increase demand on parking facilities, the use of
sophisticated medical equipment requiring increased plumbing and electrical
capacity and expanded environmental regulations that impose more stringent
restrictions on the disposal of medical waste. The management of medical
office properties also generally requires experience in specialized tenant
improvements and higher levels of responsiveness required by medical
practitioners. Additional important management functions include the placement
of tenants within medical office properties to accommodate increased space
needs and managing the tenant mix at properties so that referrals by
practitioners with different specialties within the building is facilitated.
The Company stresses meeting these and other special demands of medical
property tenants.
The health care industry is facing various challenges, including increased
government and private payor pressure to reduce medical delivery costs.
Substantially all of the Company's tenants are in the medical profession and
could be adversely affected by cost containment and other health care reform
proposals. Proposals that limit access to medical care or reduce the
reimbursement of physicians' services may impact the ability of the Company's
tenants to pay rent. The Company believes that the aging population in the
United States combined with other recent trends in the health care industry
such as the performance of non-acute procedures outside of hospitals could
spur increased demand for space in full service medical office buildings which
contain surgicenters and out-patient facilities, such as those owned by the
Company.
5
<PAGE>
The following table sets forth certain information regarding each of the
Properties as of February 1, 1997. The Operating Partnership owns a 100% fee
simple interest in all of the Properties, other than 435 North Roxbury in which
it owns an indirect 61.75% interest.
PROPERTIES--SUMMARY DATA
<TABLE>
<CAPTION>
YEAR RENTABLE RENTED TOTAL AVERAGE
CONSTRUCTED OR SQUARE SQUARE ANNUALIZED RENT PER
PROPERTY(1) REHABILITATED FEET(2) FEET(3) OCCUPANCY(3) RENT(4) SQ. FT.(5)
----------- -------------- -------- ------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
405 N. Bedford, Beverly
Hills, CA.............. 1947/1987 49,037 49,037 100.0% $ 2,182,612 $44.51
415 N. Bedford, Beverly
Hills(6)............... 1955 5,977 5,977 100.0% 216,859 36.28
416 N. Bedford, Beverly
Hills.................. 1946/1986 40,776 39,803 97.6% 1,468,230 36.89
435 N. Bedford, Beverly
Hills.................. 1950/1963/1984 55,116 51,306 93.1% 1,718,281 33.49
435 N. Roxbury, Beverly
Hills.................. 1956/1983 42,455 39,719 93.6% 1,449,840 36.50
436 N. Bedford, Beverly
Hills.................. 1990 78,799 77,548 98.4% 3,089,602 39.84
Holy Cross Medical
Plaza.................. 1985 72,575 67,539 93.1% 1,895,920 28.07
11550 Indian Hills Road
Mission Hills, CA
St. Joseph's
Professional Building.. 1987 25,684 25,684 100.0% 694,250 27.03
2031 West Alameda Ave.
Burbank, CA(7)
Sherman Oaks Medical
Plaza.................. 1969/1993 69,422 60,183 86.7% 1,377,910 22.90
4955 Van Nuys Blvd.
Sherman Oaks, CA
Regents Medical Center.. 1989 62,377 62,377 100.0% 1,555,245 24.93
4150 Regents Park Row
La Jolla, CA
Cigna HealthCare
Building............... 1992 47,604 47,604 100.0% 1,096,796 23.04
12701 Schabarum Ave.
Irwindale, CA
1095 Irvine Boulevard... 1995 10,125 10,125 100.0% 197,080 19.46
Tustin, CA
Tustin--Medical Office
I...................... 1969 16,446 8,156 49.6% 119,576 14.66
14591 Newport Avenue
Tustin, CA
Tustin--Medical Office
II..................... 1985 47,954 40,826 85.1% 503,653 12.34
14642 Newport Avenue
Tustin, CA
Tustin Hospital......... 1969 101,000 -- 0.0% -- 0.00
14662 Newport Avenue
Tustin, CA
Tustin--Vacant land(8).. -- -- -- -- -- --
1101 Sycamore Avenue
Tustin, CA
------- ------- -----------
Total/Weighted average
of all properties...... 725,347 585,894 80.77% $17,565,877 $29.98
======= ======= ===========
</TABLE>
- --------
(1) The Operating Partnership or the Realty Financing Partnership owns a 100%
fee simple interest in all of the properties except 435 North Roxbury,
which is owned by 435 North Roxbury Drive, Ltd., of which the Operating
Partnership owns a 61.75% partnership interest and is the sole general
partner.
(2) Rentable square feet includes space used for management purposes but does
not include storage space.
(3) Occupancy includes occupied space and space used for management purposes.
Rented square feet includes space that is leased but not yet occupied.
(4) Rent is based on third-party leased space billed in February 1997; no rent
is assumed from management space.
6
<PAGE>
(5) Average rent per square foot is calculated based upon third-party leased
space, excluding management space.
(6) This property includes retail space and parking facilities.
(7) The total annualized rent reflects a rental guarantee from the Sisters of
Providence discussed below, which expires October 31, 1998.
(8) This property consists of a vacant lot.
Beverly Hills, California Properties
Six of the Properties are located on North Bedford and North Roxbury Drives
in the "Golden Triangle" area of Beverly Hills, California, near three major
hospitals--Cedars Sinai Medical Center, Century City Hospital and UCLA Medical
Center. The buildings feature high quality interior improvements, including
rich wood paneling and brass hardware appointments, both in the common areas
and in most of the doctors' offices. These six Properties include ten
operating rooms, two of which are located in the Saint John's Hospital
surgicenter at 405 North Bedford Drive. The 405, 416 and 436 North Bedford
Drive buildings each have emergency back-up generators. Parking for these six
Properties is provided in the 415 North Bedford garage and in subterranean
parking at 436 North Bedford and 435 North Roxbury Drives. Each of these
medical office buildings has copper insulated pipe with sufficient capacity
for medical use, electrical systems designed for extra load requirements and
extensive security systems.
405 North Bedford Drive, Beverly Hills
The 405 North Bedford Drive medical office building, built in 1947 and
extensively remodeled in 1988, consists of four stories plus a penthouse and a
basement. The reinforced brick building, with ground floor retail space,
features cherry wood paneled walls and brass hardware in the common areas and
decorative concrete trim on the exterior.
Saint John's Hospital is the only tenant leasing more than 10% of the
rentable square footage of 405 North Bedford, occupying 36,787 square feet
(approximately 75%) of the rentable square footage in that building. Its lease
expires on March 31, 1998 and provides for a monthly rental of $144,015. The
lease contains an option to renew for two consecutive five-year terms. Saint
John's Hospital subleases much of the space to doctors affiliated with the
hospital. Management anticipates that the Company will enter into new leases
with the existing sublease tenants at the expiration of Saint John's lease in
March 1998.
415 North Bedford Drive, Beverly Hills
The 415 North Bedford Drive building is a four-level parking structure with
approximately 5,700 square feet of ground floor retail space for seven
tenants. The parking structure contains 316 tandem-striped spaces and is valet
operated.
416 North Bedford Drive, Beverly Hills
The 416 North Bedford Drive property is a four-story reinforced brick
medical office building with a basement and ground floor retail space. Built
in 1946 and extensively remodeled in 1987, the building features oak paneled
walls and molding, brass hardware, tinted concrete borders on the exterior,
and fourth floor skylights that provide an open, airy atmosphere in the
hallway and some of the suites.
A plastic surgeon leases more than 10% of the rentable square footage of 416
North Bedford, occupying 4,622 square feet or 11.3% of the rentable square
footage of the building. The monthly rental is $17,293. The lease expires on
November 30, 2002 and contains a five-year renewal option.
435 North Bedford Drive, Beverly Hills
The 435 North Bedford Drive property is a four-story, reinforced brick and
masonry medical office building with a penthouse, basement, and ground floor
retail space. Built in 1959 and extensively remodeled in 1984, the
7
<PAGE>
building features oak molding, wall sconces and paneling in the hallways plus
stained runner boards and built-in stained hardwood cabinets in some of the
medical office suites.
435 North Roxbury Drive, Beverly Hills
The 435 North Roxbury Drive property is a four-story medical office building
with a penthouse, subterranean parking, and retail space on the ground floor.
The building, which was built in 1956 and extensively remodeled in 1983,
features a reinforced brick and masonry exterior and raised, oak-stained
paneling and molding in the hallways.
Two tenants in 435 North Roxbury each occupy more than 10% of the rentable
square footage. A dermatologist occupies 5,291 square feet (12.5% of the
rentable square footage) pursuant to a lease which provides for a monthly
rental of $16,667. The lease expires September 30, 2001 and contains a
provision for a five-year renewal option. An internist occupies 6,183 square
feet (14.6% of the rentable square footage) pursuant to a lease which provides
for a monthly rental of $18,549. The lease expires on November 30, 1999.
436 North Bedford Drive, Beverly Hills
The 436 North Bedford Drive property is a three-story medical office
building with three levels of subterranean parking. Built in 1990, the
building features ground floor retail and office space surrounding a central
courtyard and balconies at selected locations on the second and third floors.
The exterior is clad in rose color sandstone with cast stone and granite trim.
The central courtyard features a cascading waterfall sculpture and stone
pavers with intricate marble and stone patterns. Cherry wood paneled walls
also line the elevator lobbies on all floors and portions of the hallways.
Holy Cross Medical Plaza, Mission Hills
The Holy Cross Medical Plaza is situated on approximately 2.6 acres of the
15-acre campus of Holy Cross Medical Plaza, a 316-bed hospital. The campus
also includes the Villa de la Santa Cruz skilled nursing facility, another
medical office building, a magnetic resonance imaging center, and an
outpatient diagnostic center. Built in 1984, the Holy Cross Medical Plaza is a
three-story office building occupied primarily by medical and dental
practitioners. A two-story parking structure and an open asphalt-paved lot can
accommodate a total of 333 vehicles. The surrounding site is landscaped with
grass, trees, shrubs, and planter boxes.
Two tenants occupy more than 10% of the rentable square footage in the Holy
Cross Medical Plaza property. Holy Cross Surgical Center occupies 12,456
square feet (17.247% of the rentable square footage) pursuant to a lease that
provides for monthly rent of $37,040.20. The lease expires October 31, 2006
and provides for a ten-year renewal option. Dialysis Center occupies 10,639
square feet (14.66% of the rentable square footage) pursuant to a lease that
provides for monthly rent of $19,633.00. The lease expires March 31, 2006 and
provides for two, five-year renewal options.
St. Joseph's Professional Building, Burbank
The Saint Joseph's Professional Building is a steel frame, brick-facade
building, constructed in 1987, that features two floors of office space over
three levels of subterranean parking which can accommodate up to 100 vehicles.
The building is located one-quarter of a mile from Saint Joseph's Hospital and
is directly across the street from the Walt Disney Company's world
headquarters campus. Saint Joseph's Hospital includes 658 beds and is owned by
the Sisters of Providence, an organization which owns other hospitals
throughout North America. The Saint Joseph's Professional Building was
acquired from the Sisters of Providence, who have guaranteed up to an annual
gross rent of $765,000 per year through October 31, 1998; however, the
guarantee is limited to a maximum annual reimbursement of $225,000. Currently,
the office building is fully leased. Since the acquisition, the Company has
negotiated with the existing tenants to extend their leases beyond the rent
guarantee period.
8
<PAGE>
Two tenants in St. Joseph's Professional Building occupy more than 10% of
the rentable square footage. Total Renal Care occupies 9,067 square feet
(35.3% of the rentable square footage) pursuant to a lease which provides for
a monthly rental of $21,403 plus expense reimbursements for excess utility
consumption. Its lease expires October 31, 2000 and provides for one, five-
year renewal option. A doctors' group occupies five medical suites totaling
8,942 square feet (34.82% of the rentable square footage) pursuant to leases
which provide for aggregate monthly rents of $19,145. The leases expire
beginning on various dates between October 31, 1998 and October 31, 2001.
Sherman Oaks Medical Plaza, Sherman Oaks
The Sherman Oaks Medical Plaza is a seven-story office building, constructed
in 1968, that is adjacent to the Sherman Oaks Hospital and Health Center, a
156-bed hospital which includes the major burn center for the San Fernando
Valley. A $1 million capital improvement program renovating the building
systems and common areas of the Sherman Oaks Medical Plaza was completed in
1994. The Company also owns the adjacent air rights and three-level parking
structure behind the property which provides a total of 426 parking spaces.
The land beneath the parking structure is owned by Sherman Oaks Hospital which
also leases 150 parking spaces in the structure. As of December 31, 1996, the
Sherman Oaks Medical Plaza was 86.7% occupied.
Regents Medical Center, La Jolla
The Regents Medical Center is a three story building situated on
approximately 2.6 acres in the University Town Center area of San Diego, near
the University of California, San Diego. The building, which was constructed
in 1989, has ground level retail spaces, two upper floors of medical offices,
and subterranean and ground level parking that can accommodate a total of 285
vehicles. As of December 31, 1996, the building was 100% occupied.
UCSD Orthomed, an affiliate of the University of California, occupies 14,036
square feet (approximately 21%) of the rentable area of the building pursuant
to leases which provide for an aggregate monthly rental of $27,167. The leases
expire at various dates between January 31, 2000 and January 31, 2002.
Cigna HealthCare Building, Irwindale
The Cigna HealthCare Building in Irwindale, California is a two story
medical office building, constructed in 1992, on a site that provides two
parking areas with a total of 244 spaces. This property was 100% leased to
Cigna HealthCare of California, Inc., which subsequently assigned the lease to
Caremark International, Inc., effective January 1, 1996. The Company gave its
conditional approval of the assignment on April 5, 1996 subject to certain
conditions. Rent obligations under the lease are guaranteed by Cigna
HealthCare, Inc. The lease, which provides for monthly rent of $91,399 triple
net, expires November 30, 2004 and provides for two, five-year options.
1095 Irvine Boulevard, Tustin
The 1095 Irvine Boulevard building in Tustin, California was redeveloped in
1995 as a primary healthcare center for physicians who are part of the St.
Joseph Hospital of Orange healthcare network. The property is leased to St.
Joseph Hospital, Inc. under a net lease with a 15 year term, which began in
August 1995, and provides for annual cost of living rent escalations. The
lease provides for a monthly rental of $16,087 and expires on July 31, 2010.
Tustin Medical Plaza, Tustin
In June 1996, the Company acquired the Tustin Properties in Tustin,
California. Tustin Medical Plaza consists of two medical office buildings, a
parcel of vacant land and a hospital which was vacant when purchased. Leases
for the hospital are currently being negotiated.
9
<PAGE>
Tustin Hospital, Tustin
The 14662 Newport Avenue building in Tustin, California is a single-story,
183-bed, 101,000 square foot hospital that was developed in two phases
beginning in 1969 and ending in 1974. The hospital includes a full service
emergency room, five operating rooms, an intensive care ward, administrative
offices, conference rooms, kitchen and cafeteria, pharmacy, gift shop, x-ray
facilities and a basement service area. The hospital has an emergency back-up
generator with a 10,000 gallon underground fuel tank that complies with
current environmental requirements. In addition, all of the hospital's medical
equipment and supplies are still located within the hospital. The hospital was
vacant when the Company acquired the property on June 14, 1996.
The Company is engaged in lease negotiations with respect to the hospital
and the vacant space in the adjacent buildings. Although there can be no
assurances, management anticipates that a lease will be signed in the near
future. The hospital facility was leased to a television production company
from January 31, 1997 through March 9, 1997.
Tustin--MOB I
The 14591 Newport Avenue building in Tustin, California is a two-story
medical office building that was constructed in 1975 on a 1.2-acre site. The
site is landscaped with grass lawns, shrubs, and trees and includes an
asphalt-paved parking lot with approximately 105 parking spaces, representing
a parking ratio of 6.4 parking spaces per 1,000 square feet of building area.
The office building was approximately 49.6% leased as of December 1996.
Tustin--MOB II
The 14642 Newport Avenue building in Tustin, California is a four-story
medical office building, developed in 1985, that features a surgery center
with three operating rooms, a pharmacy, and an industrial clinic on the first
floor. Medical offices are located on all of the other floors. The occupancy
rate was approximately 85.1% as of December 1996.
One tenant occupies more than 10% of the rentable square footage in the
14642 Newport Avenue Building. Pacific Health Corporation leases the surgery
center and occupies 7,444 square feet (14% of the rentable square footage)
pursuant to a lease that provides for a monthly rental of $16,749.00. The
lease expires on November 30, 2001 and provides for one, five-year renewal
option.
PHP JOINT VENTURE PROPERTIES
In February 1997, the Company entered into the PHP Joint Venture. The PHP
Joint Venture subsequently purchased six medical office properties in New
Jersey having a total of 80,415 square feet at a purchase price of $22.4
million. The Company and PHP funded the $4.4 million down payment in
proportion to their ownership interests in the PHP Joint Venture (80.5% for
the Company and 19.5% for PHP), with the Company's contribution financed by a
loan from the GLN Venture to the Company. The balance of the purchase price
was financed by two loans from PHP, secured by first and second deeds of
trust. The greater of the two loans, at $16 million, carries a term of six
months and gives PHP a right upon default to purchase the Company's interest
in the new entity. PHP has leased the properties from the PHP Joint Venture
pursuant to a 25-year net operating lease and has entered into a three-year
contract as a preferred provider to Blue Cross/Blue Shield of New Jersey.
10
<PAGE>
The following table sets forth certain information regarding each of the PHP
properties as of March 1, 1997. Each of the following properties is 100%
leased by the PHP Joint Venture to PHP under the terms of a 25-year net
operating lease.
<TABLE>
<CAPTION>
YEAR RENTABLE TOTAL AVERAGE
CONSTRUCTED OR SQUARE ANNUALIZED RENT PER
PROPERTY REHABILITATED FEET(1) RENT(2) SQ. FT.(3)
-------- -------------- -------- ---------- ----------
<S> <C> <C> <C> <C>
2103 Mt. Holly Rd.............. 1994 12,560 $ 414,000 $32.96
Burlington, NJ
150 Century Parkway............ 1995 12,560 371,450 29.57
Mt. Laurel, NJ
274 Highway 35, South.......... 1995 12,560 457,930 36.46
Eatontown, NJ
80 Eisenhower Drive............ 1994 12,675 401,465 31.67
Paramus, NJ
16 Commerce Drive.............. 1963 17,500 468,740 26.79
Cranford, NJ
4622 Black Horse Pike.......... 1994 12,560 416,415 33.15
Mays Landing, NJ
------ ---------- ------
Total/Weighted average....... 80,415 $2,530,000 $31.46
====== ========== ======
</TABLE>
- --------
(1) Rentable square feet includes space used for management purposes but does
not include storage space.
(2) Rent is based on third-party leased space billed in February 1997; no rent
is assumed from management space.
(3) Average rent per square foot is calculated based upon third-party leased
space, excluding management space.
LEASES
The Company's Properties
As of February 1, 1997, the Properties were approximately 81% leased. New
leases and extensions are normally granted for a minimum of five years and
provide for annual rent increases. Office tenants generally have gross leases
whereby rents may be adjusted for a tenant's proportionate share of any
increases in the cost of operating the building. Most retail tenants have net
leases and pay their share of all operating expenses including property taxes
and insurance. The following is a lease expiration table setting forth the
number, square feet, and associated annual rent for those leases expiring in
future years.
<TABLE>
<CAPTION>
NUMBER OF APPROXIMATE % OF
LEASES TOTAL RENTED ANNUAL TOTAL ANNUAL
YEAR OF LEASE EXPIRATION EXPIRING(1) SQUARE FEET(1) RENT RENT(2)
------------------------ ----------- ------------- --------- ------------
<S> <C> <C> <C> <C>
1997.................... 43 56,055 1,772,146 10.09%
1998.................... 55 116,966 4,211,218 23.97%(3)
1999.................... 37 54,869 1,655,215 9.42%
2000.................... 39 66,911 2,206,450 12.56%
2001.................... 33 49,530 1,570,882 8.94%
2002.................... 14 36,223 1,100,800 6.27%
2003.................... 6 8,397 260,094 1.48%
2004.................... 5 53,348 1,241,556 7.07%
2005.................... 10 25,291 889,111 5.06%
2006.................... 12 30,677 1,054,756 6.00%
2007 or later........... 5 23,882 699,227 3.98%
</TABLE>
- --------
(1) Does not include month-to-month leases, management space or vacant space.
(2) % of Total Annual Rent is based upon annualized revenues of $17,565,877.
(3) Includes the 36,787 sq. ft. lease with St. John's Hospital. St. John's
Hospital has subleased the majority of this space to third-party doctors.
The Company will enter into new leases with the existing sublease tenants
when the lease with Saint John's Hospital expires in 1998 if St. John's
does not extend its option to renew.
11
<PAGE>
The Company has been successful in obtaining lease renewals, achieving a
weighted average renewal rate of approximately 91.1% on medical office leases
expiring during the 12 month period ended December 31, 1996. Although there
can be no assurances that such renewal level can be maintained, the Company
believes this high renewal rate is due in part to the tendency of medical
practitioners to continue to practice in the same space over a number of
years. Also, the Company's tenants frequently invest large sums of money in
equipment and fixtures for their offices. Furthermore, relocating a doctor's
office can be disruptive to the patients who are familiar with the doctor's
office location.
The following table sets forth the scheduled annual rent increases for the
leases with respect to the Properties in effect at December 31, 1996.
<TABLE>
<CAPTION>
% OF
TOTAL
RENTABLE
SQUARE SQUARE
SCHEDULED ANNUAL RENT INCREASES FEET(1) FEET(1)
------------------------------- ------- --------
<S> <C> <C>
None...................................................... 132,128 22.20%
Consumer Price Index related.............................. 190,182 31.96%
2%........................................................ 16,680 2.80%
3%........................................................ 35,986 6.05%
4%........................................................ 42,876 7.20%
5%........................................................ 136,165 22.88%
8%........................................................ 3,830 0.64%
</TABLE>
- --------
(1) Does not include 6.3% of the total rental square feet which is leased on a
month-to-month basis, vacant space, space used for building management and
space used for management of the Company.
The historical occupancy of the Properties is shown in the following table:
<TABLE>
<CAPTION>
PROPERTY 1996 1995 1994 1993 1992
-------- ----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
405 N. Bedford............................ 100.0% 100.0% 96.2% 97.8% 96.3%
415 N. Bedford(1)......................... 100.0% 100.0% 100.0% 100.0% 84.0%
416 N. Bedford............................ 97.6% 100.0% 100.0% 97.2% 97.3%
435 N. Bedford............................ 93.1% 89.2% 85.3% 97.7% 97.9%
435 N. Roxbury............................ 93.6% 95.6% 91.7% 94.5% 98.6%
436 N. Bedford............................ 98.4% 90.0% 92.8% 100.0% 91.3%
Holy Cross Medical Plaza(2)............... 93.1% 94.7% 87.7% N/A N/A
St. Joseph's Professional Building(3)..... 100.0% 100.0% 100.0% N/A N/A
Sherman Oaks Medical Plaza(2)............. 86.7% 90.0% 79.8% N/A N/A
Regents Medical Center(2)................. 100.0% 90.9% 87.6% N/A N/A
Cigna HealthCare Building(2).............. 100.0% 100.0% 100.0% N/A N/A
1095 Irvine Boulevard(4).................. 100.0% 100.0% N/A N/A N/A
14591 Newport Avenue, Medical Office I(5). 49.6% N/A N/A N/A N/A
14642 Newport Avenue, Medical Office
II(5).................................... 85.1% N/A N/A N/A N/A
14662 Newport Avenue, Hospital(5)......... 0.0% N/A N/A N/A N/A
----- ----- ----- ----- ----
Weighted average........................ 80.8% 94.2% 90.9% 97.9% 95.4%
===== ===== ===== ===== ====
</TABLE>
- --------
(1) Retail space and parking facilities
(2) Acquired in 1994
(3) Acquired in December 1993
(4) Placed in service in 1995
(5) Acquired in June 1996
12
<PAGE>
The following tables set forth the base rent per square foot and annualized
base rent for the Properties for the past five years.
BASE RENT PER SQUARE FOOT
<TABLE>
<CAPTION>
PROPERTY 1996 1995 1994 1993 1992
-------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
405 N. Bedford........................... $44.51 $41.64 $42.01 $37.87 $37.02
415 N. Bedford(1)........................ 36.28 36.21 36.79 36.41 33.30
416 N. Bedford........................... 36.89 37.04 40.88 39.31 38.25
435 N. Bedford........................... 33.49 34.35 39.25 39.03 39.07
435 N. Roxbury........................... 36.50 37.11 38.39 38.12 36.02
436 N. Bedford........................... 39.84 42.13 44.71 44.17 44.34
Holy Cross Medical Plaza(2).............. 28.07 25.91 28.77 N/A N/A
St. Joseph's Professional Building(3).... 27.03 29.12 29.92 N/A N/A
Sherman Oaks Medical Plaza(2)............ 22.90 23.32 23.57 N/A N/A
Regents Medical Center(2)................ 24.93 27.11 28.38 N/A N/A
Cigna HealthCare Building(2)............. 23.04 23.04 23.01 N/A N/A
1095 Irvine Boulevard(4)................. 19.46 17.14 N/A N/A N/A
14591 Newport Avenue, Medical Office
I(5).................................... 14.66 N/A N/A N/A N/A
14642 Newport Avenue, Medical Office
II(5)................................... 12.34 N/A N/A N/A N/A
14662 Newport Avenue, Hospital(5)........ 0.00 N/A N/A N/A N/A
------ ------ ------ ------ ------
Weighted average....................... $29.98 $31.70 $34.01 $40.15 $39.50
====== ====== ====== ====== ======
</TABLE>
- --------
(1) Retail space and parking facilities
(2) Acquired in 1994
(3) Acquired in December 1993
(4) Placed in service in 1995
(5) Acquired in June 1996
13
<PAGE>
ANNUALIZED BASE RENT
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PROPERTY 1996 1995 1994 1993 1992
-------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
405 N. Bedford............... $ 2,182.6 $ 2,033.3 $ 1,904.2 $ 1,914.2 $ 1,740.8
415 N. Bedford(1)............ 216.9 216.4 210.4 205.2 167.2
416 N. Bedford............... 1,468.2 1,510.5 1,658.0 1,598.9 1,517.6
435 N. Bedford............... 1,718.3 1,689.6 1,660.3 2,043.6 2,108.2
435 N. Roxbury............... 1,449.8 1,506.8 1,494.9 1,597.7 1,507.8
436 N. Bedford............... 3,089.6 2,987.7 3,221.9 3,433.8 3,189.9
Holy Cross Medical Plaza(2).. 1,895.9 1,749.2 1,784.5 N/A N/A
St. Joseph's Professional
Building(3)................. 694.3 757.5 764.4 N/A N/A
Sherman Oaks Medical
Plaza(2).................... 1,377.9 1,457.3 1,276.9 N/A N/A
Regents Medical Center(3).... 1,555.2 1,639.6 1,531.0 N/A N/A
Cigna HealthCare Building(2). 1,096.8 1,096.8 1,096.8 N/A N/A
1095 Irvine Boulevard(4)..... 197.0 173.5 N/A N/A N/A
14591 Newport Avenue, Medical
Office I(5)................. 119.6 N/A N/A N/A N/A
14642 Newport Avenue, Medical
Office II(5)................ 503.7 N/A N/A N/A N/A
14662 Newport Avenue,
Hospital (5)................ 0.0 N/A N/A N/A N/A
--------- --------- --------- --------- ---------
Total...................... $17,565.8 $16,818.3 $16,603.3 $10,793.4 $10,231.5
========= ========= ========= ========= =========
</TABLE>
- --------
(1) Retail space and parking facilities
(2) Acquired in 1994
(3) Acquired in December 1993
(4) Placed in service in 1995
(5) Acquired in June 1996
14
<PAGE>
The Company's medical offices include a broad mix of medical specialties and
other uses as shown in the table below:
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER LEASED MEDICAL
PRACTICE AREA OF SUITES OFFICE SPACE
------------- --------- --------------
<S> <C> <C>
Allergist......................................... 1 0.27%
Chiropractic...................................... 2 0.55%
Dentistry......................................... 52 13.51%
Dialysis.......................................... 4 1.93%
Dermatology....................................... 15 5.15%
Ear/Nose/Throat................................... 4 1.44%
General Practice.................................. 5 1.79%
General Surgery................................... 11 8.47%
Hospital.......................................... 6 12.84%
Internal Medicine................................. 39 14.41%
Laboratory........................................ 5 0.92%
Nephrology........................................ 1 0.41%
Neurology......................................... 1 0.20%
Obstetrics/Gyn.................................... 9 2.53%
Ophthalmology..................................... 10 3.73%
Other............................................. 10 2.36%
Pediatrics........................................ 2 1.02%
Pharmacy.......................................... 4 1.22%
Physical Therapy.................................. 9 2.99%
Plastic Surgery................................... 17 6.95%
Podiatry.......................................... 4 0.65%
Psychiatry........................................ 10 1.74%
Psychology........................................ 19 3.48%
Retail............................................ 40 10.01%
Urology........................................... 3 1.43%
--- ------
Total........................................... 280 100.00%
=== ======
</TABLE>
15
<PAGE>
PHP Joint Venture Properties
As of March 1, 1997, the PHP Joint Venture properties were 100% leased to
PHP pursuant to 25-year net operating leases. Each property is subject to a
single lease for 100% of the space. Each lease provides for a fixed rent
through August 31, 1999 and thereafter provides for increases (but not
decreases) related to the Consumer Price Index.
The following table sets forth the base rent per square foot and annualized
base rent for the PHP properties pursuant to leases with the PHP Venture.
BASE RENT PER SQUARE FOOT
<TABLE>
<CAPTION>
BASE RENT
PER ANNUAL
PROPERTY SQUARE FOOT BASE RENT
-------- ----------- ----------
<S> <C> <C>
2103 Mt. Holly Rd. ................................... $32.96 $ 414,000
Burlington, NJ
150 Century Parkway................................... 29.57 371,450
Mt. Laurel, NJ
274 Highway 35, South................................. 36.46 457,930
Eatontown, NJ
80 Eisenhower Drive................................... 31.67 401,465
Paramus, NJ
16 Commerce Drive..................................... 26.79 468,740
Cranford, NJ
4622 Black Horse Pike................................. 33.15 416,415
Mays Landing, NJ
------ ----------
Total/Weighted average.............................. $31.46 $2,530,000
====== ==========
</TABLE>
LENDING
Senior Care Division
The Company, through the Senior Care Division, makes first mortgage loans
for the purpose of acquiring independent senior care facilities, which loans
are secured by the facilities acquired. The loans typically are intended to
serve as bridge or interim financing (6 to 24 months) for the acquisition of
senior care facilities by unrelated parties. The maturity of the loan made by
the Company is determined primarily by the timing of the sale of tax exempt
bonds or the completion of other permanent financing. Some of the proceeds
received from the sale of newly issued bonds are used to repay the first
mortgage loan issued by the Company. The Company has from time to time
extended the maturity dates of the outstanding loans to give borrowers
additional time to obtain tax exempt financing and taken a participation
interest in such loans upon maturity in lieu of full debt repayment in the
form of cash. The loans generally bear interest at fixed rates, with the per
annum interest rate increasing under certain circumstances in which an
extension of the original maturity date is required due to the timing and
availability of financing. The Company may receive fees and certain other
consideration for making the loans. From June 1995 through December 31, 1996,
the Company made a total of seven loans in an aggregate principal amount of
approximately $26.9 million for the purpose of acquiring senior care
facilities and acquired $20.0 million in existing bonds, all of which are
secured by first mortgages on the facilities acquired.
16
<PAGE>
The following table sets forth certain information regarding the loans
secured by senior care facilities made by the Company's Senior Care Division
from its inception in June 1995 through March 1, 1997:
<TABLE>
<CAPTION>
LOAN MORTGAGE MATURITY
PROPERTY SECURING LOAN DATE AMOUNT DATE DEBT SERVICE
---------------------- ---- ---------- -------- ------------
<C> <C> <C> <C> <S>
93-bed nursing home located
in Huntingdon County,
Pennsylvania............... 6/23/95 $1,472,500 8/22/96(1) Monthly interest-only
payments in arrears at
12% per annum. The
loan included an
origination fee of
$72,500.
72-unit assisted living
facility located in Berlin,
Maryland................... 6/30/95 4,042,500 5/15/96(1) Monthly interest-only
payments in arrears at
12% per annum. The
loan included an
origination fee of
$192,500.
58-bed nursing home located
in Richfield, Pennsylvania
and a 48-bed nursing home
located in Eldred,
Pennsylvania............... 9/1/95 2,215,000 8/22/96(1) Monthly interest-only
payments in arrears at
12% per annum. The
loan included an
origination fee of
$125,000.
60-bed intermediate care
nursing home and 16
Alzheimer's apartments
capable of accommodating 38
residents, located in
Phoenix, Arizona........... 10/13/95 4,466,000 7/31/97 Monthly interest-only
payments in arrears at
12% per annum. The
loan included an
origination fee of
$204,000.
235-bed nursing facility
located in Olathe, Kansas.. 4/25/96
third trust deed........ ........ 1,067,500 9/9/97 Monthly interest-only
fifth trust deed........ ........ 750,000 9/9/97 payments in arrears at
10.55% per annum for
each of the third and
fifth trust deeds. The
third trust deed
included an
origination fee of
$67,500.
122-bed nursing facility
located in Indiana County,
Pennsylvania............... 5/29/96 6,682,240 8/22/96(1) Monthly interest-only
payments in arrears at
12% per annum. The
loan included an
origination fee of
$267,240.
225-bed intermediate and
skilled care facility
located in Hyattsville,
Maryland................... 4/3/96 6,175,000 6/7/97 Monthly interest-only
payments in arrears at
12% per annum. The
loan included an
origination fee of
$250,000.
</TABLE>
- --------
(1) Date of repayment
17
<PAGE>
Medical Office Building Division
In May 1995, the Company entered into an agreement to loan $1.2 million to
an unaffiliated partnership for use in redeveloping a 120,000 square foot
medical center in Beverly Hills, California. The loan, which was originally
secured by a second deed of trust on the medical center, is personally
guaranteed by the general partner of this partnership. The guaranty is secured
by a pledge of 1.0 million shares of common stock issued by a publicly traded
company, which shares had an aggregate value of approximately $1.1 million as
of March 28, 1997. The loan, which bears interest at the rate of 10% per
annum, had an original maturity date of June 1, 1996; the maturity date was
subsequently extended to May 31, 1997. Under the terms of the extension
agreement, the medical center in Beverly Hills, California was released as
security for the loan, and a hospital facility located in Fort Worth, Texas
valued at approximately $3.0 million was pledged as replacement security.
GLN Venture
The GLN Venture markets two different loan products: a short-term loan and a
participating loan. The short-term loan is a purchase-money mortgage designed
for stabilized facilities that enables buyers to close an acquisition quickly
without the delays inherent in a bond financing transaction. The typical loan
is for approximately 12 months and is generally repaid from the proceeds of a
bond offering. The GLN Venture earns points as well as interest on these
loans. The participating loans generally has a 24-month horizon and involves
facilities in which management believes there is an opportunity to create
value in a project, in many cases a turnaround situation. The participating
loans enable the GLN Venture to participate in gains resulting from a
turnaround in addition to the standard points and interest.
The GLN Venture funded its first loan in February 1997, providing $6.4
million for the acquisition of the Institute of Pennsylvania Hospital in
Philadelphia, Pennsylvania. The loan is a participating mortgage that carries
an 18-month term, has an interest rate of 30-day LIBOR plus 6.5% and is
secured by a first deed of trust. The borrower, CoreCare Behavioral
Management, expects to operate a 162-bed psychiatric facility on the property
and lease the balance of the property, with the exception of a portion of the
land which will be sold. Pursuant to the terms of the loan, the borrower will
be required to pay an additional participation amount of up to approximately
$700,000 when the loan is repaid.
The GLN Venture funded its second loan in March 1997 in the principal amount
of $3,542,000 to the Company for purposes of funding the Company's
contribution to the PHP Joint Venture. The loan carries a term of six months
and an interest rate of 12%. The loan may be extended for additional six-month
periods, provided, however, that during each month that the loan is
outstanding after the first six-month term the interest rate is increased by
1% per month. The loan may be prepaid at any time after the first four months
and is secured by the Company's interest in the PHP Joint Venture.
INVESTMENTS IN BONDS
In October 1995, the Company acquired $20.9 million face value of tax-exempt
1989 Series A Health Care Bonds issued by the Massachusetts Industrial Finance
Agency due 2017 (the "Series A Bonds") and $5 million face value of 1989
Series B Health Care Revenue Bonds issued by the Massachusetts Industrial
Finance Agency due 2019 (the "Series B Bonds") for an aggregate purchase price
of $19.9 million. The Series A Bonds and Series B Bonds are secured by three
nursing homes owned by Hampden Nursing Homes, Inc., a Massachusetts nonprofit
corporation. Principal and interest payments due on these unrated bonds are
paid by the bond trustee out of the debt service payments received from the
underlying mortgages. The State of Massachusetts has not guaranteed the bonds
and the underlying mortgages are not insured in the event of default. Interest
on the Series A and Series B Bonds is payable at the rates of 9.75% and 9.5%,
respectively. At the time of acquisition, there was approximately $1.9 million
of unpaid interest accrued on the Series B Bonds. The Series A Bonds are not
callable and the Series B Bonds are subordinated in right of payment to the
Series A Bonds.
18
<PAGE>
The three senior care facilities pledged as security for the bonds are
Riverdale Gardens Nursing Home located in West Springfield, Massachusetts,
Chestnut Hill Nursing Home in East Longmeadow, Massachusetts and Mary Lyon
Nursing Home in Hampden, Massachusetts.
Riverdale Gardens Nursing Home is a 168-bed nursing facility currently
licensed for 84 skilled care and 84 intermediate care beds with 16 private and
76 double occupancy rooms. Constructed in various stages between 1957 and
1975, the property consists of a single story 54,451 square foot masonry
building on a 3,85 acre site with a 3,366 square foot single family residence
on an adjacent 30,000 square foot lot.
Chestnut Hill Nursing Home is a 123-bed nursing home consisting of 82
skilled nursing and 41 intermediate care beds in 15 private and 54 double
occupancy rooms. The facility is a 49,198 square foot single story brick
building constructed in 1984 on approximately 11.9 acres of land.
Mary Lyon Nursing Home occupies a 28,940 square foot building situated on
3.7 acres and was originally constructed in 1959 and renovated in 1986. The
facility is licensed for 100 beds of which 40 are skilled nursing and 60 are
intermediate beds. The bed compliment consists of ten private rooms, 39 double
occupancy and three quadruple occupancy rooms.
In March 1997, the Company sold the Series A and Series B Bonds, which
collectively had an outstanding face value of $25.6 million plus an additional
$1.1 million of accrued and unpaid interest, to the GLN Venture for
$7.7 million in cash and assigned to the GLN Venture $14.0 million in
indebtedness owed to GMAC-CM.
INSURANCE
The Company carries comprehensive liability, fire, flood, extended coverage
and rental loss insurance with respect to the Properties. There are certain
types of losses which may either be uninsurable or not economically insurable.
There can be no assurance that policies maintained by the Company will be
adequate in the event of a loss. The Company carries earthquake insurance with
respect to eight of its Properties. All of the Properties directly owned by
the Company are located in Southern California (the Company indirectly owns
six properties located in New Jersey through the PHP Joint Venture of which
the Company owns approximately 80%), which has a history of seismic activity
including the 1994 Northridge earthquake, which damaged the Holy Cross Medical
Plaza property. Should an uninsured loss occur, the Company could lose its
investment in, and anticipated earnings and cash flow from, a Property. See
"Risk Factors--Uninsured Loss."
GOVERNMENT REGULATION
Environmental Matters. Under various Federal, state and local laws,
ordinances and regulations, an owner or operator of real estate is liable for
the costs of removal or remediation of certain hazardous or toxic substances
on or in its property. These laws impose liability without regard to whether
the owner knew of, or was responsible for, the presence of any hazardous or
toxic substances. The presence of such substances, or the failure to properly
remediate these substances, may adversely affect the owner's ability to borrow
using the real estate as collateral and may subject the owner to material
remediation costs. All of the Properties have been subject to Phase I
environmental assessments (which involve inspection of the subject property,
but no soil sampling or groundwater analysis) by independent environmental
consultants. Although restricted in scope, these independent assessments
revealed no material evidence of existing environmental liability, and the
Company has not been notified by any governmental authority of any
noncompliance by, liability for, or other claim against the Company in
connection with environmental matters related to the Properties. While the
Company is not aware of any environmental liability that it believes would
have a material adverse effect on its business, assets or results of
operations, no assurance can be given that the environmental assessments
revealed all potential environmental liabilities or that no prior owner
created any material environmental condition not known to the Company or that
future uses or conditions (including changes in applicable environmental laws
and regulations) will not result in imposition of environmental liability.
19
<PAGE>
The independent environmental assessments include selective sampling for
asbestos where the age of the buildings or the types of materials warranted
such sampling. Limited quantities of non-friable asbestos were present in the
Sherman Oaks Medical Plaza. The Company removed the asbestos in 1994 in
connection with the renovation of this building.
As part of the normal practice of doctors, medical waste is generated. The
Company's leases require the individual tenants to make arrangements for the
disposal of medical waste and requires all tenants to provide proof that they
have contracted with a third party service to remove it from the premises each
night. The handling and disposal of this waste is the responsibility of the
tenants; however, the Company remains responsible as the owner of the
property. There can be no assurances that all such medical waste will be
properly handled and disposed of or that the Company will not incur costs in
connection with improper disposal of medical waste by its tenants.
Americans with Disabilities Act. All of the Properties are required to
comply with the ADA. The ADA generally requires that buildings be made
accessible to people with disabilities. Compliance with the ADA requirements
could require removal of access barriers and noncompliance could result in
imposition of fines by the U.S. government or an award of damages to private
litigants. The Company believes it is in substantial compliance with the ADA
and that it will not be required to make substantial capital expenditures to
address the requirements of the ADA. If required changes involve a greater
expenditure than the Company currently anticipates, the Company's ability to
make expected distributions could be adversely affected. See "Risk Factors--
Government Regulation; Cost of Compliance with Americans with Disabilities
Act."
ITEM 3. LEGAL PROCEEDINGS
There is no material pending litigation to which the Company, the Operating
Partnership, the Realty Financing Partnership, the Medical Partnership, the
Roxbury Partnership, the Nomura Venture or the PHP Joint Venture is a party or
to which any of their properties is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the stockholders of the Company during the
quarter ended December 31, 1996.
20
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the NYSE under the symbol GLR. It has
been the Company's policy to declare quarterly distributions to holders of the
Company's Common Stock so as to comply with applicable sections of the Code
governing REITs. Units and shares of Common Stock receive equal distributions.
Distributions are declared and paid at the discretion of the Company's Board of
Directors and generally depend on the Company's cash flow, its financial
condition, capital requirements, the distribution requirements under the REIT
provisions of the Code and such other factors as the Company's Board of
Directors deem relevant.
The table below sets forth the high and low sales prices of the Company's
stock for each full quarterly period since January 1, 1995, as reported by the
NYSE. The table also includes, on a per share basis, the quarterly cash
dividends declared and paid to holders of the Company's common stock for each
of the last two fiscal years.
<TABLE>
<CAPTION>
UNIT AND
COMMON STOCK
HIGH LOW DISTRIBUTION
------- ------- ------------
<S> <C> <C> <C>
1997
First quarter............................... 19 16 (1)
1996
Fourth quarter.............................. 17 5/8 15 1/2 0.36
Third quarter............................... 16 1/4 12 5/8 0.36
Second quarter.............................. 14 12 5/8 0.32
First quarter............................... 13 3/4 10 1/2 0.32
1995
Fourth quarter.............................. 10 7/8 9 5/8 0.31
Third quarter............................... 10 5/8 9 1/8 0.31
Second quarter.............................. 10 5/8 8 1/8 0.31
First quarter............................... 13 1/2 8 1/2 0.31
</TABLE>
- --------
(1) The Company declared a quarterly distribution for the first quarter of 1997
in the amount of $0.36 per share to be paid on April 16, 1997 to
stockholders of record on March 31, 1997.
The number of holders of record of the shares of Common Stock was 162 as of
March 21, 1997. Such number does not include the total number of beneficial
holders of Common Stock.
21
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial information
for the Company and its predecessor. Data presented as of December 31, 1996,
1995, 1994 and 1993 and for each of the years ended December 31, 1996, 1995
and 1994 is for the Company. Data presented for the year ended December 31,
1993 includes data for the six Properties located in Beverly Hills (the "G&L
Development Properties") for January 1, 1993 through December 16, 1993 and for
the Company for December 16, 1993 through December 31, 1993. Data presented as
of December 31, 1992 and for the year ended December 31, 1992 is for the G&L
Development Properties. For comparison purposes only, the G&L Development
Properties are considered the predecessor entity to the Company. The following
information should be read in conjunction with all of the financial statements
and notes thereto included in this Form 10-K. This data also should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Form 10-K. The selected
consolidated financial information as of December 31, 1996, 1995, 1994, 1993
and 1992 and for each of the years ended December 31, 1996, 1995, 1994, 1993
and 1992 have been derived from audited financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
- ---------------
Revenue:
Rental.......................... $15,796 $16,801 $14,740 $10,170 $ 9,620
Tenant reimbursements........... 728 732 587 465 426
Parking......................... 1,251 1,388 1,196 1,029 1,026
Interest, loan fees and other... 6,712 1,835 113 58 --
Other........................... 549 652 650 77 93
------- ------- ------- ------- -------
Total revenues................ 25,036 21,408 17,286 11,799 11,165
Expenses:
Property operations............. 5,696 5,199 4,317 3,084 3,488
Earthquake costs
(reimbursements)............... -- (133) 635 -- --
Depreciation and amortization... 3,276 4,047 3,697 2,503 2,464
Interest........................ 8,819 6,372 3,625 5,050 6,263
General and administrative...... 1,787 1,640 1,298 43 --
Loss on disposition of real
estate......................... 4,874 -- -- -- --
------- ------- ------- ------- -------
Total expenses................ 24,452 17,125 13,572 10,680 12,215
------- ------- ------- ------- -------
Income from operations before
minority interests and
extraordinary gains (losses)... 584 4,283 3,714 1,119 (1,050)
Minority interest in
consolidated partnership....... (129) (131) (167) (211) (247)
Minority interest in Operating
Partnership.................... (65) (418) (353) (18) --
------- ------- ------- ------- -------
Income before extraordinary
gains (losses)................. 390 3,734 3,194 890 (1,297)
Extraordinary gains (losses)
(net of minority interest)..... 9,311 (393) -- (352) --
------- ------- ------- ------- -------
Net income.................... $ 9,701 $ 3,341 $ 3,194 $ 538 $(1,297)
======= ======= ======= ======= =======
Per share data:
Before extraordinary gains
(losses)....................... $ 0.10 $ 0.91 $ 0.77 $ -- $ --
Extraordinary gains (losses).... 2.23 (0.09) -- -- --
------- ------- ------- ------- -------
Net income.................... $ 2.33 $ 0.82 $ 0.77 $ -- $ --
======= ======= ======= ======= =======
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
FUNDS FROM OPERATIONS:
- ----------------------
Operating Partnership funds
from operations............. $ 8,028 $ 7,397 $ 7,042 $ -- $ --
Minority interest in
consolidated partnership.... (847) (747) (700) -- --
-------- -------- -------- -------- --------
Funds from operations(1)..... $ 7,181 $ 6,650 $ 6,342 $ -- $ --
======== ======== ======== ======== ========
Distributions paid........... $ 5,525 $ 5,067 $ 6,821 $ 291 $ --
======== ======== ======== ======== ========
Payout ratio................. 76.9% 76.2% 107.6% N/A N/A
Weighted Averages:
Units outstanding.......... 4,541.7 4,550.1 4,618.3 4,618.3 --
Shares outstanding......... 4,171.5 4,090.8 4,159.0 4,159.0 --
Distributions declared per
share....................... $ 1.36 $ 1.24 $ 1.64 $ 0.07 $ --
CASH FLOW DATA:
- ---------------
Net cash provided by
operating activities........ 5,726 7,862 7,632 2,094 1,054
Net cash used in investing
activities.................. (23,413) (37,037) (31,552) (17,724) (1,100)
Net cash provided by
financing activities........ 18,639 29,286 21,849 18,871 46
BALANCE SHEET DATA:
- -------------------
Land, buildings and
improvements, net........... $ 93,231 $ 92,147 $ 92,715 $ 51,908 $ 44,885
Mortgage loans and bonds
receivable, net............. 34,549 33,634 -- 12,200 --
Total investments............ 127,780 125,781 92,715 64,108 44,885
Total assets................. 135,996 133,347 98,384 71,840 48,578
Total debt................... 109,025 111,627 74,018 45,500 89,472
Total stockholders' equity... 22,448 18,267 21,311 25,038 (40,297)
OTHER DATA:
- -----------
Ratio of earnings to fixed
charges(2).................. 1.59x 1.61x 1.83x -- --
Ratio of funds from
operations to fixed
charges(3).................. 1.88x 2.09x 2.66x -- --
Ratio of total debt to total
capitalization(4)........... 58.5% 70.3% 55.2% 35.1% --
Number of properties......... 15 12 12 7 6
</TABLE>
- --------
(1) Funds from operations ("FFO") represents net income (computed in
accordance with generally accepted accounting principles, consistently
applied ("GAAP")), excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation of real property, less preferred
stock dividends and after adjustments for consolidated and unconsolidated
entities in which the Company holds a partial interest. FFO is computed in
accordance with the definition adopted by the National Association of Real
Estate Investment Trusts ("NAREIT"). FFO should not be considered as an
alternative to net income or any other indicator developed in compliance
with GAAP, including measures of liquidity such as cash flows from
operating, investing and financing activities. FFO is helpful in
evaluating the performance of a real estate portfolio considering the fact
that historical cost accounting assumes that the value of real estate
diminishes predictably over time. FFO is only one of a range of indicators
which should be considered in determining a company's operating
performance. The methods of calculating FFO among different companies are
subject to variation; therefore, FFO may be an invalid measure for
purposes of comparing companies. Also, the elimination of depreciation and
gains and losses on sales of property may not be a true indication of an
entity's ability to recover its investment in properties. The Company
implemented the new method of calculating FFO effective as of the NAREIT-
suggested adoption date of January 1, 1996. FFO has been restated for all
prior periods under the new method.
(2) For purposes of these computations, earnings consist of net income plus
fixed charges. Fixed charges consist of interest expense, capitalized
interest and amortization of deferred financing costs.
(3) For purposes of these computations, the ratio of funds from operations to
fixed charges consists of FFO as defined in Note (1) plus fixed charges.
Fixed charges consist of interest expense, capitalized interest and
amortization of deferred financing costs.
(4) Total capitalization as of the dates presented is total debt plus the
aggregate market value of the Company's Common Stock and Operating
Partnership Units not owned by the Company, assuming one Unit is
equivalent in value to one share of Common Stock.
23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Consolidated Financial and Operating Data and the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
RESULTS OF OPERATIONS
Comparison of the Year Ended December 31, 1996 Versus the Year Ended December
31, 1995
Net income for the year ended December 31, 1996, increased approximately
$6.4 million, or 190%, from the previous year. The major component of this
increase was the $9.3 million extraordinary gain which resulted from the
surrender of the property located at 436 North Bedford Drive in Beverly Hills,
California to the holder of the $28.5 million lien on the property. The book
value of the land, buildings and related assets associated with the 436 North
Bedford property was approximately $22.9 million at the time of the
transaction. In conjunction with the transfer, the Company recorded a $4.9
million loss on disposition of the property which was the difference between
the $22.9 million book value and the estimated market value of $18.0 million.
At the same time, the Company recorded a $10.5 million extraordinary gain
resulting from the elimination of debt, which represented the difference
between the $28.5 million loan balance and the estimated $18.0 million market
value of the property. The $10.5 million extraordinary gain was partially
offset by $134,000 of other extraordinary net gains and losses resulting from
the early retirement of three other notes payable. For reporting purposes, the
net extraordinary gain was adjusted to approximately $9.3 million to reflect
the portion of the gain attributable to the minority interest partners.
Rents, tenant reimbursements and parking revenues as a group declined
approximately $1.2 million from an aggregate of approximately $19.0 million
for the year ended December 31, 1995 to $17.8 million for the same period in
1996. This decline was mainly attributed to the 436 North Bedford Drive
property which the Company surrendered to the noteholder on May 24, 1996.
Subsequent to that date, the noteholder put the property on the market for
sale and on August 30, 1996, the Company, through the Medical Partnership,
reacquired the property. During the period from May 24, 1996 to August 30,
1996, the property generated $778,000 in rents, tenant reimbursements and
parking revenues which were earned by the entity that owned the property
during that time. The remaining $368,000 decline is attributable to rents
received on leases that expired during 1995 and 1996 and renewed at lower
rates.
Interest, loan fees and related revenues are primarily the result of
investments in short term loans secured by senior care facilities. The senior
loan program, started in June 1995, has continued to expand since its
inception. Investments made in 1995 combined with new loans in 1996
contributed to the 265% increase in such revenues for the year ended December
31, 1996 as compared to the same period in 1995. In February 1996, the Company
completed a transaction whereby the Company provided the initial capital and
management expertise to facilitate the purchase of a newly constructed but
vacant hospital and medical office facility in Rancho Cucamonga, California by
Heritage Rancho Healthcare, Inc., a Nebraska nonprofit corporation
("Heritage"). Heritage converted the hospital into a long term care facility
to benefit the local community. In conjunction with the closing of this
transaction, the Company recognized cash revenues of $320,000 and received a
$840,000 ten year subordinated note, which the Company sold during the fourth
quarter of 1996 for approximately $665,000 plus accrued interest.
Property operating expense increased approximately 10.0%, or $497,000, from
approximately $5.2 million for the year ended December 31, 1995 to
approximately $5.7 million for the year ended December 31, 1996. Recurring
operating expenses declined as a result of the 436 North Bedford Drive
transactions as previously discussed. This decline was more than offset by
increases in real property taxes, the increased expense of earthquake
insurance and the acquisition of the Tustin Properties. In June 1996, the Los
Angeles County Assessor's Office notified the Company that it was increasing
its valuation on four of the Bedford Drive
24
<PAGE>
properties as a result of a transfer of ownership in conjunction with the
Company's initial public offering (the "IPO") on December 16, 1993. The
Company retained consultants specializing in property valuation appeals and,
as of March 21, 1997, obtained partial reductions in the increased assessments
on two of the four properties. Although there can be no assurances, management
believes that the Company will be able to obtain further reductions in these
increased assessments.
The addition of earthquake insurance partially contributed to the rise in
operating expense. In 1995, earthquake coverage was added on four properties,
and in 1996, coverage was added on four additional properties. As of December
31, 1996, the Sherman Oaks, Regents and Cigna HealthCare properties all had
coverage for certain losses resulting from seismic activity, as do the five
properties located on Bedford Drive.
The acquisition of the Tustin Properties also contributed to an increase in
the Company's operating expense during 1996. At the time of the acquisition,
the hospital was vacant and the medical office buildings were approximately
50% occupied by doctors who were affiliated with the hospital before its
closure. The Company's management is currently working to revitalize these
assets. The Company is currently involved in discussions with several health
care organizations to lease the hospital and additional space in the medical
office buildings. Although there can be no assurance that these discussions
will be successfully completed, management believes the Company will obtain a
lease for the vacant hospital under favorable terms during 1997.
Depreciation and amortization expenses declined from approximately $4.0
million during 1995 to approximately $3.3 million in 1996. The decline is
primarily the result of the 436 North Bedford Drive transactions discussed
above. Prior to its transfer in May 1996, the property had a depreciable cost
basis of approximately $21.1 million. When the property was reacquired in
August 1996, the depreciable cost basis dropped to approximately $15.4
million. Also, no depreciation was recorded for the period during which the
Company did not own the property. The decline in depreciation and amortization
was partially offset by the acquisition of the Tustin Properties in June 1996.
Interest expense increased from approximately $6.4 million for the 12 months
ended December 31, 1995 to approximately $8.8 million for the same period in
1996, an increase of approximately 38%. Funding of the senior care loan
program was the primary reason for the increase. The increase would have been
larger had it not been for the decline in interest expense which was realized
when a $28.5 million loan was extinguished in May 1996 by the transfer of the
436 North Bedford Drive property to the noteholder.
General and administrative expenses increased approximately $147,000, from
approximately $1.6 million for the year ended December 31, 1995 to
approximately $1.8 million for the same period in 1996, as a result of added
travel and professional fees resulting from the expansion of the senior loan
program.
Comparison of the Year Ended December 31, 1995 Versus the Year Ended December
31, 1994
Net income for the year ended December 31, 1995, before an extraordinary
item, was $3.7 million, or $0.91 per share, an increase of 16.9% from $3.2
million, or $0.77 per share, reported in the previous year, based on 4,091,000
and 4,159,000 average shares outstanding, respectively. Net income after the
effect of an extraordinary item of $393,000, or $0.09 per share, was $3.3
million or $0.82 per share. The extraordinary item related to a one-time
charge in the third quarter for repayment of approximately $31 million in
variable rate debt with a $30 million 7.89% fixed rate 10-year loan, and the
replacement of the Company's credit line.
Revenues increased $4.1 million, or 24%, in 1995, as a result of the
properties acquired during 1994 and added revenues from the newly created
Senior Care Division. Rent revenues including tenant reimbursements and
parking fees increased $2.4 million from $16.5 million to $18.9 million. This
increase was due primarily to the acquisition of the following five properties
in 1994: Holy Cross Medical Plaza in January, Regents Medical Center in June,
Sherman Oaks Medical Plaza in June, Cigna HealthCare Building in July and 1095
Irvine Boulevard in October. Operations for the year ended December 31, 1994,
included only partial year revenues for all of the five properties except for
the 1095 Irvine Boulevard building. The 1995 revenues benefited from a full
25
<PAGE>
year of operations except for the 1095 Irvine Boulevard building which was
placed in service in August of 1995. The MOB Division also benefited from
higher occupancy rates: 94% for 1995, up from an average of 92% in 1994.
In late 1994, the Company changed its collection practices and made a
deliberate effort to pursue all delinquent accounts. Some were resolved in
direct negotiations with tenants while others were litigated. By the end of
1995, substantially all delinquencies were resolved through judgments, payment
plans or dissolutions. The previous backlog of uncollected rents has been
reduced through a combination of collections and write-offs.
Under generally accepted accounting principals, the Company is required to
average the billable rent due over the term of its leases and include a
portion of future years' billable rent increases in the current year's rent
revenues. This accounting practice creates an "unbilled rent receivable" from
the Company's tenants. In conjunction with the preparation of its financial
statements, the Company reviews all receivable accounts, including its
unbilled rent receivable for purposes of determining the collectability of
such receivables. Management believes that the overall trend toward larger
medical provider groups has contributed toward the financial stability of the
existing tenant population which, in turn, has led to improved collections of
monthly rent billings. This improved collections rate has allowed the Company
to decrease its allowance for doubtful accounts including the corresponding
allowance for unbilled rent receivable. The Company believes that the current
level of allowance is appropriate.
Beginning late in the second quarter of 1995, the Company began recognizing
revenues from its new Senior Care Division. Interest and loan fees totaled
$1.8 million in 1995 versus $113,000 in 1994.
Total 1995 expenses increased approximately $3.5 million, or 26%, from $13.6
million in 1994 to $17.1 million in 1995. The majority of the increase was the
result of added interest expense which climbed $2.8 million from $3.6 million
in 1994 to $6.4 million in 1995. Two factors fueled the increase: higher debt
and increased rates of interest. Outstanding debt increased from $74.0 million
to $111.6 million at December 31, 1994 and 1995, respectively. In general,
1995 interest rates were up from 1994 and this was amplified by the fact that
rate caps on the Company's interest rate protection agreements also increased
from 4% in 1994 to 5% in 1995.
Property operating expense and depreciation also increased from 1994 to
1995. The overall increase of $1.2 million is primarily the result of showing
a full year of expense for the acquired properties. The effect of increased
operating expense was partially offset by a $768,000 difference relating to
costs and reimbursements from the 1994 Northridge earthquake.
General and administrative costs increased $342,000, at about the same rate
as revenues, largely as a result of investments in consulting services,
travel, professional and other fees related to creating the new Senior Care
Division.
LIQUIDITY AND CAPITAL RESOURCES
The Company obtains its liquidity from multiple internal and external
sources. Internally, funds are derived from the operation of medical offices
and senior care lending activities and primarily consist of FFO less
dividends. Since the IPO, external sources have primarily consisted of various
secured loans and lines of credit. The Company's ability to expand its medical
office and senior care lending operations requires continued access to capital
to fund new acquisitions and loans. During 1996, the Company's payout ratio
was approximately 77% of its funds from operations. Undistributed FFO were
used internally to fund maintenance capital expenditures necessary to maintain
the Company's existing properties. All of the Company's properties secure
existing notes payable.
26
<PAGE>
Debt Structure
As of December 31, 1996, the Company had $109.0 million of debt, of which
$44.6 million, or 40.9%, was floating rate and $64.4 million, or 59.1%, was
fixed rate. The seven loans comprising the $109.0 million in debt are
described below.
In August 1995 the Company borrowed $30 million from Nomura for ten years at
a fixed rate of 7.89%. The note had an outstanding balance of approximately
$29.5 million as of December 31, 1996 and amortizes on a 25-year schedule. The
following Properties have been pledged as security for the $30 million blanket
first trust deed: 405 North Bedford, 415 North Bedford, 416 North Bedford and
435 North Bedford Drive.
Concurrently with the above described fixed rate loan from Nomura, the
Company obtained a new $20 million credit line from Tokai Bank of California.
The loan is secured by a blanket first trust deed on Holy Cross, St. Joseph's
Professional Building in Burbank, St. Joseph's Medical Center of Orange, and
the recently acquired Tustin Properties. The credit line requires monthly
interest payments at 30-day LIBOR plus 1.75% and is due August 17, 1998. At
any time prior to maturity, and upon 30 days notice, the Company may convert
the outstanding balance or increments thereof into a five year term loan. Upon
conversion, the new term loan would bear interest at the variable rate of
prime plus 50 basis points or LIBOR plus 175 basis points. As of December 31,
1996 the Company owed $15.4 million and was paying interest at the rate of
7.3% per annum. As of March 21, 1997, $18.0 million in principal is
outstanding at a rate of 7.55% per annum.
In May 1996, the Company repaid loans of $6.2 million, $6.4 million and $6.9
million secured by the Cigna HealthCare property, Sherman Oaks Medical Plaza,
and Regents Medical Center, respectively with the proceeds of a new loan from
Nomura. These loans were retired with the proceeds of a new $19.8 million ten
year fixed rate loan bearing interest at 8.5%. When the Company reacquired the
436 North Bedford Drive property, the Company borrowed an additional $15.2
million as part of the purchase price and increased the $19.8 million loan to
$35.0 million with a due date of August 10, 2006. As of December 31, 1996, the
note had an outstanding balance of approximately $34.9 million and amortizes
on a 25 year schedule. The following properties have been pledged as security
for the $35 million blanket first trust deed: Sherman Oaks Medical Plaza,
Regents Medical Center, Cigna HealthCare Building and 436 North Bedford Drive.
The 435 North Roxbury Drive property is security for the $8.1 million loan
from Citibank, N.A. ("Citibank"). The mortgagor on this loan is 435 North
Roxbury Drive, Ltd. (the "Roxbury Partnership"), of which the Operating
Partnership is the sole general partner with a 61.75% interest. The Citibank
loan came due on June 1, 1996 at which time the loan had a $9.0 million
balance. Under the terms of the extension agreement, Citibank required the
Roxbury Partnership to make two principal payments aggregating $650,000 and,
effective June 1, 1996, to begin making monthly principal reductions of
$35,000 per month plus accrued interest. The agreement extended the loan's
maturity date from June 1, 1996 to May 31, 1999. In addition, pursuant to the
loan extension agreement, the Roxbury Partnership is also required to make
additional semiannual principal reductions equal to the amount of excess cash
flow from the 435 North Roxbury Drive property. The interest rate is adjusted
monthly to 30-day LIBOR plus 1.50%. In order to comply with the terms of the
loan extension agreement, the Operating Partnership made a $350,000 unsecured
loan to the Roxbury Partnership to enable it to meet the principal repayments
required by the loan extension. As of March 31, 1997 the interest rate on the
Citibank loan was 7.4%.
In December 1995, the Company obtained a one-year $14.0 million term loan
from GMAC-CM which is secured by $21.0 million of face value, Series A Health
Care Revenue Bonds issued by the Massachusetts Industrial Finance Agency. The
loan was originally due on December 6, 1996 and required monthly interest only
payments, in arrears, at prime plus 1.5%. As of December 31, 1996 interest was
accruing at a rate of 9.75%. The Company exercised its option to extend the
loan for six months to June 6, 1997. In March 1997 the Company sold the Series
A Health Care Revenue Bonds to the GLN Venture, pursuant to which the GLN
Venture assumed the $14 million debt to GMAC-CM.
27
<PAGE>
During 1996, the Company obtained three new loans from GMAC-CM secured by
the Company's senior care notes receivable. The three loans provided the
Senior Care Division with $12.0 million in cash which was used to fund new
senior care loans secured by The Phoenix, a senior care facility in Olathe,
Kansas, Beacon Manor in Indiana Township, Pennsylvania and Carroll Manor in
Hyattsville, Maryland. As of December 31, 1996, two loans totaling $7.1
million remained outstanding, including a $3.0 million one-year term loan due
May 31, 1997 and a $4.1 million one-year term loan due June 17, 1997. Both of
these one-year term loans require interest only monthly payments at the prime
rate of interest as established by Citibank (8.25% as of December 31, 1996).
Capital Commitments
In November 1996, the Company entered into the GLN Venture with Nomura to
expand the Senior Care Division's activities. The Company and Nomura have
agreed to contribute $10.0 million and $30.0 million, respectively, to the GLN
Venture, and GMAC-CM has agreed to provide the GLN Venture with a credit line
of up to $50.0 million secured by loans originated by the GLN Venture.
The Company is responsible for administering the short term loans originated
by the GLN Venture and will receive reimbursement from the GLN Venture for its
general and administrative expenses associated with the GLN Venture. Due to
its structure, the operations of the GLN Venture do not appear on the
Company's balance sheet and there is no recourse to the Company for the GLN
Venture. Cash flow generated by each loan made through the GLN Venture is
distributed in the following order: (i) to repay GMAC-CM's outstanding
principal and interest; (ii) to repay capital of the loan allocated to Nomura;
(iii) to repay capital of the loan allocated to the Company; (iv) to pay
Nomura a 9% return on its capital; (v) to pay the Company a 9% return on its
capital. After cash generated by loans made through the GLN Venture is
distributed as described above, Nomura and the Company share equally in any
further distributions.
In February 1997, the Company also entered into the PHP Joint Venture, which
purchased six primary health care facilities in New Jersey, totaling
approximately 80,000 rentable square feet, at a purchase price of
approximately $22.4 million. The Company and PHP funded the $4.4 million down
payment in proportion to their ownership interests in the PHP Joint Venture
(80.5% for the Operating Partnership and 19.5% for PHP), with the Company's
contribution financed by a loan from the GLN Venture to the Company. The
balance of the purchase price was financed by two loans from PHP and secured
by first and second deeds of trust. Subject to certain conditions, PHP has an
option to acquire the Company's interest in the PHP Joint Venture at any time
prior to July 31, 1997. PHP has leased the properties from the PHP Joint
Venture pursuant to a 25 year net operating lease and has a three-year
contract as a preferred provider to Blue Cross/Blue Shield of New Jersey (the
seller of the properties) whereby PHP will provide medical services on the
properties to Blue Cross/Blue Shield of New Jersey insurance plan members.
Charles P. Reilly, a director of the Company and Chairman of the Compensation
Committee of the Board of Directors of the Company, is Chairman of the Board
of Directors of PHP.
The Company owes approximately $21.1 million on notes payable that are due
in 1997. All of the Company's loans due in 1997 are secured by bonds or loans
related to senior care facilities. Management believes that the notes and
bonds receivables of the Company will be paid or sold and a portion of the
proceeds will be used to extinguish the related notes payable prior to their
due dates and in the ordinary course of business.
The Company expects to continue meeting its short term liquidity and
operating requirements, as well as providing sufficient funds to maintain
stockholder distributions in accordance with REIT requirements, in the short
and long term, through its working capital and cash flow provided by
operations. The Company expects to continue meeting its long-term liquidity
requirements, such as refinancing mortgages, financing acquisitions and
financing major capital improvement projects through long-term borrowings, the
issuance of debt securities and the offering of additional equity securities.
28
<PAGE>
As of March 21, 1997, the Company had $49.3 million of outstanding debt at
variable rates ranging from 7% to 9 3/4%. The interest rates on these loans
may be affected by inflationary conditions and economic factors.
Distributions
In 1996, the Company announced two distribution increases. During the first
quarter of 1996 the Company increased the quarterly dividend from $0.31 per
share in the fourth quarter of 1995 to $0.32 per share for the first quarter
of 1996. In the third quarter, the Company again increased the dividend to
$0.36 per share from its first and second quarter levels of $0.32 per share.
The effective dividend for the year ended December 31, 1996 was $1.36 per
share as compared to $1.24 per share for the year ended December 31, 1995. The
Company declared a quarterly distribution for the first quarter of 1997 in the
amount of $0.36 per share to be paid on April 16, 1997 to stockholders of
record as of March 31, 1997, which is equal to an annualized distribution of
$1.44 per share.
Financing Policies
To the extent that the Board of Directors of the Company decides to seek
additional funding, the Company may raise such capital using various means,
including retention of internally generated funds (subject to the distribution
requirements in the Code with respect to REITs), existing working capital and
possibly the issuance of additional debt (secured or unsecured) or equity
securities or any combination of the above. If, as is the case with this
Offering, the Board of Directors determines to raise additional equity capital
to fund investments by the Operating Partnership, the Company will contribute
such funds to the Operating Partnership as a contribution to capital and
purchase of additional interests in the Operating Partnership. It is
anticipated that borrowings will continue to be made through the Operating
Partnership or other entities, although the Company may also incur
indebtedness that may be re-borrowed by the Operating Partnership on the same
terms and conditions as are applicable to the Company's borrowing of such
funds. The Company has not established any limit on the number or amount of
mortgages or unsecured debt that may be placed on any single property or on
its portfolio as a whole.
The Board of Directors also has the authority to cause the Operating
Partnership to issue additional Units in any manner (and subject to certain
limitations in the Partnership Agreement on such terms and for such
consideration) as it deems appropriate.
The Board of Directors of the Company may also decide to seek financing for
the purposes of managing the Company's balance sheet by adjusting the
Company's existing capitalization. The refinancing of the Company's balance
sheet may entail the issuance and/or retirement of debt, equity or hybrid
securities.
Funds from Operations
Industry analysts generally consider Funds from Operations (FFO) to be an
appropriate measure of the performance of a REIT. The Company's financial
statements use the concept of FFO as defined by the Board of Governors of the
National Association of Real Estate Investment Trusts ("NAREIT"). FFO is
calculated to include the minority interests' share of income since the
Operating Partnership's net income is allocated proportionately among all
owners of Operating Partnership Units. The number of Operating Partnership
units held by the Company is identical to the number of outstanding shares of
the Company's Common Stock, and owners of Operating Partnership Units may, at
their discretion, convert their Units into shares of Common Stock on a one-
for-one basis.
The Company believes that in order to facilitate a clear understanding of
the operating results of the Company, FFO should be examined in conjunction
with the Company's net income as presented in the Selected Financial Data and
Consolidated Financial Statements and Notes thereto included elsewhere in this
Form 10-K and the additional data presented below. The table on the following
page presents an analysis of FFO and additional data for each of the four
quarters and the year ended December 31, 1996 for the Operating Partnership:
29
<PAGE>
G&L REALTY CORP.
FUNDS FROM OPERATIONS
FOR THE FOUR QUARTERS AND YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
QUARTER YEAR
---------------------------------- -------
1ST 2ND 3RD 4TH 1996
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FUNDS FROM OPERATIONS (1):
- --------------------------
Net income........................ $ 1,353 $ 5,957 $ 1,195 $ 1,196 $ 9,701
Extraordinary (gain).............. -- (9,311) -- -- (9,311)
Minority interest in Operating
Partnership...................... 153 (380) 151 141 65
------- ------- ------- ------- -------
Operating Partnership income
(loss) before extraordinary gain
(loss)........................... 1,506 (3,734) 1,346 1,337 455
Loss on disposition of real
property......................... -- 4,874 -- -- 4,874
Depreciation of real estate
assets........................... 667 642 610 702 2,621
Amortization of deferred lease
costs............................ 40 30 17 19 106
Adjustment for minority interest
in consolidated partnership...... (7) (7) (7) (7) (28)
------- ------- ------- ------- -------
Operating Partnership funds from
operations....................... 2,206 1,805 1,966 2,051 8,028
Minority interest in Operating
Partnership...................... (224) (184) (215) (224) (847)
------- ------- ------- ------- -------
FUNDS FROM OPERATIONS............ $ 1,982 $ 1,621 $ 1,751 $ 1,827 $ 7,181
======= ======= ======= ======= =======
Dividends declared................ $ 1,300 $ 1,300 $ 1,462 $ 1,463 $ 5,525
Pay-out ratio..................... 65.6% 80.2% 83.5% 80.1% 76.9%
Weighted average shares and
units:........................... 4,521.7 4,523.1 4,561.0 4,561.0 4,541.7
ADDITIONAL DATA
- ---------------
Cash Flows:
- -----------
Operating activities............. 854 3,087 1,378 407 5,726
Investing activities............. (149) (15,990) (9,109) (1,835) (23,413)
Financing activities............. (227) 13,891 7,447 2,472 18,639
Capital Expenditures:
- ---------------------
Building improvements............ 70 128 168 72 438
Tenant improvements.............. 328 391 372 611 1,702
Furniture, fixtures and
equipment....................... 2 25 15 38 80
Leasing commissions.............. 33 34 31 51 149
Depreciation and Amortization:
- ------------------------------
Depreciation of real estate
assets.......................... 667 642 610 702 2,621
Depreciation of non-real estate
assets.......................... 11 11 11 14 47
Amortization of deferred lease
costs........................... 40 30 17 19 106
Amortization of capitalized
financing costs................. 99 157 139 108 503
Rents:
- ------
Straight-line rent............... 4,022 3,651 3,723 4,400 15,796
Billed rent...................... 4,056 3,765 3,697 4,273 15,791
</TABLE>
- -------
(1) FFO represents net income computed in accordance with GAAP, excluding
gains (or losses) from debt restructuring and sales of property, plus
depreciation of real property and after adjustments for consolidated and
unconsolidated entities in which the Company holds a partial interest. FFO
is computed in accordance with the definition adopted by NAREIT effective
as of January 1, 1996. FFO should not be considered as an alternative to
net income or any other indicator developed in accordance with generally
accepted accounting principles, consistently applied, including measures
of liquidity such as cash flows from operations, investing, and financing
activities. FFO is helpful in evaluating the performance of a real estate
portfolio considering the fact that historical cost accounting assumes the
value of real estate diminishes predictably over time. FFO is only one of
a range of indicators which should be considered in determining a
company's operating performance. The methods of calculating FFO among
different companies are subject to variation; therefore, FFO may be an
invalid measure for purposes of comparing companies. Also, the elimination
of depreciation and gains and losses on sales of property may not be a
true indicator of an entity's ability to recover its investments in
properties.
30
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Schedules on Page 32.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item is contained in the Company's
definitive proxy statement for its 1997 annual meeting of stockholders which
will be filed on or before April 30, 1997 and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is contained in the Company's
definitive proxy statement for its 1997 annual meeting of stockholders which
will be filed on or before April 30, 1997 and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in the Company's
definitive proxy statement for its 1997 annual meeting of stockholders which
will be filed on or before April 30, 1997 and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained in the Company's
definitive proxy statement for its 1997 annual meeting of stockholders which
will be filed on or before April 30, 1997 and is incorporated herein by
reference.
31
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES:
<TABLE>
<CAPTION>
PAGE
REFERENCE
FORM 10-K
---------
<C> <S> <C>
1. CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report................................ F-1
Consolidated Balance Sheets as of December 31, 1996 and
1995........................................................ F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994........................... F-3
Consolidated Statement of Stockholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994..................... F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994........................... F-5 and 6
Notes to Consolidated Financial Statements.................. F-7 to 20
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
All schedules have been omitted because the required information is not
present in amounts sufficient to require submission of the schedule or
because the required information is included elsewhere in the
Consolidated Financial Statements or the Notes thereto.
</TABLE>
(B) REPORTS ON FORM 8-K
Not applicable.
32
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
G&L Realty Corp.:
We have audited the accompanying consolidated balance sheets of G&L Realty
Corp. and subsidiaries (the Company) as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December
31, 1996 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Los Angeles, California
February 10, 1997
F-1
<PAGE>
G&L REALTY CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
ASSETS
------
<S> <C> <C>
Rental properties (Notes 3, 7, 16, 17 and 20):
Land............................................. $ 17,095,674 $ 15,262,221
Building and improvements, net................... 76,135,387 76,884,946
------------ ------------
Total rental properties........................ 93,231,061 92,147,167
Cash and cash equivalents (Note 2)................. 2,231,913 1,280,191
Other receivables, net (Note 6).................... 681,772 129,265
Tenant rent and reimbursements receivable, net
(Note 5).......................................... 1,048,428 709,436
Unbilled rent receivable, net (Note 11)............ 1,477,527 2,581,756
Mortgage loans and bonds receivable, net (Note 8).. 14,358,181 33,633,635
Assets available for sale (Note 9)................. 20,522,652 --
Deferred charges and other assets, net (Note 4).... 2,444,751 2,865,707
------------ ------------
TOTAL ASSETS................................... $135,996,285 $133,347,157
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Notes payable (Note 7)........................... $109,025,417 $111,626,872
Accounts payable and other liabilities........... 1,462,210 1,766,718
Distributions payable............................ 1,641,970 1,401,607
Tenant security deposits......................... 1,033,580 1,032,437
------------ ------------
Total liabilities.............................. 113,163,177 115,827,634
Commitments and Contingencies (Note 13)............ -- --
Minority interest in consolidated partnership...... (2,718,474) (2,846,777)
Minority interest in Operating Partnership......... 3,103,479 2,099,204
STOCKHOLDERS' EQUITY (Notes 12 and 15):
Preferred shares--$.01 par value, 10,000,000
shares authorized, no shares issued............. -- --
Common shares--$.01 par value, 50,000,000 shares
authorized, 4,062,500 and 4,062,000 shares
issued and outstanding as of December 31, 1996
and 1995, respectively.......................... 40,625 40,620
Additional paid-in capital....................... 23,710,054 23,705,496
Distributions in excess of net income............ (1,302,576) (5,479,020)
------------ ------------
Total stockholders' equity..................... 22,448,103 18,267,096
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..... $135,996,285 $133,347,157
============ ============
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-2
<PAGE>
G&L REALTY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rental (Note 11)...................... $15,796,163 $16,801,193 $14,740,358
Tenant reimbursements................. 727,874 731,860 586,974
Parking............................... 1,250,760 1,388,042 1,196,264
Interest, loan fees and other......... 6,711,900 1,834,558 113,268
Other................................. 548,851 651,884 650,009
----------- ----------- -----------
Total revenues ..................... 25,035,548 21,407,537 17,286,873
----------- ----------- -----------
EXPENSES:
Property operations................... 5,695,802 5,198,933 4,317,016
Earthquake costs (reimbursements)..... -- (133,162) 635,075
Depreciation and amortization......... 3,276,287 4,047,277 3,696,993
Interest.............................. 8,819,270 6,372,002 3,625,316
General and administrative............ 1,786,319 1,639,678 1,297,694
Loss on disposition of real estate
(Note 16)............................ 4,873,788 -- --
----------- ----------- -----------
Total expenses...................... 24,451,466 17,124,728 13,572,094
----------- ----------- -----------
Income from operations before minority
interests and
extraordinary gains (losses)........... 584,082 4,282,809 3,714,779
Minority interest in consolidated
partnership............................ (128,303) (130,987) (167,494)
Minority interest in Operating
Partnership............................ (65,065) (417,016) (352,794)
----------- ----------- -----------
Income before extraordinary gains
(losses)............................... 390,714 3,734,806 3,194,491
Extraordinary gains (losses) (net of
minority interest) (Note 16)........... 9,310,730 (393,401) --
----------- ----------- -----------
Net income ............................. $ 9,701,444 $ 3,341,405 $ 3,194,491
=========== =========== ===========
Per share data:
Income before extraordinary gains
(losses)............................. $ 0.10 $ 0.91 $ 0.77
Extraordinary gains (losses).......... 2.23 (0.09) 0.00
----------- ----------- -----------
Net income............................ $ 2.33 $ 0.82 $ 0.77
=========== =========== ===========
Weighted average number of outstanding
shares................................. 4,171,535 4,090,769 4,159,000
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-3
<PAGE>
G&L REALTY CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DISTRIBUTIONS TOTAL
------------------ PAID-IN IN EXCESS OF STOCKHOLDERS'
SHARES AMOUNT CAPITAL NET INCOME EQUITY
--------- ------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1994. 4,159,000 $41,590 $25,123,557 $ (127,206) $25,037,941
Adjustments to
accumulated deficit.... (100,736) (100,736)
Net income.............. 3,194,491 3,194,491
Distributions declared.. (6,820,760) (6,820,760)
--------- ------- ----------- ----------- -----------
BALANCE DECEMBER 31,
1994................... 4,159,000 41,590 25,022,821 (3,753,475) 21,310,936
Adjustment to
accumulated deficit.... (503,763) (503,763)
Repurchase of common
stock.................. (97,000) (970) (813,562) (814,532)
Net income.............. 3,341,405 3,341,405
Distributions declared.. (5,066,950) (5,066,950)
--------- ------- ----------- ----------- -----------
BALANCE DECEMBER 31,
1995................... 4,062,000 40,620 23,705,496 (5,479,020) 18,267,096
Additional shares
issued................. 500 5 4,558 4,563
Net income.............. 9,701,444 9,701,444
Distributions declared.. (5,525,000) (5,525,000)
--------- ------- ----------- ----------- -----------
BALANCE DECEMBER 31,
1996................... 4,062,500 $40,625 $23,710,054 $(1,302,576) $22,448,103
========= ======= =========== =========== ===========
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-4
<PAGE>
G&L REALTY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income.......................... $ 9,701,444 $ 3,341,405 $ 3,194,491
Adjustments to reconcile net income
to net cash provided by operating
activities:
Extraordinary (gains) losses on
retirement of debt............... (9,310,730) 393,401 --
Loss on disposition of rental
property......................... 4,873,788 -- --
Depreciation and amortization..... 3,276,287 4,047,277 3,696,993
Minority interests................ 193,368 548,003 520,288
Unbilled rent receivable.......... (5,053) (116,879) (232,402)
Allowance for doubtful notes,
bonds and accounts receivable.... 876,925 (310,074) 55,090
(Increase) decrease in:
Prepaid expense.................. (152,558) 73,720 37,374
Other receivables................ (891,165) 576,351 (263,040)
Tenant rent and reimbursements
receivable...................... (842,483) (117,456) 39,424
Accrued interest receivable and
loan fees....................... (1,102,005) (629,244) --
Increase (decrease) in:
Accounts payable and other
liabilities..................... (893,157) 11,347 316,636
Tenant security deposits......... 1,143 44,468 266,772
------------ ------------ ------------
Net cash provided by operating
activities......................... 5,725,804 7,862,319 7,631,626
------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to rental properties...... (2,220,278) (1,872,508) (1,830,716)
Purchases of real estate assets..... (21,549,954) (800,000) (41,713,637)
Acquisition of assets available for
sale............................... (307,050) -- --
Pre-acquisition costs............... (1,010,749) (1,203,838) --
Return of pre-acquisition deposits.. 2,011,727 -- --
Leasing commissions................. (148,819) (156,541) (208,015)
Investment in notes and bonds
receivable......................... (14,755,383) (33,004,391) --
Principal payments received from
notes and bonds receivable......... 14,567,240 -- 12,200,000
------------ ------------ ------------
Net cash used in investing
activities......................... (23,413,266) (37,037,278) (31,552,368)
------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Notes payable proceeds.............. 47,000,000 82,156,447 28,652,248
Repayment of notes payable.......... (21,018,432) (44,547,752) (134,069)
Deferred financing costs............ (1,396,858) (1,775,674) (397,070)
Sale (purchase) of common stock and
partnership units.................. 4,563 (814,532) --
Distributions....................... (5,950,089) (5,732,322) (6,272,447)
------------ ------------ ------------
Net cash provided by financing
activities......................... 18,639,184 29,286,167 21,848,662
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 951,722 111,208 (2,072,080)
BEGINNING CASH AND CASH EQUIVALENTS. 1,280,191 1,168,983 3,241,063
------------ ------------ ------------
ENDING CASH AND CASH EQUIVALENTS.... $ 2,231,913 $ 1,280,191 $ 1,168,983
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for
interest........................... $ 8,874,008 $ 6,200,777 $ 3,600,365
============ ============ ============
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-5
<PAGE>
G&L REALTY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
NONCASH INVESTING ACTIVITIES:
Property acquired in exchange for
partnership units (Note 17).............. $ 549,010
===========
NONCASH FINANCING ACTIVITIES:
Net cost of assets transferred to lien
holder (Note 16):
Land...................................... $ 2,046,547
Buildings and improvements................ 21,600,736
Tenant improvements....................... 477,245
Accumulated depreciation................ (3,557,101)
-----------
Total rental property................. 20,567,427
Unbilled rent receivable, net............. 1,109,282
Other receivables, net.................... 90,658
Tenant rent and reimbursements receivable,
net...................................... 249,566
Leasing commissions, net.................. 180,782
Deferred charges and other assets......... 87,424
Accounts payable and other liabilities.... 588,649
-----------
Net cost of assets transferred to lien
holder..................................... 22,873,788
Nonrecourse debt extinguished............... 28,500,000
-----------
Excess of nonrecourse debt over net cost of
assets surrendered......................... $ 5,626,212
===========
Noncash gain from transfer of property to
lien holder:
Extraordinary gain on retirement of debt.. $ 9,310,730
Minority interest share of extraordinary
gain..................................... 1,055,650
-----------
Extraordinary gain on retirement of debt.. 10,366,380
Extraordinary loss related to other
refinancing transactions................. 133,620
-----------
Extraordinary gain on transfer of property
to lien holder........................... 10,500,000
Loss on disposition of rental property.... (4,873,788)
-----------
Net noncash gain from transfer of property
to lien holder............................. $ 5,626,212
===========
Distributions declared not yet paid......... $ 1,462,500 $1,401,607 $1,604,706
=========== ========== ==========
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-6
<PAGE>
G&L REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
G&L Realty Corp. (the "Company") was formed as a Maryland corporation on
September 15, 1993 by Daniel M. Gottlieb and Steven D. Lebowitz to continue
the ownership, management, acquisition and development operations of medical
office buildings conducted previously by G&L Development, the Company's
predecessor. All of the Company's assets are held by, and all of its
operations are conducted through, the following Delaware limited partnerships:
G&L Realty Partnership, L.P. (the "Operating Partnership")
G&L Realty Financing Partnership II, L.P. (the "Realty Financing
Partnership")
G&L Medical Partnership, L.P. (the "Medical Partnership")
The Company, as the sole general partner and as owner of an approximately
90% ownership interest, controls the Operating Partnership. The Company also
controls the Realty Financing Partnership through its wholly owned subsidiary
G&L Realty Financing II, Inc., a Delaware corporation, which is the sole
general partner and 1% owner of the Realty Financing Partnership. The sole
limited partner and 99% owner of the Realty Financing Partnership is the
Operating Partnership. In May 1996 and in conjunction with a financing
transaction, the Company transferred three buildings into a newly formed
limited partnership, the Medical Partnership, a Delaware limited partnership.
The sole limited partner and 99% owner of the Medical Partnership is the
Operating Partnership. The Company controls the Medical Partnership through
its wholly owned subsidiary, G&L Medical, Inc., a Delaware corporation, which
is the sole general partner and 1% owner of the Medical Partnership.
Reference, in these consolidated financial statements, to the Company, its
operations, assets and liabilities includes the operations, assets and
liabilities of its wholly owned subsidiaries, the Operating Partnership, the
Realty Financing Partnership, the Medical Partnership and 435 North Roxbury
Drive, Ltd., (the "Roxbury Partnership"), a California limited partnership in
which the Operating Partnership owns a 61.75% partnership interest and is the
sole general partner.
Prior to August 1995, the Company, through its wholly owned subsidiary, G&L
Financing, Inc., a Delaware corporation, was the sole general partner and 1%
owner of G&L Realty Financing Partnership, L.P. (the "Financing Partnership"),
a Delaware limited partnership. The Operating Partnership was the sole limited
partner and 99% owner of the Financing Partnership which owned six medical
office buildings. These six buildings were security for a $42.5 million credit
line which was paid off on August 17, 1995. Thereafter, the Financing
Partnership was liquidated and the assets were transferred to its partners.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business. The Company is a growth-oriented health care Real Estate
Investment Trust ("REIT") with two major areas of operation: (a) the Medical
Office Building Division, which owns, develops and manages high-quality,
strategically located properties, and (b) the Senior Care Division, which
provides loan funds to facilitate the sale of skilled nursing and assisted
living facilities to various entities throughout the United States.
Basis of presentation. The accompanying consolidated financial statements
include the accounts of the Company, the Operating Partnership, the Realty
Financing Partnership, the Medical Partnership and, prior to its liquidation,
the Financing Partnership. The interests in the Operating Partnership and
Roxbury Partnership not owned by the Company have been reflected in minority
interests. All significant intercompany accounts and transactions have been
eliminated in consolidation. Prior year amounts have been reclassified to
conform to the current year's presentation.
Properties. The Operating Partnership, the Realty Financing Partnership, the
Medical Partnership and the Roxbury Partnership own a 100% fee simple interest
in all of the properties.
F-7
<PAGE>
G&L REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income taxes. The Company qualified and elected to be taxed as a REIT for
federal income tax purposes. Such qualification and taxation as a REIT depends
upon the Company's ability to meet, on a continuing basis, various REIT
qualification requirements. As a REIT, the Company is eligible for a deduction
for dividends paid to shareholders. For the years ended December 31, 1996,
1995 and 1994, the Company paid dividends to its stockholders in excess of its
earnings and profits (See Note 12). Therefore, no provisions for federal
income taxes are included in the accompanying financial statements.
Real estate and depreciation. Rental property is recorded at cost less
accumulated depreciation. Depreciation is computed on a straight-line basis
over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 40 years
Tenant improvements......................................... Life of lease
Furniture, fixtures and equipment........................... 5 years
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations and all costs directly related to
acquisitions are capitalized.
Revenue recognition. Base rental income is recognized on a straight-line
basis over the term of the lease regardless of when payments are due. Certain
leases include rent concessions and escalation clauses creating an effective
rent which is included in unbilled rent receivable (Note 11).
Cash and cash equivalents. All demand and money market accounts and short-
term investments in governmental funds with a maturity of three months or less
are considered to be cash and cash equivalents. Cash equivalents are carried
at cost which approximates fair value due to the short period of time to
maturity. As of December 31, 1996, the Company had $1,966,993 in a segregated
interest bearing account to be used for debt service due in January 1997,
current property taxes, insurance and property improvements. Throughout the
year, the Company maintained balances in various operating and money market
accounts in excess of federally insured limits.
Deferred charges and other assets. Deferred charges and other assets consist
of leasing commissions, deferred loan fees, financing costs, investments,
deposits and prepaid expenses.
Leasing commissions are amortized on a straight-line basis over the lives of
the leases which range typically from five to ten years. Deferred loan fees
are amortized over the terms of the respective agreements.
The Company incurred costs relating to new loans and certain refinancings,
interest rate protection agreements and a $20 million credit facility (Note
7). Refinancing costs are capitalized and amortized over the term of the
related loan. Interest rate protection agreement fees are capitalized and
amortized over the term of the agreements.
Minority interest in consolidated partnership. The Operating Partnership, as
sole general partner, has a 61.75% ownership interest in the Roxbury
Partnership which owns the property located at 435 North Roxbury Drive. The
minority interest is a debit balance that resulted from depreciation
allocations and cash distributed to minority interest partners in excess of
their original investment and subsequent accumulated earnings. It is
management's opinion that the deficit is adequately secured by the
unrecognized appreciated value of the Roxbury property and will be recovered
through an accumulation of undistributed earnings or sale of the property.
Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
G&L REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-lived assets. The Company reviews long-lived assets for impairment
whenever events or changes in circumstances indicate that an asset's book
value exceeds the undiscounted expected future cash flows to be derived from
that asset. Whenever undiscounted expected future cash flows are less than the
book value, the asset will be reduced to a value equal to the net present
value of the expected future cash flows and an impairment loss will be
recognized. Management believes that the expected future cash flows of its
long-lived assets exceeded the related book values as of December 31, 1996 and
1995.
Per share data. Earnings per share are computed based upon the weighted
average number of common shares of the Company's Common Stock, $.01 par value
(the "Common Stock") outstanding during the period. The treasury stock method
is used to determine the number of incremental common equivalent shares
resulting from options granted under the Company's stock incentive plan.
Computation of the number of shares is included in Note 15.
3. BUILDINGS AND IMPROVEMENTS
Buildings and improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Buildings and improvements................... $ 81,676,782 $ 84,638,984
Tenant improvements.......................... 4,708,425 3,450,249
Furniture, fixtures and equipment............ 358,798 296,070
------------ ------------
86,744,005 88,385,303
Less accumulated depreciation and
amortization................................ (10,608,618) (11,500,357)
------------ ------------
Total...................................... $ 76,135,387 $ 76,884,946
============ ============
</TABLE>
4. DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Loan fees......................................... $2,060,620 $1,459,051
Pre-acquisition costs............................. 17,194 1,203,838
Leasing commissions............................... 462,071 1,115,595
Prepaid expense and other assets.................. 272,004 46,643
---------- ----------
2,811,889 3,825,127
Less accumulated amortization..................... (367,138) (959,420)
---------- ----------
Total........................................... $2,444,751 $2,865,707
========== ==========
</TABLE>
F-9
<PAGE>
G&L REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. TENANT RENT AND REIMBURSEMENTS RECEIVABLE
Tenant rent and reimbursements receivable are net of the allowance for
uncollectible amounts of $261,425, $7,500 and $107,556 as of December 31,
1996, 1995 and 1994, respectively. The activity in the allowance for
uncollectible tenant accounts consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of year............... $ 7,500 $ 107,556 $ 213,107
Additions................................ 498,888 110,284 55,090
Charge-offs.............................. (244,963) (210,340) (160,641)
--------- --------- ---------
Balance, end of year..................... $ 261,425 $ 7,500 $ 107,556
========= ========= =========
</TABLE>
6. OTHER RECEIVABLES
Other receivables consist of all outstanding balances due to the Company
other than amounts due from current tenants and are net of the allowance for
uncollectible amounts of $248,000 as of December 31, 1996. There was no
balance in the allowance account as of December 31, 1994 and 1995 and no
activity during the years then ended. The activity in the allowance for
uncollectible accounts for the year ended December 31, 1996 was as follows:
<TABLE>
<S> <C>
Balance, beginning of year...................................... $ --
Additions....................................................... 248,000
Charge-offs..................................................... --
--------
Balance, end of year............................................ $248,000
========
</TABLE>
F-10
<PAGE>
G&L REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
------------ ------------
<S> <C> <C>
Note due August 14, 1995, collateralized by deed
of trust, interest payable monthly at 30-day
LIBOR plus 1.25% per annum (retired May 24,
1996)............................................ -- $ 28,500,000
Note due May 31, 1999, collateralized by deed of
trust, interest payable monthly at 30-day LIBOR
plus 1.50% per annum, note requires monthly
principle payments of $35,000 plus semiannual
payments equal to excess cash flow, as defined in
the loan extension agreement..................... $ 8,070,000 9,000,000
Note due June 6, 1997, collateralized by a
security interest in $20,655,000 face value of
unrated bonds, interest payable monthly at the
Prime rate of interest plus 1.5% per annum....... 14,000,000 14,000,000
Note due January 1, 1998, collateralized by deed
of trust, monthly payments of $67,908 of
principal and interest, interest at 8.75% per
annum (retired May 24, 1996)..................... -- 6,065,375
Note due February 23, 1998, collateralized by deed
of trust, monthly payments of $41,807 of
principal and interest, interest at 7.55% per
annum (retired May 24, 1996)..................... -- 5,806,821
Note due February 23, 1998, collateralized by deed
of trust, interest payable monthly at 7.55% per
annum (retired May 24, 1996)..................... -- 921,090
Credit line due August 17, 1998, collateralized by
deeds of trust, $20 million available, interest
payable monthly at 30-day LIBOR plus 1.75% per
annum............................................ 15,400,000 17,450,000
Note due June 17, 1997 collateralized by note
receivable and deed
of trust, interest payable monthly at the
Citibank Prime rate of interest ................. 4,125,000 --
Note due May 31, 1997 collateralized by note
receivable and deed of trust, interest payable
monthly at the Citibank Prime rate of interest... 3,000,000 --
Note due August 10, 2006, collateralized by deed
of trust, monthly payments of $281,641 of
principal and interest, interest at 8.515% per
annum............................................ 34,915,383 --
Note due August 10, 2005, collateralized by deed
of trust, monthly payments of $229,263 of
principal and interest, interest at 7.89% per
annum............................................ 29,515,034 29,883,586
------------ ------------
Total........................................... $109,025,417 $111,626,872
============ ============
</TABLE>
As of December 31, 1996, 30-day LIBOR was 5.53% and the Citibank Prime rate
was 8.25%.
F-11
<PAGE>
G&L REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Aggregate future principal payments as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
-----------
<S> <C>
1997....................................................... $ 22,339,735
1998....................................................... 16,675,042
1999....................................................... 8,158,845
2000....................................................... 994,008
2001....................................................... 1,094,840
Thereafter................................................. 59,762,949
------------
Total.................................................... $109,025,417
============
</TABLE>
As of December 31, 1996, the Company had a $300,000 letter of credit
outstanding in favor of a secured lender. The letter of credit is held as
additional collateral for tenant security deposits outstanding in the event of
a default on the secured loan.
8. MORTGAGE LOANS AND BONDS RECEIVABLE
Mortgage loans and bonds receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
----------- -----------
<S> <C> <C>
Note due December 31, 1996, collateralized by deed
of trust, interest payable monthly at 12% per
annum............................................. $ -- $ 1,472,500
Note due May 1, 1997, collateralized by deed of
trust, interest payable monthly at 12% per annum.. -- 4,042,500
Note due December 31, 1996, collateralized by deed
of trust, interest payable monthly at 12% per
annum............................................. -- 2,215,000
Note due July 31, 1997, collateralized by deed of
trust, interest accrues monthly at 12% per annum.
Interest payable in monthly installments of
$40,800........................................... 4,466,008 4,080,000
Note due May 31, 1997, construction loan,
collateralized by deed of trust and pledged stock,
interest accrues monthly at 10% per annum. Loan
commitment for $1,225,000......................... 1,185,597 1,135,597
Unsecured note due April 1, 2008, interest payable
semiannually at 10% per annum..................... 150,000 --
Note due September 9, 1997, collateralized by deed
of trust, interest payable monthly at 12% per
annum............................................. 1,285,500 --
Note due June 30, 1997, collateralized by deed of
trust, interest payable monthly at 12% per annum.. 6,175,000 --
Unrated Series A tax-exempt Industrial Revenue
Bonds due October 1, 2017, collateralized by deed
of trust, interest payable semiannually on April 1
and October 1 at the rate of 9.75% per annum...... -- 20,970,000
Unrated Series B Industrial Revenue Bonds due
October 1, 2019, collateralized by deed of trust,
interest payable semiannually on April 1 and
October 1 at the rate of 9.5% per annum........... 5,000,000 5,000,000
----------- -----------
Total mortgage loans and bonds receivable.......... $18,262,105 $38,915,597
=========== ===========
</TABLE>
F-12
<PAGE>
G&L REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Mortgage loans and bonds receivable (balance from
previous page).................................. $18,262,105 $38,915,597
Accrued interest................................. 2,783,602 2,561,125
Reimbursable loan fees and costs advanced........ 100,651 161,056
Loan impound deposits............................ 326,635 --
Discount on Series A and B bonds................. (6,739,812) (8,004,143)
Allowance for uncollectible amounts.............. (375,000) --
----------- -----------
Total mortgage loans and bonds interest
receivable...................................... $14,358,181 $33,633,635
=========== ===========
</TABLE>
Aggregate future principal pay-downs as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
-----------
<S> <C>
1997.......................................................... $13,112,105
2000.......................................................... 11,785
2001.......................................................... 12,860
After 2001.................................................... 5,125,355
-----------
Total....................................................... $18,262,105
===========
</TABLE>
The activity in the allowance for uncollectible notes receivable for the
year ended December 31, 1996 was as follows:
<TABLE>
<S> <C>
Balance, beginning of year...................................... $ --
Additions....................................................... 375,000
Charge-offs..................................................... --
--------
Balance, end of year............................................ $375,000
========
</TABLE>
9. ASSETS AVAILABLE FOR SALE
Assets available for sale as of December 31, 1996 consist of the following:
<TABLE>
<S> <C>
Unrated Series A tax-exempt Industrial Revenue Bonds due October
1, 2017, collateralized by deed of trust, interest payable
semiannually at 9.75% per annum (including accrued interest of
$503,466)...................................................... $20,190,602
Land............................................................ 280,000
Unsecured subordinated notes receivable due February 1, 2006,
interest payable semiannually at 12.0% per annum (including
accrued interest of $2,050).................................... 27,050
Miscellaneous supplies and equipment............................ 25,000
-----------
Total assets available for sale................................. $20,522,652
===========
</TABLE>
10. FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments is
determined using available market information and appropriate valuation
methodologies. However, considerable judgment is necessary to interpret market
data and develop the related estimates of fair value. The use of different
market assumptions or estimation methodologies may have a material impact on
the estimated fair value amounts.
F-13
<PAGE>
G&L REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash, cash equivalents, tenant rent and other accounts receivable, accounts
payable and other liabilities. The carrying amount of these instruments
approximates fair value due to their short-term maturities.
Notes payable. The carrying amount approximates fair value because the
interest rates are comparable to rates currently being offered to the Company.
Mortgage loans and bonds receivable. The estimated fair values of these
assets are based upon market values of loans and bonds receivable with similar
characteristics adjusted for risk inherent in the underlying transactions.
Management estimates the fair value of these assets to approximate their
amortized cost basis and, as such, there are no realized or unrealized gains
or losses to report.
11. FUTURE MINIMUM RENT
The Company has operating leases with tenants that expire at various dates
through 2010. The minimum rents due under these leases are subject to either
scheduled fixed increases or adjustments based on the Consumer Price Index. In
general, the retail leases require tenants to pay their pro-rata share of
property taxes, insurance and common area operating costs, while the medical
office leases require tenants to reimburse the Company for annual increases in
property taxes, insurance and specified operating expenses over a base year
amount.
Generally accepted accounting principles require that rents due under
operating leases with fixed increases be averaged over the life of the lease.
This practice, known as "straight-line rents," creates an unbilled rent
receivable in any period during which the amount of straight-line rent exceeds
the actual rent billed (this occurs primarily at the inception of the lease
period). As the lease approaches its expiration date, billed rent will
eventually exceed the amount of straight-line rent causing the unbilled rent
receivable to decline. The straight-line rent calculation assumes no new or
renegotiated rents or extension periods during the life of the lease and
excludes operating cost reimbursements. The following table summarizes future
rents due under existing leases and the corresponding straight-line rent
calculation:
<TABLE>
<CAPTION>
STRAIGHT- UNBILLED
YEAR ENDING LINE BILLABLE RENT
DECEMBER 31 RENT RENT RECEIVABLE
----------- ----------- ----------- ----------
<S> <C> <C> <C>
1997.................................. $12,724,855 $12,619,101 $ (105,754)
1998.................................. 10,158,365 10,103,768 (54,597)
1999.................................. 8,072,534 8,056,632 (15,902)
2000.................................. 6,652,884 6,782,225 129,340
2001.................................. 5,138,925 5,309,823 170,899
Thereafter............................ 15,170,613 16,938,142 1,767,529
----------- ----------- ----------
Total............................... $57,918,176 $59,809,691 $1,891,515
=========== =========== ==========
</TABLE>
The activity in the allowance for unbilled rent, recorded as a reduction of
rental revenue, consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of the year......... $ 967,150 $1,177,168 $1,333,543
Additions.............................. -- -- --
Charge-offs............................ (553,162) (210,018) (156,375)
--------- ---------- ----------
Balance, end of the year............... $ 413,988 $ 967,150 $1,177,168
========= ========== ==========
</TABLE>
F-14
<PAGE>
G&L REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. STOCKHOLDERS' EQUITY
Distributions in excess of net income. As described in Note 2, the Company
has elected to be treated as a REIT for federal income tax purposes. As such,
the Company is required to distribute at least 95% of its annual taxable
income. In reporting periods for which distributions exceed net income,
stockholders' equity will be reduced by the excess of distributions over net
income. Conversely, net income in excess of distributions increases
stockholders' equity. The following table reconciles distributions in excess
of net income for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Distributions in excess of net income at
beginning of year............................... $(5,479,020) $(3,753,475)
Net income during the year....................... 9,701,444 3,341,405
Distributions declared........................... (5,525,000) (5,066,950)
----------- -----------
Distributions in excess of net income at end of
year............................................ $(1,302,576) $(5,479,020)
=========== ===========
</TABLE>
For years ended December 31, 1996, 1995 and 1994, cash distributed to
shareholders exceeded the Company's taxable income and is therefore considered
to be a return of capital. Approximately 42.25%, 47.66% and 64.58% of the
distributions paid for the years ended December 31, 1996, 1995 and 1994,
respectively, represent a return of capital to shareholders.
The Company declared a quarterly distribution for the first quarter of 1997
in the amount of $0.36 per share to be paid on April 16, 1997 to stockholders
of record on March 31, 1997. This distribution is equal to an annualized
distribution of $1.44 per share.
13. COMMITMENTS AND CONTINGENCIES
Neither the Company, the Operating Partnership, the Realty Financing
Partnership, the Medical Partnership, the Roxbury Partnership nor any of the
assets within their portfolios of medical office buildings, parking
facilities and retail space (the "Properties") is currently a party to any
material litigation.
14. CONCENTRATION OF CREDIT RISK
All of the Company's medical office buildings are located in southern
California, other than the properties owned by GL/PHP, LLC in which the
Company holds an 80.5% interest (see Note 18). Most of the tenants in these
properties provide specialized health care services. The customers of the
tenants primarily reside in the nearby area. The ability of the tenants to
honor the terms of their respective leases is dependent upon the economic,
regulatory and social factors affecting the communities and industry in which
the tenants operate.
A substantial portion of the Company's assets are invested in debt
instruments secured by long-term senior care or skilled nursing facilities.
The ability of the facility owners to pay their obligations as they come due,
as well as their ability to obtain other permanent financing through the sale
of bonds or other forms of long-term financing, is dependent upon their
ability to attract patients who are able to pay for the services they require.
These facilities have complex licensing requirements as do the professionals
they employ. The majority of the services rendered are paid by various
federal, state and local agencies. Each of these facilities function in a
complex web of changing government regulations which have a significant impact
on economic viability.
F-15
<PAGE>
G&L REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. STOCK INCENTIVE PLAN
As of December 31, 1996, the Company had a stock incentive plan under which
an aggregate of 520,000 shares of the Company's Common Stock are reserved for
issuance. Options are granted at per share amounts not less than fair market
value at the date of grant and expire ten years thereafter. Granted options
vest in even increments over a two or three year period beginning one year
from the grant date. The Company does not charge the estimated compensation
cost of options granted against income. Compensation cost is estimated to be
the fair value of all options granted based on the Binary option-pricing
model. The costs associated with options granted in each of the years ended
December 31, 1996 and 1995 are $353,132, and $392,067, respectively. No
options were issued during 1994. If the compensation costs had been charged
against income at the time of vesting, the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1996 1995 1994
------ ------ ------
(IN THOUSANDS,
EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net Income
As reported......................................... $9,701 $3,341 $3,194
Pro forma........................................... $9,577 $3,289 $3,137
Earnings per share
As reported......................................... $ 2.33 $ 0.82 $ 0.77
Pro forma........................................... $ 2.30 $ 0.80 $ 0.75
</TABLE>
In December 1995, the Company canceled all outstanding options for 218,800
shares of Common Stock which were originally issued at the time of the
Company's initial public offering at an average exercise price of $18.25 per
share. Concurrently, the Company issued new unvested options for the same
aggregate amount with exercise prices of $9.625 per share, the market price on
the date the new options were granted.
A summary of the status of the Company's stock incentive plan as of December
31, 1996, 1995 and 1994, and changes during the years ending on those dates is
presented in the following table. The average price presented below represents
the weighted average exercise price based upon the market value at the grant
date.
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ----------------- ----------------
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year...................... 256,500 $10.10 238,000 $18.20 240,000 $18.20
Granted.................. 142,600 15.00 241,500 9.65 -- --
Exercised................ (500) 9.15 -- -- -- --
Forfeited or canceled.... (31,500) $10.70 (223,000) $18.25 (2,000) $18.25
------- ------ -------- ------ ------- ------
Outstanding, end of year... 367,100 $11.95 256,500 $10.10 238,000 $18.20
======= ====== ======== ====== ======= ======
Options exercisable at
year-end.................. 89,433 10.80 20,500 15.50 126,400 18.20
Weighted-average fair value
of options granted during
the year.................. $ 2.50 $ 1.30 $ --
</TABLE>
F-16
<PAGE>
G&L REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information relating to the Company's stock
incentive plan as of December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------
AVERAGE
REMAINING LIFE NUMBER
EXERCISE PRICE NUMBER (IN MONTHS) EXERCISABLE
-------------- ------- -------------- -----------
<S> <C> <C> <C>
$ 9.15................................. 2,000 101 2,000
9.65................................. 206,800 108 68,933
10.00................................. 2,000 102 1,000
10.40................................. 3,000 107 3,000
13.65................................. 61,800 113 2,500
13.75................................. 20,000 114 --
15.65................................. 2,000 118 --
15.90................................. 7,500 116 --
17.00................................. 50,000 120 --
17.65................................. 12,000 84 12,000
</TABLE>
Fair value of the plan. As of December 31, 1996, the Company estimated the
fair value of all options granted to be $726,291, calculated based on the
following assumptions:
<TABLE>
<S> <C>
Weighted average grant price of stock............................ $11.95
Risk-free interest rate.......................................... 6.43%
Expected life of the option...................................... 5 years
Expected volatility of Stock..................................... 25.12%
Expected Dividends............................................... $ 1.44
</TABLE>
The Company assumes that the equivalent risk-free interest rate is the
closing market rate, on the last trading day of the year, for ten-year
treasury bills.
The Company's stock incentive plan was introduced in conjunction with its
initial public offering on December 16, 1993. As indicated earlier, most of
the options issued in 1993 were repriced and reissued in December 1995;
therefore, there is insufficient historical data to provide an accurate
indicator as to the expected life of the options. For purposes of computing
the estimated life of the outstanding option agreements, the Company has
assumed the life to be five years.
The Company uses the treasury stock method for purposes of determining the
number of shares to be issued to in conjunction with the Company's stock
incentive plan. At a weighted average exercise price of $11.95 and a market
price of $17.00 per share as of December 31, 1996, the number of shares to be
issued is 109,050.
16. LOSS ON DISPOSITION OF REAL PROPERTY AND EXTRAORDINARY GAIN
In May 1996, the Company transferred ownership of the property located at
436 North Bedford Drive in Beverly Hills, California (the "Bedford Property")
to the holder of the $28.5 million non-recourse lien in satisfaction of the
debt ( the "deed-in-lieu transaction"). In August, the Medical Partnership
reacquired the Bedford Property for approximately $18,100,000 which was funded
by a $15,200,000 loan from Nomura Asset Capital Corporation ("Nomura") and
$2,900,000 in cash.
As a result of the deed-in-lieu transaction, the Company recorded a
$4,873,788 loss on disposition of the property (the difference between book
value and market value) and a $10,500,000 extraordinary gain from retirement
of the related $28,500,000 lien.
F-17
<PAGE>
G&L REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1996, the Company refinanced three properties and obtained a new
$19,800,000 loan from Nomura. The properties, pledged as collateral for the
new loan, were subsequently transferred to the Medical Partnership along with
the related $19,800,000 loan. In conjunction with the refinancing transaction,
the Company negotiated a $350,000 discount on one note, and incurred other
costs and prepayment penalties totaling $483,620. In conjunction with the
$19,800,000 refinancing, the Company incurred a net extraordinary loss of
$133,620. The net extraordinary gain was adjusted to $9,310,730 to reflect the
portion of the gain attributable to the minority interest.
In August 1996, Nomura increased the Medical Partnership's original
$19,800,000 loan by $15,200,000 in conjunction with the reacquisition of the
Bedford Property. Consequently, the repayment terms were adjusted to reflect
the new principal balance of $35,000,000.
17. ACQUISITION OF ASSETS AND RELATED PARTY TRANSACTION
On June 14, 1996 the Partnership and 445 Bedford, LLC, a California limited
liability company ("445 LLC"), acquired undivided tenant-in-common interests
in two medical office buildings, a hospital and a parcel of vacant land in
Tustin, California (the "Tustin Properties"). The Tustin Properties were
acquired for a sum of $4,633,957, of which $1,357,010 was contributed in cash
by 445 LLC. Daniel M. Gottlieb and Steven D. Lebowitz, both directors and
officers of the Company, and Reese L. Milner II, a director of G&L Realty,
have financial interests in 445 LLC.
The Partnership acquired Mr. Milner's interest in 445 LLC for $808,000,
after which 445 LLC redeemed the Partnership's interest in 445 LLC for an
increased interest in the Tustin Properties. On June 28, 1996, 445 LLC
contributed its remaining interest in the Tustin Properties to the Partnership
in exchange for 39,215 newly issued Partnership units, valued at $549,010. The
newly issued Partnership units are convertible into G&L Realty common stock
one year from the date of issuance on a one-for-one basis. These new units
were issued at an effective rate of $14.00 per unit which included a premium
over the $13.00 closing price of G&L Realty's common stock on May 1, 1996, the
commitment date.
The funds contributed by 445 LLC toward the purchase of the Tustin Property
were obtained as part of a tax deferred exchange involving the sale of real
estate previously held by 445 LLC to an unrelated third party.
18. SUBSEQUENT EVENT
On February 28, 1997, the Partnership entered into a joint venture with PHP
Healthcare Corporation ("PHP"). GL/PHP, LLC is a newly formed Delaware limited
liability company which recently purchased six medical buildings in New
Jersey. The properties, acquired from Blue Cross/Blue Shield of New Jersey for
approximately $22.4 million, will be leased to PHP under the terms of a 25
year net operating lease which provides fixed rent escalations during the term
of the lease. PHP retained a 19.5% interest in GL/PHP, LLC and has the right
to acquire the Company's 80.5 percent interest in the new venture at any time
prior to July 31, 1997. Mr. Charles P. Reilly, a director of the Company and
Chairman of the Compensation Committee of the Board of Directors of the
Company, is Chairman of the Board of Directors of PHP.
F-18
<PAGE>
G&L REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY INFORMATION
Summarized consolidated quarterly financial information for the periods as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
1996
Revenues.................... $6,677,826 $6,298,937 $5,821,560 $6,237,225
Expenses.................... 5,315,865 4,921,002 9,520,456 4,694,143
Income before extraordinary
gain....................... 1,195,457 1,195,452 (3,353,313) 1,353,118
Extraordinary gain.......... -- -- 9,310,730 --
---------- ---------- ---------- ----------
Net income.................. $1,195,457 $1,195,452 $5,957,417 $1,353,118
========== ========== ========== ==========
Per share data:
Before extraordinary gain. $ 0.29 $ 0.29 $ (0.80) $ 0.32
Extraordinary gain........ -- -- 2.23 --
---------- ---------- ---------- ----------
Net income................ $ 0.29 $ 0.29 $ 1.43 $ 0.32
========== ========== ========== ==========
Weighted average number of
shares outstanding......... 4,171,550 4,171,550 4,171,550 4,171,490
1995
Revenues.................... $6,141,991 $5,340,606 $5,037,020 $4,887,920
Expenses.................... 4,976,026 4,090,633 4,225,701 3,832,368
Income before extraordinary
loss....................... 1,028,583 1,089,792 689,903 926,528
Extraordinary loss.......... -- (393,401) -- --
---------- ---------- ---------- ----------
Net income.................. $1,028,583 $ 696,391 $ 689,903 $ 926,528
========== ========== ========== ==========
Per share data:
Before extraordinary loss. $ 0.25 $ 0.27 $ 0.17 $ 0.22
Extraordinary loss........ -- (0.10) -- --
---------- ---------- ---------- ----------
Net income................ $ 0.25 $ 0.17 $ 0.17 $ 0.22
========== ========== ========== ==========
Weighted average number of
shares outstanding......... 4,062,000 4,062,000 4,080,077 4,159,000
</TABLE>
F-19
<PAGE>
G & L REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20. CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31,
1996
<TABLE>
<CAPTION>
COST CAPITALIZED
INITIAL COST TO COMPANY SUBSEQUENT TO ACQUISITION
------------------------ --------------------------
ENCUMBRANCES BUILDING AND BUILDING AND
DESCRIPTION (SEE NOTES) LAND IMPROVEMENTS LAND IMPROVEMENT
----------- ------------ ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
405 North Bedford
Drive............ (See Note A) $ 2,186,188 $ 4,076,313 $ 451,640 $ 9,527,242
415 North Bedford
Drive............ (See Note A) 292,120 572,705 -- 545,769
416 North Bedford
Drive............ (See Note A) 427,087 247,475 -- 2,276,228
435 North Bedford
Drive............ (See Note A) 1,143,512 2,853,168 -- 2,263,812
435 North Roxbury
Drive............ $ 8,070,000 161,652 390,494 39,149 2,353,142
436 North Bedford
Drive............ (See Note B) 2,675,000 15,317,406 -- 164,729
439 North Bedford
Drive............ -- -- 108,689 -- 31,987
Holy Cross
Medical Plaza.... (See Note C) 2,556,200 10,255,679 -- 862,308
St. Joseph's
Professional
Building......... (See Note C) 1,300,000 3,935,536 -- 132,110
Sherman Oaks
Medical Plaza.... (See Note B) 1,453,826 8,278,226 -- 1,356,672
Regents Medical
Center........... (See Note B) 1,470,000 8,389,545 -- 882,040
Cigna HealthCare
Bldg. ........... (See Note B) 1,260,000 7,282,341 -- --
1095 Irvine
Boulevard........ (See Note C) 474,300 663,465 -- 452,797
14662 Newport
Avenue........... (See Note C) 645,000 1,899,556 -- --
14591 Newport
Avenue........... (See Note C) 160,000 35,845 -- --
14642 Newport
Avenue........... (See Note C) 400,000 1,032,547 -- 197,381
------------ ----------- ------------ ----------- --------------
Total........... $ 8,070,000 $16,604,885 $65,338,990 $ 490,789 $ 21,046,217
============ =========== ============ =========== ==============
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED
AT CLOSE OF PERIOD (SEE NOTE E) DATE OF
-------------------------------------------------- CONSTRUCTION
BUILDING AND ACCUMULATED OR
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION REHABILITATION
----------- ----------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
405 North Bedford
Drive............ $ 2,637,828 $13,603,555 $ 16,241,383 $ 2,924,138 1947/1987
415 North Bedford
Drive............ 292,120 1,118,474 1,410,594 457,927 1955
416 North Bedford
Drive............ 427,087 2,523,703 2,950,790 683,314 1946/1986
435 North Bedford
Drive............ 1,143,512 5,116,980 6,260,492 1,934,553 1950/1963/1984
435 North Roxbury
Drive............ 200,801 2,743,636 2,944,437 953,588 1956/1983
436 North Bedford
Drive............ 2,675,000 15,482,135 18,157,135 140,414 1980
439 North Bedford
Drive............ -- 140,676 140,676 17,048 1956/1983
Holy Cross
Medical Plaza.... 2,556,200 11,117,987 13,674,187 961,374 1985
St. Joseph's
Professional
Building......... 1,300,000 4,067,646 5,367,646 325,935 1987
Sherman Oaks
Medical Plaza.... 1,453,826 9,634,898 11,088,724 860,721 1969/1993
Regents Medical
Center........... 1,470,000 9,271,585 10,741,585 685,659 1989
Cigna HealthCare
Bldg. ........... 1,260,000 7,282,341 8,542,341 439,975 1992
1095 Irvine
Boulevard........ 474,300 1,116,262 1,590,562 81,653 1994
14662 Newport
Avenue........... 645,000 1,899,556 2,544,556 10,689 1969/1974
14591 Newport
Avenue........... 160,000 35,845 195,845 455 1969
14642 Newport
Avenue........... 400,000 1,229,928 1,629,928 22,832 1985
----------- ------------ ------------ ------------
Total........... $17,095,674 $86,385,207 $103,480,881 $10,500,275
=========== ============ ============ ============
Realty Financing
Partnership
(See Note A)..... 29,515,034
Medical
Partnership
(See Note B)..... 34,915,383
Credit Line (See
Note C).......... 15,400,000
Other Notes (See
Note D).......... 21,125,000
------------
Total
encumbrances..... $109,025,417
============
</TABLE>
Depreciation is computed on the straight-line basis over the estimated useful
lives of the assets, as follows:
Building and improvements.............. 40 years
Tenant improvements.................... Life of lease
The changes in total real estate assets and accumulated depreciation for the
years ended December 31, are as follows:
<TABLE>
<CAPTION>
TOTAL REAL ESTATE ASSETS
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of year...... $103,351,455 $106,057,031 $ 63,553,568
Improvements, acquisition......... 24,256,513 2,997,234 42,503,463
Dispositions...................... (24,127,087) (5,702,810) --
------------ ------------ ------------
Balance at end of year............ $103,480,881 $103,351,455 $106,057,031
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED DEPRECIATION
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year......... $11,449,613 $13,946,965 $11,270,565
Depreciation......................... 2,606,373 3,202,929 2,676,400
Dispositions......................... (3,555,711) (5,700,281) --
----------- ----------- -----------
Balance at end of year............... $10,500,275 $11,449,613 $13,946,965
=========== =========== ===========
</TABLE>
- -------
Note A: The Realty Financing Partnership owns the following properties, which
are each security for a blanket first trust deed: 405 North Bedford, 415
North Bedford, 416 North Bedford and 435 North Bedford.
Note B: The Medical Partnership owns the following properties, which are each
security for a blanket first trust deed: Sherman Oaks Medical Plaza,
Cigna HealthCare Building, Regents Medical Center and 436 North
Bedford.
Note C: The Operating Partnership owns the following properties, which are
each security for a blanket first trust deed for the Credit Line: Holy
Cross Medical Plaza, St. Joseph's Professional Building, St. Joseph's
of Orange-Medical Office Building and the Tustin Hospital properties
on Newport Avenue which include a hospital, an adjacent parcel of
vacant land and two medical office buildings.
Note D: Total debt as of December 31, 1996 includes $14,000,000 which is
secured by unrated, tax-exempt Series A and B bonds and two term loans
totaling $7,125,000 which are secured by notes receivable.
Note E: The aggregate costs for federal income tax purposes were $111,635,622
as of December 31, 1996.
F-20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
G&L Realty Corp.
By: /s/ Quentin Thompson
___________________________________
QUENTIN THOMPSON
CONTROLLER AND SECRETARY
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
Date: April 9, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Daniel M. Gottlieb Chief Executive Officer, April 9, 1996
____________________________________ Co-Chairman of the Board
DANIEL M. GOTTLIEB and Director (Principal
Executive Officer)
/s/ Steven D. Lebowitz President, Co-Chairman of April 9, 1996
____________________________________ the Board and Director
STEVEN D. LEBOWITZ
/s/ Quentin Thompson Controller and Secretary April 9, 1996
____________________________________ (Principal Financial and
QUENTIN THOMPSON Accounting Officer)
/s/ Richard s. Lesher Director April 9, 1996
____________________________________
RICHARD L. LESHER
/s/ Leslie D. Michelson Director April 9, 1996
____________________________________
LESLIE D. MICHELSON
/s/ Reese L. Milner II Director April 9, 1996
____________________________________
REESE L. MILNER II
/s/ Charles P. Reilly Director April 9, 1996
____________________________________
CHARLES P. REILLY
/s/ S. Craig Tompkins Director April 9, 1996
____________________________________
S. CRAIG TOMPKINS
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
*1 Form of Underwriting Agreement
3.1(1) Amended and Restated Articles of Incorporation of G&L
Realty Corp.
3.2(3) Amended and Restated Bylaws of G&L Realty Corp.
*4.1 Form of Articles Supplementary relating to the Series
A Preferred Stock
*4.2 Form of certificate of Series A Preferred Stock
*5.1 Opinion of Piper & Marbury L.L.P. as to the legality
of the Offering
*8.1 Opinion of Gibson, Dunn & Crutcher LLP as to federal
income tax consequences of the Offering
10.1(2) Executive Employment Agreement between G&L Realty
Corp. and Daniel M. Gottlieb
10.2(2) Executive Employment Agreement between G&L Realty
Corp. and Steven D. Lebowitz
10.3(2) Agreement of Limited Partnership of G&L Realty
Partnership, L.P.
10.4(1) 1993 Stock Incentive Plan
10.5(1) Form of Indemnity Agreement between G&L Realty Corp.
and directors and certain officers
10.6(1) Option Agreement for Purchase and Sale of 4955 Van
Nuys Boulevard ("Sherman Oaks Medical Plaza") by and
between G&L Development and Arthur Gilbert, as
Trustee of the Arthur Gilbert and Rosalinde Gilbert
1982 Trust, dated as of October 29, 1993
10.7(2) Option Notice with respect to Sherman Oaks Medical
Plaza
10.8(1) Agreement for Purchase and Sale of Limited
Partnership Interests (435 North Roxbury Drive, Ltd.)
between the Selling Partner (as defined therein) and
G&L Development, dated as of October 29, 1993
10.9(1) Agreement for Transfer of Partnership Interests and
Other Assets by and between G&L Realty Corp. and
Reese Milner, Helen Milner and Milner Development
Corp., dated as of October 29, 1993
10.10(1) Nomura Commitment Letter with respect to the
Acquisition Facility
10.11(3) Amended and Restated Mortgage Loan Agreement dated as
of January 11, 1995 among G&L Financing Partnership,
L.P., Nomura Asset Capital Corporation and Bankers
Trust Company of New York
10.12(1) Office Building Lease I between 405 North Bedford
Drive, Ltd. and Saint John's Hospital and Health
Center dated October 12, 1987
10.13(1) Office Building Lease II between 405 North Bedford
Drive, Ltd. and Saint John's Hospital and Health
Center dated as of October 12, 1987
10.14(1) Office Building Lease III between 405 North Bedford
Drive, Ltd. and Saint John's Hospital and Health
Center dated as of December 1, 1987
10.15(1) Investment Banking and Financial Advisory Agreement
between G&L Development and Gruntal & Co.,
Incorporated
10.16(1) Security Agreement dated as of December 16, 1993 by
and between Daniel M. Gottlieb, Steven D. Lebowitz
and Milner Investment Corporation
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.17(2) Security Agreement dated as of December 16, 1993 by
and between Daniel M. Gottlieb, Steven D. Lebowitz and
Reese L. Milner II
10.18(2) Security Agreement dated as of December 16, 1993 by
and between Daniel M. Gottlieb, Steven D. Lebowitz and
Reese L. Milner II
10.19(2) Security Agreement dated as of December 16, 1993 by
and between Daniel M. Gottlieb, Steven D. Lebowitz and
Reese L. Milner II, Helen Milner, and John Milner, as
Trustees of the Milner Trust
10.20(2) Security Agreement dated as of December 16, 1993 by
and between Daniel M. Gottlieb, Steven D. Lebowitz and
Reese L. Milner II
10.21(4) Amended and Restated Mortgage Loan Agreement by and
between G&L Realty Financing Partnership II, L.P., as
Borrower, and Nomura Asset Capital Corporation, as
Lender, dated as of October 31, 1995
10.22(4) Revolving Loan Agreement by and between G&L Realty
Partnership, L.P. and Tokai Bank of California dated
as of August 11, 1995
10.23(4) Property Management Agreement between G&L Realty
Financing Partnership II, L.P., as owner, and G&L
Realty Partnership, L.P., as agent, made August 10,
1995
10.24(5) Commitment Letter between G&L Realty Partnership, L.
P. and Nomura Asset Capital Corporation, dated as of
September 29, 1995
10.25(5) Loan and Security Agreement between G&L Realty
Partnership, L. P. and GMAC Commercial Mortgage
Corporation, dated as of December 5, 1995
10.26(5) Note in the amount of $14,000,000 executed by G&L
Realty Partnership, L. P. in favor of GMAC Commercial
Mortgage Corporation, dated as of December 5, 1995
10.27(5) Notification and Consent Agreement among G&L Realty
Partnership, L. P., GMAC Commercial Mortgage
Corporation, and Nomura International Trust Company,
dated as of December 5, 1995
10.28(5) Assignment of Bond executed by G&L Realty Partnership,
L. P., in favor of GMAC Commercial Mortgage
Corporation
10.27(6) Agreement of Purchase and Sale of Membership Interest
dated April 26, 1996, between Milner Investment
Corporation and G&L Realty Partnership, L.P.
10.28(7) Agreement for Deed in Lieu of Foreclosure by and among
G&L Realty Partnership, L.P., a Delaware Limited
Partnership, and Loan Asset Structured Trust I, a
Delaware trust, dated as of May 24, 1996
10.29(7) Property Management Agreement by and between Loan
Asset Structured Trust I, a Delaware trust, and G&L
Realty Partnership, L.P., a Delaware Limited
Partnership, dated as of May 24, 1996
10.30(8) Mortgage Loan Agreement dated as of May 24, 1996 by
and between G&L Medical Partnership, L.P. as Borrower
and Nomura Asset Capital Corporation as Lender
10.31(8) Agreement of Purchase and Sale of Membership Interest
dated April 26, 1996 by and between Milner Investment
Corporation as Seller and G&L Realty Partnership, L.P.
as Buyer
10.32(8) Letter of Agreement regarding purchase of Tustin
Hospital to 445 North Bedford Drive, LLC from G&L
Realty Partnership, L.P., dated June 12, 1996
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.33(8) Redemption Agreement by and between G&L Realty
Partnership, L.P. and 445 Bedford, LLC, dated as of
June 27, 1996
10.34(8) Property Contribution Agreement by and between G&L
Realty Partnership, L.P. as Purchaser and 445 Bedford,
LLC as Seller, dated as of June 28, 1996
10.35(8) Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing between 445 Bedford, LLC and G&L
Realty Partnership, L.P. as tenants in common
("Trustor"), Chicago Title Company ("Trustee"), and
Tokai Bank of California ("Beneficiary"), made to be
effective on June 12, 1996
10.36(9) Agreement of Purchase and Sale by and between Loan
Asset Structured Trust I, a Delaware trust ("Seller")
and G&L Medical Partnership, L.P., a Delaware limited
partnership ("Buyer"), dated August 29, 1996
10.37(9) Grant Deed in which Loan Asset Structured Trust I, a
Delaware trust ("Grantor"), grants certain real
property to G&L Medical Partnership, L.P., a Delaware
limited partnership ("Grantee"), recorded August 30,
1996
10.38 Limited Liability Company Agreement by and between G&L
Realty Partnership, L.P., a Delaware limited
partnership, and Property Acquisition Trust I, a
Delaware business trust, for the purpose of creating a
limited liability company to be named GLN Capital Co.,
LLC, dated as of November 25, 1996
10.39 Limited Liability Company Agreement by and between G&L
Realty Partnership, L.P., a Delaware limited
partnership, and PHP Healthcare Corporation, a
Delaware corporation, for the purpose of creating a
limited liability company to be named GL/PHP, LLC,
dated as of February 26, 1997
10.40 First Amendment To Limited Liability Company Agreement
entered into as of March 31, 1997 by and between G&L
Realty Partnership, L.P., a Delaware limited
partnership, and Property Acquisition Trust I, a
Delaware business trust, for the purpose of amending
that certain Limited Liability Company Agreement of
GLN Capital Co., LLC dated as of November 25, 1996
10.41 Bond Purchase Agreement dated as of March 31, 1997 by
and between GLN Capital Co., LLC (as Buyer) and G&L
Realty Partnership, L.P. (as Seller)
27 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-11 and amendments thereto (File No. 33-68984) and incorporated
herein by reference.
(2) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993 and incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994 and incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the Quarter ended September 30, 1995 and incorporated herein by
reference.
(5) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 and incorporated herein by reference.
(6) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996 and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Company's Form 8-K dated May 24,
1996 and incorporated herein by reference.
<PAGE>
(8) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996 and incorporated herein by
reference.
(9) Previously filed as an exhibit to the Company's Form 8-K dated August 30,
1996 and incorporated herein by reference.
<PAGE>
EXHIBIT 10.38
LIMITED LIABILITY COMPANY AGREEMENT
OF
GLN CAPITAL CO., LLC
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS................................................... 1
ARTICLE II FORMATION..................................................... 5
2.1 Organization.................................................. 5
2.2 Purpose and Nature of Business................................ 6
2.3 Name.......................................................... 6
2.4 Principal Place of Business................................... 6
2.5 Agent......................................................... 6
2.6 Term.......................................................... 6
ARTICLE III CAPITAL CONTRIBUTIONS......................................... 6
3.1 Capital Contributions......................................... 6
3.2 Additional Capital Contributions.............................. 7
3.3 Payment of Capita1 Contributions.............................. 7
3.4 No Return of Capita1 Contribution; No Interest................ 7
3.5 No Priority................................................... 7
3.6 Taxable Take Out Financing.................................... 7
3.7 NACC Loan..................................................... 7
ARTICLE IV CAPITAL ACCOUNTS; ALLOCATION OF NET INCOME
AND NET LOSS; DISTRIBUTIONS................................... 8
4.1 Capital Accounts.............................................. 8
4.2 Allocation of Net Income and Net Loss......................... 9
4.3 Allocations Generally......................................... 11
4.4 Distributions................................................. 11
4.5 Intentionally Deleted......................................... 13
4.6 Special Allocations........................................... 13
ARTICLE V MANAGEMENT.................................................... 14
5.1 Management Power and Authority................................ 14
5.2 Valuations.................................................... 17
5.3 Removal of Managing Member.................................... 17
5.4 Consent of Members............................................ 18
5.5 Time and Attention of the Members, Other Business Activities.. 19
5.6 Good Faith.................................................... 19
5.7 Exculpation and Indemnification of the Members................ 19
5.8 Interested Party Transactions................................. 20
5.9 Proscriptions................................................. 20
5.10 Contracts and Documents....................................... 20
5.11 Tax Matters................................................... 21
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
5.12 Payment of Costs and Expenses................................. 21
5.13 Credit Enhancement............................................ 21
5.14 Loan Servicing................................................ 22
5.15 Exclusivity................................................... 22
ARTICLE VI TRANSFER OF INTERESTS AND WITHDRAWALS OF MEMBERS.............. 22
6.1 Transfers..................................................... 22
6.2 Involuntary Withdrawal........................................ 23
6.3 No Withdrawal................................................. 23
6.4 PAT Transfer ................................................. 23
ARTICLE VII BUDGET........................................................ 23
ARTICLE VIII REPRESENTATIONS AND WARRANTIES................................ 24
8.1 Representations and Warranties of the Members................. 24
ARTICLE IX BUY-SELL...................................................... 25
9.1 Buy-Sell of All of Assets..................................... 25
9.2 Deadlock on Sale of an Asset.................................. 26
ARTICLE X RECORDS, ACCOUNTING AND REPORTS,
AND COMPANY FUNDS............................................. 26
10.1 Records and Accounting........................................ 26
10.2 Tax Information............................................... 27
10.3 Annual Reports; Monthly Reports............................... 27
10.4 Company Funds................................................. 28
ARTICLE XI DISSOLUTION AND WINDING UP.................................... 28
11.1 Events Causing Dissolution.................................... 28
11.2 Liquidation................................................... 29
ARTICLE XII AMENDMENTS ................................................... 29
ARTICLE XIII VOTING RIGHTS; MEETINGS....................................... 29
13.1 Meetings...................................................... 29
13.2 Proxies....................................................... 30
13.3 Conduct of Meetings........................................... 30
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE XIV MISCELLANEOUS................................................. 30
14.1 Notices....................................................... 30
14.2 Governing Law................................................. 31
14.3 Successors and Assigns........................................ 31
14.4 Entire Agreement.............................................. 31
14.5 Counterparts.................................................. 31
14.6 Members Not Agents ........................................... 31
14.7 Specific Performance ......................................... 31
14.8 Attorneys Fees................................................ 31
</TABLE>
SCHEDULES
1 Members, Percentage Interests, Capita1 Contributions and Nomura Loan
2 Members and Addresses
-iii-
<PAGE>
THIS LIMITED LIABILITY COMPANY AGREEMENT OF GLN CAPITAL CO., LLC is
entered into as of November 25, 1996 by and between G&L REALTY PARTNERSHIP, LP.,
a Delaware limited partnership and PROPERTY ACQUISITION TRUST I, a Delaware
business trust ("PAT").
BACKGROUND
----------
The parties have agreed to organize and operate a limited liability
company in accordance with the terms and subject to the conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth therein, the sufficiency of which is
acknowledged, it is hereby agreed as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 When used in this Agreement, the following terms have the meanings set
forth below:
"Acquisition Period" means the Period beginning on the date hereof and
ending twenty-four (24) months from the date hereof unless extended by mutual
agreement of the Members.
"Act" means the Delaware Limited Liability Company Act, as amended
from time to time.
"Additional Capital Contribution" has the meaning set forth in Section
-------
3.1(b).
- ------
"Adjusted Capital Account Deficit" has the meaning set forth in Section
-------
4.2(d).
- ------
"Affiliate" means with respect to any Person, any other Person
directly, or indirectly through one or more intermediaries, controlling,
controlled by or under common control with such Person.
"Agreement" means this Limited Liability Company Agreement, as
originally executed and as amended from time to time as herein provided.
"Annual Period" means any twelve month year commencing on April 1 and
ending on the next succeeding March 31.
<PAGE>
"Capital Account" means, with respect to any Member, the account to be
established and maintained by the Company for the Member as provided in Section
-------
4.1.
- ---
"Capital Contribution" means, with respect to any Member, the
cumulative sum of the Member's contributions to the capital of the Company
pursuant to Article III.
"Committed Capital" means the capital contributions agreed to be made
by each Member as set forth on Schedule 1.
----------
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Company" means the limited liability company created under this
Agreement and any limited liability company continuing the business of the
Company in the event of a dissolution and continuation as herein provided.
"Distributable Cash" means cash on hand of the Company from all
sources available for distribution to the Members after taking into account all
Company expenses, debts, liabilities and obligations then due and payable, and
less any Reserves before payment of NACC Loan Payments.
"Distribution Date" means thirty (30) days after the end of each
quarter.
"Effective Date" means the date of this Agreement.
"Facility(ies)" means any housing or retirement facility for older or
elderly persons acquired, financed or developed by the Company.
"Fiscal Year" means the annual accounting period of the Company, which
initially shall be April 1 to March 31.
"Interest" means an Interest Holder's share of the Net Income and Net
Losses of, and the right to receive distributions from the Company.
"Interest Holder" means any Person who validly holds an Interest as a
Member or as an unadmitted assignee of a Member.
"Involuntary Withdrawal" means, with respect to any Member, the
bankruptcy, insolvency, liquidation or dissolution of such Member under
applicable federal or state law.
"Loan(s)" means any loans made by the Company to Persons and secured
by Facilities.
2
<PAGE>
"Managing Member" means initially G&L Realty Partnership, L.P. and any
replacement or successor Managing Member.
"Member" means each Person signing this Agreement and any Person who
subsequently is admitted as a member of the Company.
"Membership Interest" means all of the rights of a Member in the
Company to the extent provided by law, subject, however, to the provisions of
this Agreement, including a Member's: (i) Interest; (ii) right to inspect the
Company's books and records; and (iii) right to participate in the management of
and vote on matters before the Company.
"NACC" means Nomura Asset Capital Corporation, a Delaware corporation.
"NACC Loan" means the $20,000,000 loan to be made by NACC to the
Company as described in Section 3.7.
-----------
"NACC Loan Payments" means payments of NACC Loan Interest, NACC Loan
Principal, or both.
"Net Asset Value" means the fair market value of the assets of the
Company, including without limitation the Facilities and Loans.
"Net Income" and "Net Loss" mean, for each Fiscal Year, the Company's
income or loss, as the case may be, for U.S. federal income tax purposes,
determined in accordance with Section 703(a) of the Code (for this purpose, all
items of income, gain, loss or deduction required to be stated separately
pursuant to Section 703(a)(1) of the Code shall be included in determining Net
Income or Net Loss), with the following adjustments:
(i) any income of the Company that is exempt from U.S federal income
tax and not otherwise taken into account shall be added to Net
Income or subtracted from Net Loss;
(ii) any expenditures of the type described in Section 705(a)(2)(B)
of the Code, or treated as Section 705(a)(2)(B) of the Code
expenditures pursuant to Regulations Section 1.704-
1(b)(2)(iv)(i), and not otherwise taken into account, shall be
subtracted from Net Income or added to Net Loss; and
(iii) the deduction for PAT Loan Interest shall not be included in
Net Income or Net Loss.
3
<PAGE>
"Percentage Interest" means, with respect to any Member, the Member's
percentage interest in Company distributions and allocations made to the Members
as set forth on Exhibit A.
"Person" means an individual, general partnership, limited
partnership, limited liability company, corporation, trust, estate or other
entity.
"Preferred Return" means the cumulative right given to each Member to
receive in respect of each Annual Period a sum equal to nine percent (9%) per
annum of the Members' then outstanding Preferred Capital Amount (computed from
time to time during any such Annual Period to reflect reductions in or additions
to such Preferred Capital Amount; and if such Preferred Capital Amount shall at
any time be reduced to zero, then the Preferred Return shall thereupon be
suspended until such time as such Capital Preferred Amount returns to a positive
figure). Such Preferred Return shall not constitute a guaranteed payment within
the meaning of Section 707(c) of the Code. The Preferred Return shall begin on
the date of any Initial or Additional Capital Contribution by a Member, and
shall be cumulative (but not compounded) from Annual Period to Annual Period if
not distributed for or with respect to any given Annual Period. Any amounts to
be distributed in connection with the foregoing during the first Annual Period
in which the Preferred Return begins shall be reduced ratably in the same ratio
as the number of days in such first Annual Period bears to 360, and all amounts
to be distributed on other than the last day of an Annual Period shall be
computed ratably based on the elapsed portion of such Annual Period.
"Preferred Capital Amount" means with respect to Members, the Initial
Capital Contribution of a Member, plus any Additional Contributions made by a
Member, less all distributions made to the Member as a return of Capital
Contribution as described in Section 4.4(c).
--------------
"Regulations" means, at any particular time, the regulations currently
in force as final or temporary regulations of the U.S. Department of Treasury
promulgated under the Code.
"Reserves" means any such amounts from time to time reserved,
designated or set aside from Company funds by the Members for the payment of,
among other amounts, actual or anticipated costs, payments, obligations and
liabilities of the Company of any kind, or to reflect appropriate valuations of
assets, all in accordance with generally accepted accounting principles.
"Tax Matters Member" means the Managing Member in the capacity
described in Section 5.9.
-----------
4
<PAGE>
The terms listed in the left column below are defined in the Article
or Sections in the right column below.
<TABLE>
<CAPTION>
Term Article/Section
- ---- ---------------
<S> <C>
Acceptance Notice Section 9.1
Acceptance Period Section 9.1
Annual Operating Budget Article VII
Consent Section 6.1
Buy-Sell Notice Section 9.1
Buy-Sell Valuation Section 9.1
Financing Costs Section 5.13
G&L Recitals
Initial Capital Contribution Section 3.1
Major Deadlock Section 9.1
Minimum Gain Section 4.2(d)
NACC Loan Interest Section 3.7
NACC Loan Principal Section 3.7
Nondefaulting Member Section 3.1(c)
Offeree Section 9.1
Offeror Section 9.1
PAT Recitals
Proposing Member Section 9.2
Rejection Notice Section 9.2
Removal Notice Section 5.3(a)
Return Calculation Section 5.3(b)
Sale Notice Section 9.2
Sale Property Section 9.2
Sale Property Acceptance Notice Section 9.2
Sale Property Acceptance Period Section 9.2
Sale Property Purchase Price Section 9.2
Tax Exempt Financing Section 5.13
Term Section 2.6
Transfer Section 6.1
Transfer Request Section 6.4
Trigger Amount Section 5.3(b)
</TABLE>
ARTICLE II
FORMATION
---------
2.1 Organization. The parties hereby organize a limited liability company
------------
pursuant to the Act and the provisions of this Agreement and, for that purpose,
have
5
<PAGE>
caused a Certificate of Formation to be prepared, executed and filed with the
offices of the Delaware Secretary of State on November 25, 1996.
2.2 Purpose and Nature of Business. The purpose, nature and character of
------------------------------
the business of the Company is solely to (i) acquire, own, construct, renovate,
repair, and operate the Facilities, (ii) makes Loans to Persons secured by
Facilities and (iii) engage in any and all business activities and affairs
incidental thereto. It is the intent of the parties that after the Acquisition
Period the Company shall commence to sell and liquidate the Facilities and the
Loans on an orderly basis.
2.3 Name. The name of the Company shall be GLN Capita1 Co., LLC or such
----
other name as may be determined by the Managing Member, provided that the name
may not include any reference to any Member without its written consent. From
time to time after the execution of this Agreement, the Managing Member shall
cause a fictitious business name statement for the Company to be filed,
published and maintained if and to the extent required by applicable law.
2.4 Principal Place of Business. The principal place of business of the
---------------------------
Company shall be 439 North Bedford, Beverly Hills, California 90210. The
Managing Member may at any time and from time to time change the Company's
principal place of business and may establish such additional places of business
as it may select, in which event the Managing Member shall so notify the other
Members.
2.5 Agent. The registered agent of the Company for service of process in
-----
the State of Delaware and any other jurisdiction where the Company's business
requires that an agent be designated is Corporation Service Company. The address
of the registered agent in the State of Delaware is 1013 Centre Road,
Wilmington, New Castle County, Delaware 19805.
2.6 Term. The term of the Company began upon the acceptance of the
----
Certificate of Formation by the office of the Delaware Secretary of State and
shall continue in existence until December 31, 2026 (the "Term"), unless its
existence is sooner terminated pursuant to this Agreement.
ARTICLE III
CAPITAL CONTRIBUTIONS
---------------------
3.1 Capital Contributions.
---------------------
(a) The Members have contributed or will contribute as their
respective initial Capital Contributions (the "Initial Capital Contributions")
the amounts set forth on Schedule 1. In addition, PAT has caused NACC to make an
----------
initial advance on the NACC Loan in the amount shown on Schedule 1.
----------
6
<PAGE>
(b) At the request of the Managing Member, each Member agrees to
contribute as Additional Capital Contributions (on a pro rata basis based on its
percentage of Committed Capital) the remainder of its Committed Capital as set
forth on Schedule 1 as and when needed by the Company. PAT's Committed Capital
----------
shall be funded one-third as an Additional Capital Contribution and two-thirds
by NACC as an advance on the NACC Loan. PAT shall cause NACC to make the
required advances on the NACC Loan. Each Member shall fund its required
Committed Capital within thirty (30) days of the request therefor by the
Managing Member, with the prior written approval of the Members.
3.2 Additional Capita1 Contributions. Except as set forth in Section
-------------------------------- -------
3.1(b) and in Section 5.3(a), no Member shall be required to make any Additional
- ------ --------------
Capital Contributions.
3.3 Payment of Capita1 Contributions. All Capital Contributions made by
--------------------------------
the Members or funding on the NACC Loan shall be in cash and be reflected by an
appropriate entry on the Company's books and records and on Schedule 1 hereto.
----------
3.4 No Return of Capital Contribution; No Interest.
----------------------------------------------
(a) Except as otherwise expressly provided herein, no Member shall
have any right to demand or receive the return of all or any portion of its
Capital Contribution. The Company will have no obligation to return all or any
portion of any Member's Capital Contribution. Under circumstances permitting or
requiring a return of a Member's Capital Contribution, the Member shall have no
right to receive property other than cash except as the Managing Member may
otherwise determine in its discretion.
(b) Except as otherwise expressly provided herein, no Member shall be
entitled to interest on any Capital Contribution or on its Capital Account.
3.5 No Priority. Except as otherwise expressly provided herein, no Member
-----------
shall have a priority over any other Member as to the return of a Capital
Contribution upon the dissolution of the Company.
3.6 Taxable Take Out Financing. PAT or its Affiliates shall have a right
--------------------------
of first refusal to provide any taxable financing on any Facilities or with
respect to any Loans held by the Company provided that such financing is
competitive with the market. PAT's right of first refusal shall be exercisable
within thirty (30) days of receipt by PAT of written notice from the Company of
the need for taxable financing.
3.7 NACC Loan. NACC shall make available $20,000,000 for the NACC Loan
---------
which shall be funded pro rata with PAT's Capital Contributions (i.e., for each
--- ---- ----
$1,000 of
7
<PAGE>
PAT Capital Contributions, NACC shall advance $2,000 on the NACC Loan). The
principal amount of the NACC Loan shall bear interest at the same rate as the
Preferred Return as and when advanced. The interest ("NACC Loan Interest") and
principal ("NACC Loan Principal") shall be payable as set forth in Section 4.4;
-----------
provided, however, that the NACC Loan may only be repaid out of Distributable
Cash, if any. The NACC Loan shall be unsecured and shall be evidenced by the
Promissory Note attached hereto as Schedule 3.
----------
ARTICLE IV
CAPITAL ACCOUNTS; ALLOCATION OF
NET INCOME AND NET LOSS; DISTRIBUTIONS
--------------------------------------
4.1 Capital Accounts.
----------------
(a) Capita1 Accounts. The Company shall establish and maintain on its
----------------
books a Capital Account for each Member, which shall be subject to adjustment
from time to time as follows:
(i) There shall be credited to a Member's Capital Account the
Member's Capital Contribution, the Member's allocable share of Net Income (as
well as any items of income specially allocated to the Member) and the amount of
the Company's liabilities, if any, assumed by the Member or which are secured by
any asset of the Company distributed to the Member;
(ii) There shall be debited to a Member's Capital Account an
amount equal to the Distributable Cash and other amounts distributed to the
Member pursuant to this Agreement, the Member's allocable share of any Net Loss
(as well as any items of loss or deduction specially allocated to the Member)
and the amount of the Member's liabilities, if any, assumed by the Company or
which are secured by any asset contributed by the Member to the Company;
(iii) Where Section 704(c) of the Code applies to Company property
or where Company property is revalued pursuant to paragraph (b)(2)(iv)(f) of
Section 1.704-1 of the Regulations, each Member's Capital Account shall be
adjusted in accordance with paragraph (b)(2)(iv)(g) of Section 1.704-1 of the
Regulations (which reevaluation may occur with the consent of all Members) as to
allocations to the Members of depreciation, depletion, amortization and gain or
loss, as computed for book purposes with respect to such property;
(iv) When Company property is distributed in kind (whether in
connection with liquidation and dissolution or otherwise), the Capital Accounts
of the Members shall first be adjusted to reflect the manner in which the
unrealized income, gain, loss and deduction inherent in such property (that has
not been reflected in the
8
<PAGE>
Capital Account previously) would be allocated among the Members if there were a
taxable disposition of such property for the fair market value of such property
(taking into account Section 7701(g) of the Code) on the date of distribution;
(v) In the event all or a portion of a Member's Interest is
transferred in accordance with the terms of this Agreement, the transferee shall
succeed to the portion of the Capital Account of the transferor-Member relating
to the Interest transferred;
(vi) In determining the amount of any liability for purposes of
paragraphs (a)(i) and (a)(ii) of this Section 4.1, there shall be taken into
-----------
account Section 752(c) and any other applicable provisions of the Code; and
(vii) The Members' Capital Accounts shall be subject to adjustment
as the Managing Member may determine is necessary in order to comply with
Section 704 of the Code and the Regulations promulgated thereunder.
4.2 Allocation of Net Income and Net Loss.
-------------------------------------
(a) The Net Income and Net Loss of the Company for each taxable
period following the Effective Date shall be allocated at the end of the taxable
period in question, before distributions for the taxable period have been
registered in the Members' Capital Accounts.
(b) Subject to Sections 4.2(d), (e) and (f) and Section 4.6, Net
---------------------------- -----------
Income of the Company shall be allocated between the Members as follows:
(i) Offset of Excess Loss Allocations. First, between the Members
---------------------------------
in the proportion and to the extent that (A) the cumulative Net Loss previously
allocated to each Member under Section 4.2(c)(vii) exceeds (B) the cumulative
-------------------
Net Income previously allocated to such Member under this Section 4.2(b)(i);
-----------------
(ii) Offset of NACC Loan Loss Allocations. Second, to PAT to the
------------------------------------
extent that (A) the cumulative Net Loss previously allocated to PAT under
Section 4.2(c)(vi) exceeds (B) the cumulative Net Income previously allocated to
- ------------------
PAT under this Section 4.2(b)(ii);
------------------
(iii) Restoration of PAT Capital. Third, to PAT to the extent that
--------------------------
(A) the cumulative Net Loss previously allocated to PAT under Section 4.2(c)(v)
-----------------
exceeds (B) the cumulative Net Income previously allocated to PAT under this
Section 4.2(b)(iii);
- -------------------
(iv) PAT Preferred Return. Fourth, to PAT until the cumulative
--------------------
allocations to PAT under this Section 4.2(b)(iv), less the cumulative
------------------
allocations of Net
9
<PAGE>
Loss to PAT under Section 4.2(c)(iv), equal PAT's cumulative Preferred Return
------------------
(whether or not paid) from the commencement of the Company through the end of
the relevant period;
(v) Restoration of G&L Capital. Fifth, to G&L to the extent that
--------------------------
(A) the cumulative Net Loss previously allocated to G&L under Section
-------
4.2(c)(iii) exceeds (B) the cumulative Net Income previously allocated to G&L
- -----------
under this Section 4.2(b)(v).
-----------------
(vi) G&L Preferred Return. Sixth, to G&L until the cumulative
--------------------
allocations to G&L under this Section 4.2(b)(vi), less the cumulative
------------------
allocations of Net Loss to G&L under Section 4.2(c)(ii), equal G&L's cumulative
------------------
Preferred Return (whether or not paid) from the commencement of the Company
through the end of the relevant period; and
(vii) Excess Income. Seventh, between the Members in proportion
-------------
to their respective Percentage Interests at the end of the relevant period.
(c) Subject to Sections 4.2(d), (e) and (f) and Section 4.6, Net Loss
---------------------------- -----------
of the Company shall be allocated between the Members as follows:
(i) Offset of Excess Income. First, between the Members in the
-----------------------
proportion and to the extent that (A) cumulative Net Income previously allocated
to each Member under Section 4.2(b)(vii) exceeds (B) the cumulative Net Loss
-------------------
previously allocated to such Member pursuant to this Section 4.2(c)(i);
-----------------
(ii) Offset of G&L Preferred Return. Second, to G&L to the extent
------------------------------
that (A) cumulative Net Income previously allocated to G&L under Section
-------
4.2(b)(vi) exceeds (B) the cumulative Net Loss previously allocated to G&L
- ----------
pursuant to this Section 4.2(c)(ii);
------------------
(iii) Offset of G&L Capital Account. Third, to G&L to the
-----------------------------
extent of the positive balance in its Capital Account;
(iv) Offset of G&L Preferred Return. Fourth, to Nomura to the
------------------------------
extent that (A) cumulative Net Income previously allocated to PAT under Section
-------
4.2(b)(iv) exceeds (B) the cumulative Net Loss previously allocated to PAT
- ----------
pursuant to this Section 4.2(c)(iv);
------------------
(v) Offset of PAT Capital Account. Fifth, to PAT to the extent
-----------------------------
of the positive balance in its Capital Account;
10
<PAGE>
(vi) Offset of NACC Loan. Sixth, to PAT to the extent the
-------------------
outstanding principal balance of the NACC Loan, reduced by the excess of prior
allocations of Net Loss pursuant to this Section 4.2(c)(vi) over prior
------------------
allocations of Net Income pursuant to Section 4.2(b)(ii); and
------------------
(vii) Excess Loss. Seventh, between the Members in proportion to
-----------
their respective Percentage Interests at the end of the relevant year or period.
(d) Net Loss shall not be allocated to a Member to the extent such
allocation would result in or increase a deficit balance in such Member's
Capital Account, computed in accordance with Section 1.704-1(b)(2)(ii)(d) of the
Regulations, except to the extent of the Member's Share of "Minimum Gain" as
defined in Section 1.704-1(b)-2 of the Regulations.
(e) Notwithstanding anything to the contrary contained herein,
deductions for NACC Loan Interest shall be specially allocated to PAT.
(f) The Members shall modify the allocation provisions set forth in
this Section 4.2 if necessary (i) to satisfy the requirements of Sections 704(b)
-----------
and (c) of the Code and the Regulations promulgated thereunder, (ii) to
eliminate any deficit Capital Account balance for a Member, or (iii) to
otherwise better reflect the overall economic or business arrangement of the
Members in respect of any particular item of income, gain, deduction or loss. In
addition, upon the occurrence of an event resulting in the dissolution and
termination of the Company, the Managing Member shall allocate items of income,
gain, loss and deductions between the Members in such a manner as, to the
maximum extent possible, will result in each Member having a zero balance in its
capital account upon termination.
4.3 Allocations Generally. Except as otherwise required by Section 4.6,
--------------------- -----------
all items of Company income, gain, loss and deduction as determined for federal
income tax purposes for each Company taxable year shall be allocated in the same
manner as the related profits or losses for such taxable year are allocated
pursuant to Section 4.2 hereof in accordance with Code Section 704(b). Pursuant
-----------
to Code Section 704(c), income, gain, loss and deduction with respect to
property contributed to the Company by a Member, or the book value of which is
adjusted for Capital Account maintenance purposes, shall be allocated among the
Members, in a manner consistent with the allocation among the Members of the
book items attributable to such property, so as to take account of the variation
between the basis of the property to the Company and its book value.
4.4 Distributions.
-------------
(a) Subject to Section 4.6, Distributable Cash, if any, shall be
-----------
distributed to the Members quarterly in arrears. The amount of NACC Loan
Interest to be paid for
11
<PAGE>
each quarter shall be paid only out of Distributable Cash and shall be
calculated for such quarter as a percentage of the weighted average NACC Loan
Principal outstanding during such quarter, which percentage shall be the
equivalent of a fraction, the numerator of which is the amount of Preferred
Return paid to PAT for such quarter and the denominator of which is the weighted
average of PAT's Preferred Capital Amount outstanding during such quarter. In
other words, NACC Loan Interest paid shall be the same percentage of the
weighted average NACC Loan Principal outstanding as the percentage of the
weighted average of PAT's Preferred Capital Amount outstanding that is
represented by the Preferred Return paid to PAT.
(b) With respect to distributions attributable to the Acquisition
Period, Distributable Cash, if any, up to the amount of Net Income attributable
to the period in respect to which the distribution is being made, that remains
after payment of NACC Loan Interest for such period shall be distributed as
follows:
(i) First, to G&L in an amount equal to up to the greater of (A)
its unpaid Preferred Return through the end of such period or (B) 33% of the Net
Income for such period allocated to G&L under Sections 4.2(b)(vi) and (vii); and
-----------------------------
(ii) Second, to PAT in an amount equal to up to the greater of (A)
its unpaid Preferred Return through the end of such period or (B) 300% of the
amount distributed to G&L under Section 4.4(b)(i).
-----------------
(c) With respect to distributions attributable to periods after the
Acquisition Period, Distributable Cash, if any, shall be distributed as follows:
(i) First, to G&L in an amount equal to up to 33% of the Net
Income for such period allocated to G&L under Sections 4.2(b)(vi) and (vii);
-----------------------------
(ii) Second, to PAT and NACC, as the case may be, in an amount
equal to up to the sum of its unpaid Preferred Return plus unpaid NACC Loan
Interest (1/3 of which payment will be deemed Preferred Return and 2/3 as NACC
Loan Interest);
(iii) Third, to PAT and NACC, as the case may be, in an amount
equal to up to the sum of its Preferred Capital Amount plus the NACC Loan
Principal (1/3 of which payment will be deemed in respect of Preferred Capital
Amount and 2/3 in respect of NACC Loan Principal);
(iv) Fourth, to G&L in an amount, when added to the Distribution
under Section 4.4(c)(i) above, equals up to the sum of its unpaid Preferred
-----------------
Return plus its Preferred Capital Amount (to be applied first to Preferred
Return and then Preferred Capital Amount); and
12
<PAGE>
(v) Fifth, between the Members in proportion to their respective
Percentage Interests.
(d) Any amount distributed to Members pursuant to Section 4.4(c)(i),
------------------
(iii), (iv) or (v) (other than with respect to Preferred Return) and any amounts
- ------------------
distributed pursuant to Section 4.4(b) in excess of a Member's Preferred Return
--------------
shall constitute a return of Capital Contributions and a reduction of their
respective Preferred Capital Amounts.
4.5 Intentionally Deleted
---------------------
4.6 Special Allocations. The following special allocations shall be made
-------------------
in the following order:
(a) Notwithstanding any other provision of this Article IV, if there
----------
is a net decrease in Minimum Gain during any Fiscal Year, except as otherwise
permitted by Sections 1.704-2(f)(2),(3),(4) and (5) of the Regulations, items of
income and gain for such Fiscal Year (and subsequent years, if necessary) in the
order provided in Section 1.704-(j)(2)(i) of the Treasury Regulations shall be
allocated among all Members whose shares of Minimum Gain decreased during that
year in proportion to and to the extent of such Member's share of the net
decrease in Minimum Gain during such year. The allocation contained in this
Section 4.6(a) is intended to be a minimum gain chargeback within the meaning of
- --------------
Section 1.704-2 of the Regulations, and shall be interpreted consistently
therewith.
(b) Notwithstanding any other provision of this Article IV, if
----------
there is a net decrease in "Partner nonrecourse debt minimum gain", except as
provided in Section 1.704-2(i) of the Regulations, items of Company income and
gain for such fiscal year (and subsequent years, if necessary) in the order
provided in Section 1.704-2(j)(2)(ii) of the Regulations shall be allocated
among all Members whose share of "Partner nonrecourse debt minimum gain"
decreased during that year in proportion to and to the extent of such Member's
share of the net decrease in "Partner nonrecourse debt minimum gain" during such
year. This Section 4.6(b) is intended to comply with the "partner nonrecourse
--------------
debt minimum gain" chargeback requirement in Section 1.704-2 of the Regulations
and shall be interpreted consistently therewith.
(c) In the event any Member unexpectedly receives any adjustments,
allocations or distributions described in Section 1.704-1(b)(2)(ii)(d)(4), (5)
and (6) of the Regulations, items of income and gain shall be specially
allocated to such Member in an amount and manner sufficient to eliminate, to the
extent required by the Regulations, the Adjusted Capital Account Deficit of such
Member as quickly as possible, provided that an allocation pursuant to this
Section 4.6(c) shall be made only if and to the extent that such Member would
- --------------
have an Adjusted Capital Account Deficit after all other allocations
13
<PAGE>
provided for in this Article IV have been tentatively made as if this Section
-------
4.6(c) were not in this Agreement.
- ------
(d) In the event any Member has an Adjusted Capital Account Deficit
at the end of any Fiscal Year, each such Member shall be specially allocated
items of Company income and gain in the amount of such excess as quickly as
possible, provided that an allocation pursuant to this Section 4.6(d) shall be
--------------
made only if and to the extent that, such Member would have an Adjusted Capital
Account Deficit after all other allocations provided for in this Article IV have
----------
been made as if this Section 4.6(d) were not in this Agreement.
--------------
(e) Nonrecourse deductions (as defined in Section 1.704-2(b)(1) of the
Regulations) for any fiscal year or other period shall be specifically allocated
to the Members in accordance with the allocation of Net Loss.
(f) Any "partner nonrecourse deductions" (as defined in Section
1.704-(i)(1) of the Regulations) for any fiscal year or other period shall be
allocated to the Member who bears the economic risk of loss with respect to the
"partner nonrecourse debt" to which such member nonrecourse deductions are
attributable.
(g) Solely for tax purposes, in determining each Member's allocable
taxable income or loss of the Company, depreciation, depletions, amortization
and gain or loss with respect to any contributed property, or with respect to
revalued property where the Company's property is revalued pursuant to paragraph
(b)(2)(iv)(f) of Section 1.704-1 of the Regulations, shall be allocated to the
Members in the manner (as to revaluation, in the same manner as) provided in
Section 704(c) of the Code and Regulation Section 1.704-3(b) or (c), as
determined by the Managing Member. The allocation shall take into account, to
the full extent required or permitted by the Code, the difference between the
adjusted basis of the property to the Member contributing it (or, with respect
to property which has been revalued, the adjusted basis of the property to the
Company) and the fair market value of the property determined by the Managing
Member at the time of its contribution or revaluation, as the case may be.
ARTICLE V
MANAGEMENT
----------
5.1 Management Power and Authority. Subject to the provisions of Sections
------------------------------ --------
5.3 and 5.4, the Members shall have exclusive right, power and authority to
- -----------
manage and control the business and affairs of the Company, provided, however,
-------- -------
that subject to the restrictions contained herein, the Managing Member shall
have the right to manage the day to day affairs of the Company. Without limiting
the generality of the foregoing, except as otherwise expressly provided in this
Agreement, the Managing Member shall have the right, power and authority on
behalf of the Company to:
14
<PAGE>
(a) negotiate or renegotiate all or any portion of any agreements to
which the Company is a party or to which it may become a party;
(b) spend the capital and revenues of the Company in the exercise of
the right, power and authority possessed by the Managing Member hereunder;
(c) manage the Company's business, including but not limited to, the
supervision and direction of all Company employees and the hiring and
termination of the services of any Company employee;
(d) enter into and execute any agreements and all other instruments
deemed by the Managing Member to be necessary or appropriate to the proper
operation of the Company or to effectively and properly perform its duties or
exercise its powers hereunder;
(e) borrow any money or otherwise obtain credit from banks and other
lending institutions and in that connection to pledge, hypothecate and grant
security interests in Company assets, provided that any third-party borrowings
shall be superior to the NACC Loan;
(f) enter into such agreements and contracts with parties and to give
receipts, releases and discharges with respect to all of the foregoing and any
matters relating thereto as the Managing Member may deem advisable or
appropriate;
(g) sell, trade, exchange or otherwise dispose of the whole or any
part of Company assets, upon such term and conditions and for such consideration
as the Managing Member may determine;
(h) make such decisions and elections (including without limitation an
election pursuant to Section 754) under the Code on behalf of the Company as it
deems best in its sole and absolute discretion and without liability to any
Members therefor;
(i) employ officers and employees of the Company and engage or
retain agents, accountants and attorneys as the Managing Member deems
appropriate and to pay them reasonable compensation from Company assets for
their services rendered to the Company and to delegate to such Persons rights,
power and authority of the Managing Member hereunder as it sees fit;
(j) intentionally deleted;
(k) purchase such policies of liability, casualty or other insurance,
including, without limitation, insurance against errors and omissions of the
Managing
15
<PAGE>
Member, which it deem necessary or appropriate for the protection or furtherance
of the business, operations or affairs of the Company;
(1) incur or assume obligations for and on behalf of the Company, to
protect and preserve the business and assets of the Company, and to discharge
obligations of the Company;
(m) pay taxes, licenses or assessments of whatever kind or nature
imposed upon or against the Company or the Company's business, and for these
purposes to make such returns and do all such other acts and things as it may
deem necessary or appropriate;
(n) deposit and maintain all monies and other funds of the Company
as provided in Section 10.4 and to withdraw funds from the Company's accounts
------------
for the purpose of making expenditures, or otherwise defraying costs and
expenses of the Company, or for any other proper Company purpose as agreed to by
the Members;
(o) distribute Distributable Cash and other funds of the Company as
provided in this Agreement;
(p) provide or cause to be provided all such management,
administrative, and personnel services, office space, furniture, equipment and
supplies as it deems necessary or appropriate in connection with its management
of the Company or the conduct of the Company's business, operations or affairs;
(q) institute, prosecute, defend, settle, compromise and dismiss
lawsuits or other judicial or administrative proceedings brought on behalf of,
or against, the Company and to engage counsel and others in connection
therewith;
(r) apply for and execute all such applications for permits and
licenses of the Company as it deems necessary or appropriate;
(s) make any expenditure, including, without limitation, all
reimbursements to the Members as provided in this Agreement;
(t) plan, manage and evaluate the day-to-day financial and fiscal
affairs and needs of the Company;
(u) cause the Company to comply with all laws, rules, regulations
and court and administrative orders applicable to the conduct of the business
and operations or affairs of the Company;
16
<PAGE>
(v) keep all books of account and other records of the Company in the
manner provided in this Agreement;
(w) otherwise conduct the day-to-day management, business, operations
and affairs of the Company solely to further and promote the business and
purpose of all the Company in the interests of all the Members and, in
connection therewith, to perform, or cause the Company to perform, all other
actions related or incidental thereto which it deems necessary or appropriate;
(x) borrow or raise monies, from time to time, to facilitate or
enable the Company to conduct its business or affairs;
(y) engage in any transaction or transactions with the Managing
Member or its officers, directors, shareholders or Affiliates, provided, that in
causing the Company to engage in such transaction or transactions, (i) the
Managing Member acts in good faith and in the best interests of the Company and
(ii) such transaction or transactions are on terms which are no less favorable
to the Company than would be obtained in a comparable arm's-length transaction
with an unrelated third party;
(z) make all elections and exercise all options granted the Company
in this Agreement; and
(aa) prepare the Annual Budget and submit to PAT for its approval.
5.2 Valuations. The Managing Member shall cause a valuation of the
----------
Company's assets at least once a quarter or more frequently if requested by
either Member. Either Member may cause a third party firm to value the Company's
assets at any time at the Company's expense provided the firm is approved by
both Members.
5.3 Removal of Managing Member.
--------------------------
(a) To the extent that the Net Asset Value is less than 102% of the
total of (i) outstanding third party indebtedness (including all accrued
interest and fees) of the Company, plus (ii) the then PAT Preferred Capital
Amount and the then outstanding balance of NACC Loan Principal plus accrued and
unpaid Preferred Return and the then outstanding balance of NACC Loan Interest
(the foregoing collectively, the "Trigger Amount"), PAT shall have the right,
exercisable upon thirty (30) days' notice (the "Removal Notice") to G&L, to
remove G&L as the Managing Member and appoint a manager for the Company. In the
event that within five (5) business days after the Removal Notice, G&L
contributed additional Capital Contributions to the Company in sufficient
amounts to cause the Net Asset Value to be greater than 103% of the Trigger
Amount, it shall remain as Managing Member. Any such additional Capital
17
<PAGE>
Contributions shall increase G&L's Preferred Capital Amount but shall not
increase its Percentage Interest;
(b) In the event that the cash on cash leveraged return on the
assets of the Company falls below 8% on an annualized basis (the "Return
Calculation"), PAT shall have the right, upon written notice to G&L, to remove
G&L as the Managing Member and appoint a manager for the Company. The Return
Calculations shall not include any funds which have not been invested by the
Company or individual assets (Facilities and Loans) until the closing of the
Loan. The Members shall agree as to timing of the inclusion of a new acquisition
or loan closing in the Return Calculation when they approve a new loan or an
acquisition of a Facility; and
(c) Any manager designated by PAT pursuant to Sections 5.3(a) or (b)
----------------------
shall succeed to and assume the duties of the Managing Member in Section 5.1.
-----------
The manager shall not be a Member but may be an Affiliate of a Member. The cost
of the manager shall be a Company expense. Notwithstanding its removal as
Managing Member, G&L shall continue to be a Member and have its obligations to
fund Committed Capital and shall receive its allocations and distributions
pursuant to Article IV.
5.4 Consent of Members. Notwithstanding anything to the contrary contained
------------------
herein, the Managing Member shall not take any of the following actions without
the prior written consent of the Members:
(a) Enter into an agreement to acquire or develop any Facilities;
(b) Enter into any agreements or commitments to make any Loans;
(c) Sell, convey or transfer any Loans or Facilities;
(d) Incur any indebtedness or enter into any contracts or agreements;
(e) Admit any Members;
(f) Enter into any agreements with loan servicer pursuant to Section
-------
5.14;
- ----
(g) Enter into any agreements with a special loan servicer to manage
trouble loans;
(h) Terminate or dissolve the Company;
18
<PAGE>
(i) Amend or modify any documents or agreements relating to servicing
or evidencing loans to the Company;
(j) Cause the Company to enter into any business activity not
described in Section 2.2;
-----------
(k) Merge or consolidate the Company with any Person; and
(l) Modify or amend or terminate this Agreement or the Certificate.
5.5 Time and Attention of the Members, Other Business Activities. The
------------------------------------------------------------
Members and their respective officers, directors and employees shall devote to
the management of the Company and the accomplishment of the Company's purposes,
only so much of their time and attention as the Members and its officers,
directors and employees deem necessary or appropriate in their discretion. The
Members' officers, directors, shareholders and affiliates may engage in any
other business activity without offering the opportunity to any other Member or
to the Company.
5.6 Good Faith. Each Member shall perform its obligations under this
----------
Agreement to the best of its ability and shall use its best efforts to carry out
the purposes of the Company for the benefit of all of the Members.
5.7 Exculpation and Indemnification of the Members.
----------------------------------------------
(a) Neither the Members nor any officer, director, employee,
Affiliate, associate or agent of the Members shall be liable to the Company or
to the other Members for any action or failure to act based upon errors in
judgment, negligence or other fault in connection with the business or affairs
of the Company, so long as such officer, director, employee, Affiliate,
associate or agent determined reasonably and in good faith that such action or
failure to act was in the best interest of the Company and such action or
failure to act did not constitute fraud, bad faith, criminal conduct or gross
negligence.
(b) The Company, its receiver or trustee on behalf of the Company
shall indemnify the Members and their respective officers, directors, employees,
Affiliates, associates, and agents to the fullest extent permitted by law and
shall hold them harmless from and with respect to all (i) fees, costs and
expenses including, without limitation, attorneys' fees (which shall be paid as
incurred) incurred in connection with or resulting from any claim, action or
demand against the Members or against any of their respective officers,
directors, employees, Affiliates, associates or agents that arise out of or in
any way relate to the Company, its assets, business or affairs; and (ii) any
resulting losses or damages from any such claim, action or demand, including
amounts paid in settlement or compromise of the claim action or demand. This
indemnification shall apply, however,
19
<PAGE>
only so long as the Members or their respective officers, directors, employees,
Affiliates, associates or agents determined reasonably and in good faith that
such action or failure to act was in the best interest of the Company and such
action or inaction did not constitute fraud, bad faith, criminal conduct or
gross negligence. The termination of any action, suit or proceeding by judgment,
order or settlement, or upon a plea of nolo contendere or its equivalent, shall
not of itself create a presumption that any person acted fraudulently, in bad
faith or criminally or was grossly negligent.
(c) For purposes of this Section 5.6, acts or failures to act
-----------
undertaken upon the informed advice of counsel shall be deemed to be actions
undertaken in good faith, within the scope of authority, and in the best
interests of the Company.
5.8 Interested Party Transactions. The Members agree that the Company may
-----------------------------
engage in any other transaction not specifically referred to herein with the
Members or their respective officers, directors, employees, Affiliates,
associates and agents.
5.9 Proscriptions. Notwithstanding any provision of this Agreement to the
-------------
contrary, the Managing Member shall have no authority to:
(a) act in contravention of this Agreement;
(b) assign the assets of the Company in trust for the benefit of
creditors or on the assignees promise to pay the debts of the Company; or
(c) do any act that would make it impossible to carry on the ordinary
business of the Company.
5.10 Contracts and Documents. All contracts, instruments, and documents
-----------------------
requiring the signature of the Company shall be executed solely by the Managing
Member in the name of the Company only. The Managing Member may, by appropriate
resolution of its board of directors, designate and authorize one or more
specified directors, officers or employees of the Managing Member or the Company
to execute documents on its behalf in its capacity as the Managing Member. Any
document executed in the manner set forth in this Section 5.10, as to persons
------------
dealing with the Company, shall be conclusively deemed to be binding upon the
Company. The Members acknowledge and agree that any person doing business with
the Company may rely solely on the authority of the Managing Member, and that no
consent of any other Members will be required to effect any transaction by the
Company within the scope of the Managing Member's authority as provided in this
Agreement.
20
<PAGE>
5.11 Tax Matters.
-----------
(a) The Managing Member shall serve as the "Tax Matters Partner" of
the Company as defined by Section 6231(a)(7) of the Code. In that capacity, the
Managing Member is authorized and empowered to act and represent the Company and
each of the Members before the Internal Revenue Service in any audit or
examination of any Company tax return and before any court selected by the
Managing Member for judicial review of any adjustments assessed by the Internal
Revenue Service. By the execution of this Agreement, the Members consent and
acknowledge that the Managing Member shall be the Tax Matters Partner, and that
the Members agree to be bound by, and agree not to take any action inconsistent
with, the actions or inaction of the Tax Matters Partner, including, but not
limited to, the extension of the statute of limitations or any contest,
settlement or other action or position that the Tax Matters Partner deems proper
under the circumstances. Each Member agrees to notify the Tax Matters Partner of
any such action to be taken by the Member, in violation of this Agreement or
otherwise, at least ten days prior to the date the Member takes the action. The
Tax Matters Partner shall notify each Member in writing of all administrative
and judicial proceedings for the adjustment of Company items and shall include
in the periodic reports to the Members information it deems appropriate in its
discretion to keep the Members informed of the status of the proceedings. The
Tax Matters Partner shall have the authority to take all actions necessary or
desirable in its discretion to accomplish the matters set forth in this Section
-------
5.11.
- ----
(b) The Company shall bear all expenses, including legal and
accounting fees, claims, liabilities, losses, and damages incurred by the Tax
Matters Partner in connection with any administrative or judicial proceeding
with respect to the tax liability of the Members. The Members shall have no
obligation to provide funds for such purpose. The taking of any action and the
incurring of any expense by the Tax Matters Partner in its discretion and the
provisions of limitations of liability of Managing Member and indemnification
set forth in Section 5.7 shall be fairly applicable to the Tax Matters Partner
-----------
in its capacity as such.
5.12 Payment of Costs and Expenses. Except as set forth in Section 5.13,
----------------------------- ------------
the Company shall be responsible for all costs and expenses of the Company
relating to Company activities including, without limitation, all legal fees,
accounting fees and other costs and expenses relating to the formation of the
Company. The Company shall reimburse the Members for expenses incurred in
connection with the startup of the Company as approved by the Members.
5.13 Credit Enhancement. If the Company desires to obtain tax exempt
------------------
financing (the "Tax Exempt Financing") and if deemed appropriate by the Members
for a Facility, the Managing Member shall, at the cost and expense of the
Company (the "Financing Costs"), apply for government backed credit enhancement
(FHA or FNMA)
21
<PAGE>
for Tax-Exempt Financing. In the event G&L obtains the Credit Enhancement, G&L
shall be entitled to a fee equal to one percent (1%) of the loan amount (less
the Financing Costs) and payable out of the proceeds from the Tax-Exempt
Financing.
5.14 Loan Servicing. The Company shall engage a Loan Servicer, acceptable
--------------
to both Members, for an annual fee not to exceed twelve and one-half (12.5)
basis points. In the event the Company has trouble loans, the Company shall
engage a Special Servicer as determined by the Members.
5.15 Exclusivity. During the Acquisition Period, neither Member will enter
-----------
into any arrangements with another Person for the purpose of providing short-
term loans for or secured by health care facilities, provided that PAT shall not
be prohibited from making short-term loans or other financing of health care
facilities in the normal course of its business. In the event the Company elects
not to make a Loan, any Member voting to make the Loan may make the Loan for its
own account on such terms and conditions as it elects.
ARTICLE VI
TRANSFER OF INTERESTS AND WITHDRAWALS OF MEMBERS
------------------------------------------------
6.1 Transfers. Except as set forth in this Article VI, without the prior
--------- ----------
written consent of all the Members ("Consent"), which Consent may be withheld in
the sole discretion of each such Member, no Member may, directly or indirectly,
transfer, sell, convey, assign, pledge, hypothecate, license, donate or
otherwise dispose of ("Transfer") all, or any portion of, or any interest or
rights in, the Membership Interest owned by the Member, and no interest holder
may Transfer all, or any portion of, or any interest or rights in, any Interest.
Each Member hereby acknowledges the reasonableness of this prohibition in view
of the purposes of the Company and the relationship of the Members. The Transfer
of any Membership Interest in violation of the prohibition contained in this
Section 6.1 shall be deemed invalid, null and void, and of no force or effect.
- -----------
Any Person to whom Membership Interest is attempted to be transferred in
violation of this Section 6.1 shall not be entitled to vote on matters coming
-----------
before the Members, participate in the management of the Company, act as an
agent of the Company, receive distributions from the Company or have any other
rights in or with respect to the Membership Interest. Notwithstanding anything
to the contrary, a Consent with respect to any such Transfer shall not be deemed
a Consent to or obviate the need for a Consent to any subsequent Transfer. As
part of any Transfer, each of the Managing Member and PAT acknowledge and agree
that (i) the terms, provisions and conditions of this Agreement will require
amendment or modification to reflect changes in the Members, Interest Holders
and Percentages as a result of such Transfer, and (ii) that each Consent shall
specifically be subject to satisfactory negotiation and execution of such
amendment or modification.
22
<PAGE>
6.2 Involuntary Withdrawal. Immediately upon the occurrence of an
----------------------
Involuntary Withdrawal, the successor of the withdrawn Member shall thereupon
become an Interest Holder but shall not become a Member. If the Company is
continued as provided in Section 11.1(a), the successor Interest Holder shall
---------------
have all the rights of an Interest Holder but shall not be entitled to receive
in liquidation of the Interest the fair market value of the Member's Interest as
of the date the Member involuntarily withdrew from the Company.
6.3 No Withdrawal. No Member shall voluntarily withdraw from the Company.
-------------
6.4 PAT Transfer. Notwithstanding Sections 6.1 and 6.3, PAT shall be
------------ ------------ ---
permitted to freely Transfer its Membership Interest to any Person. Any such
transferee or assignee shall be admitted to the Company as a Member within
twenty (20) days of the written request of PAT to transfer its Membership
Interest (the "Transfer Request") and shall hold its Membership Interest subject
to all the terms and conditions and be entitled to all the benefits and rights
of this Agreement, including, without limitation, the Transfer restrictions
contained in Sections 6.1 and 6.3. Notwithstanding the foregoing, in the event
------------ ---
PAT attempts a Transfer to a Person who is not an Affiliate of PAT, G&L may, at
its option, elect to trigger the Buy-Sell pursuant to Section 9.1 within ten
-----------
(10) days of receipt of the Transfer Notice, in which event the Transfer by PAT
shall be suspended pending the conclusion of the Buy-Sell.
ARTICLE VII
BUDGET
------
The Managing Member shall submit to PAT, for PAT's written approval, an
annual budget, on such form as approved by the Member (an "Annual Operating
Budget") for the Company not later than November 1st of each calendar year,
setting forth in reasonable detail budgeted monthly operating income and monthly
operating capital and other expenses for the Company, including all Facilities
owned by the Company and any Loans to be funded subject to binding commitments
or Loan agreements. PAT shall have the right to approve such Annual Operating
Budget and, in the event that PAT objects to the proposed Annual Operating
Budget submitted by the Managing Member, PAT shall advise the Managing Member of
such objections within ten (10) days after receipt thereof (and deliver to the
Managing Member a reasonably detailed description of such objection) and the
Managing Member shall promptly revise such Annual Operating Budget and resubmit
the same to PAT. PAT shall advise the Managing Member of any objections to such
revised Annual Operating Budget within ten (10) days after receipt thereof (and
deliver to the Managing Member a reasonably detailed description of such
objection) and the Managing Member shall promptly revise the same in accordance
with the process described in this sentence until PAT approves an Annual
Operating Budget; provided that if the proposed Annual Operating Budget is not
finalized on or prior to the date on which such budget is required to be
submitted to
23
<PAGE>
any lender to the Company pursuant to the terms of the loan agreement from such
lender (and the Managing Member and PAT have acted in good faith to resolve any
disputes they have with respect to such budget), then the Company shall submit
its original budget to the lender for approval and after the lender approves
such budget, such budget shall be deemed to be the "Approved Annual Operating
Budget" hereunder. Each such Annual Operating Budget approved by PAT in
accordance with terms hereof shall hereinafter be referred to as an "Approved
Annual Operating Budget". The Annual Operating Budget shall be the budget which
is submitted to the any lender for approval pursuant to the loan agreement or
other similar document with such lender. Until such time that PAT approves a
proposed Annual Operating Budget, the most recently Approved Annual Operating
Budget shall apply; provided that, such Approved Annual Operating Budget shall
--------
be adjusted to reflect actual increases in real estate taxes, insurance premiums
and utilities expenses, forward loan commitments and increases in revenues.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
------------------------------
8.1 Representations and Warranties of the Members. Each Member makes the
---------------------------------------------
following representations and warranties to the other Member:
(a) Organization. It (i) is a duly organized and validly existing
------------
corporation or limited partnership, as the case may be, in good standing under
the laws of the state of its formation, (ii) has the requisite corporate or
partnership power and authority to carry on its business as now being conducted
and (iii) has the requisite corporate or partnership power to execute and
deliver, and perform its obligations under, this Agreement;
(b) Authorization. The execution, delivery and performance by the
-------------
Member of this Agreement and the performance of its obligations hereunder (i)
have been duly authorized by all requisite corporate or partnership action on
the part of such Member, (ii) will not violate any provision of any applicable
laws, rules or regulations, any order of any court or other governmental
authority, organizational documents of the Member or any indenture or agreement
or other instrument to which any of them is a party or by which any of them is
bound and (iii) will not be in conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default under, or result
in the creation or imposition of any lien of any nature whatsoever upon any of
the property or assets of the Member pursuant to any such indenture or agreement
or instrument. The Member is not required to obtain any consent, approval or
authorization from, or to file any declaration or statement with, any laws,
rules or regulations, governmental authority or other agency in connection with
or as a condition to the execution, delivery or performance of this Agreement
hereunder;
24
<PAGE>
(c) Litigation. There are no actions, suits or proceedings at law or
----------
in equity by or before any governmental authority or other agency now pending
and served or, to the knowledge of the Member, threatened against the Member;
and
(d) Agreements. The Member is not in default in any respect in the
----------
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument to which it is a party or by
which it is bound.
ARTICLE IX
BUY-SELL
--------
9.1 Buy-Sell of All of Assets. At any time, upon the occurrence of a Major
-------------------------
Deadlock (as defined below) or after the first twelve (12) months of the
Acquisition Period, either Member may deliver a written notice (the "Buy-Sell
Notice") to the other (the party delivering such notice being the "Offeror" and
the other party being the "Offeree") pursuant to which the Offeror offers to
either, at the Offeree's election, buy the Offeree's Membership Interest or sell
to the Offeree the Offeror's Interest. Notwithstanding anything in this
Agreement to the contrary, no Member shall have the right to initiate this
provision (i.e., be the "Offeror") if it is in default of any material provision
----
of this Agreement. The Buy-Sell Notice shall specify a dollar amount for all of
the assets of the Company to be used as the basis of the purchase price (the
"Buy-Sell Valuation") at which the Offeror will either (i) buy all of the
Offeree's Membership Interest or (ii) sell to the Offeree an of the Offeror's
Membership Interest. Only one Buy-Sell Valuation shall be identified in the Buy-
Sell Notice and the Buy-Sell Valuation need not be the fair market value of the
Company's assets. The Offeree may accept either (x) the offer to sell or (y) the
offer to buy, in either case by delivering written notice (the "Acceptance
Notice") to the Offeror, within sixty (60) days (the "Acceptance Period") after
receipt of the Buy-Sell Notice, indicating that the Offeree accepts such offer
either to buy or to sell. If the Offeree does not so accept within the
Acceptance Period, then the Offeree shall be deemed, without need of any further
action by any party, to have accepted the offer to sell its Membership Interest
to the Offeror, and have the Offeror purchase Membership Interest, at the Buy-
Sell Valuation. The purchase and sale of Membership Interest resulting from the
foregoing shall occur, and payment of the purchase price for such Interest(s)
shall be made, on or before the sixtieth (60th) day after the earlier of the
date of delivery of the Acceptance Notice to the Offeror and the expiration of
the Acceptance Period. The purchase price for the Membership Interest shall be
the total amount (not less than zero) that would be distributed to the Selling
Member if the Company sold its assets for the Buy-Sell Valuation in an all cash
transaction (net of capital contribution required of the Selling Member but not
yet funded) and net of expenses of sale. "Major Deadlock" means (a) failure of
the Members to agree on any of the items set forth in Section 5.4, (b) the
-----------
failure of G&L to agree to the transfer of PAT's Membership Interest pursuant to
Section 6.4, (c) the
- -----------
25
<PAGE>
removal of the Managing Member, or (d) the inability or refusal of one of the
Members to make a Capital Contribution when required.
9.2 Deadlock on Sale of an Asset. If a Member (the "Proposing Member")
----------------------------
desires to sell any Loan or Facility (the "Sale Property"), the Member shall
give written notice (the "Sale Notice") thereof to the other Member (the "Other
Member"). The Other Member shall communicate its decision whether or not it
consents to the sale of the Sale Property within ten (10) business days of its
receipt of the Sale Notice. If the Other Member fails to communicate its
decision within such period, the Member shall be deemed to have agreed to sell
the Sale Property. If the Other Member elects not to sell the Sale Property, it
shall give written notice (the "Rejection Notice") thereof to the Proposing
Member, which notice shall specify the dollar amount for the Sale Property to be
used as the basis of the purchase price (the "Sale Property Purchase Price") at
which the Other Member will either (i) buy the Sale Property or (ii) consent to
the sale of the Sale Property to the Proposing Member or its designee. Only one
Sale Property Purchase Price shall be identified in the Rejection Notice and the
Sale Property Purchase Price need not be the fair market value of the Sale
Property. The Proposing Member may accept either (x) the offer to sell or (y)
the offer to buy, in either case by delivering written notice (the "Sale
Property Acceptance Notice") to the Other Member, within sixty (60) days (the
"Sale Property Acceptance Period") after receipt of the Rejection Notice,
indicating that the Proposing Member accepts such offer either to buy or to
sell. If the Proposing Member does not so accept within the Sale Property
Acceptance Period, then the Proposing Member shall be deemed, without need of
any further action by any party, to accept the offer to sell the Sale Property
to the Other Member, and have the Other Member purchase the Sale Property from
the Company at the Sale Property Purchase Price. The purchase and sale of the
Sale Property resulting from the foregoing shall occur, and payment of the
purchase price for the Sale Property shall be made, on or before the sixtieth
(6Oth) day after the earlier of the date of the delivery of the Sale Property
Acceptance Notice to the Other Member and the expiration of the Sale Property
Acceptance Period. The purchasing Member shall pay the Purchase Price to the
Company and the proceeds thereof shall be distributed, reserved or paid to third
parties in the same manner as if the Company sold the Property to a third party.
ARTICLE X
RECORDS, ACCOUNTING AND REPORTS,
AND COMPANY FUNDS
-----------------
10.1 Records and Accounting.
----------------------
(a) The Managing Member shall keep or cause to be kept proper and
complete records and books of account of the Company's business. The books and
records shall be maintained at the Company's principal place of business; and
each Member, or its duly authorized representative, shall have access to such
records, upon
26
<PAGE>
reasonable notice and for a proper Company purpose, at all reasonable times
during the Company's business hours. Such books and records shall include,
without limitation: (i) a current list of the full name and last known business,
residence or mailing address of each Member, together with the Capital
Contribution of each Member and the Percentage Interest of each Member; (ii) a
copy of the Certificate of Formation and all amendments thereto, together with
executed copies of any powers of attorney pursuant to which any such certificate
was executed; (iii) a copy of the Company's federal, state and local tax and
information returns and reports, if any, for the six most recent taxable years
of the Company (or such shorter period as the Company shall have been in
business); (iv) a copy of this Agreement, as originally executed and as amended
from time to time; (v) financial statements of the Company as provided in
Section 10.2 for the six most recent Fiscal Years of the Company (or such
- ------------
shorter period as the Company shall have been in business); and (vi) other books
and records of the Company for at least the last four Fiscal Years of the
Company (or such shorter period as the Company shall have been in business).
Each Member agrees to keep confidential all information obtained from the
Company other than information already in the public realm, and not to use any
such information for other than a Company purpose, except as may be required to
be disclosed in the reasonable judgment of the disclosing Member by state or
federal law or regulation including, without limitation, securities laws.
(b) Books and records of the Company shall be kept pursuant to the
accrual method of accounting which shall be the method of accounting followed by
the Company for U.S. federal income tax purposes.
10.2 Tax Information. The Managing Member shall cause all necessary or
---------------
appropriate tax and information returns for the Company to be prepared and
timely filed with the appropriate authorities. Within 9O days after the end of
each Fiscal Year, the Managing Member shall cause to be mailed to each person
who was a Member at any time during that Fiscal Year all information reasonably
necessary, in the discretion of the Managing Member, for the preparation of the
Member's federal income tax returns, including a Schedule K-1 (Form 1065)
statement showing the Member's share of Net Income or Loss, deductions, and
credits for the Fiscal Year for U.S. federal income tax purposes and the amount
of any distributions made to or for the account of the Member pursuant to this
Agreement.
10.3 Annual Reports: Monthly Reports.
-------------------------------
(a) The Managing Member will furnish to each Member annually, (i)
within ninety (90) days following the end of the Company's fiscal year, a
preliminary unaudited financial statement and (ii) within 120 days following the
end of the Company's fiscal year, a complete copy of the Company's annual
financial statement audited by an independent certified public accountant
reasonably acceptable to PAT in accordance with GAAP, or such other accounting
basis reasonably acceptable to PAT,
27
<PAGE>
containing statements of profit and loss and the balance sheet for the Company.
The Members agree that the initial auditors shall be Deloitte & Touche. Such
statements shall set forth the financial condition and income and expenses for
the Company for the immediately preceding fiscal year, including, without
limitation, statements of annual net operating income.
(b) The Managing Member will furnish to each Member, within thirty
(30) days after the end of each month, an unaudited monthly financial statement
for such month.
(c) The Managing Member shall furnish or cause to be furnished to PAT,
not less than twenty (20) business days prior to the date of filing, a copy of
the Company's "annual federal partnership information return" for PAT's review.
10.4 Company Funds. The funds of the Company shall be deposited with such
-------------
banks and with such withdrawal arrangements as approved by PAT and G&L. The
Managing Member shall deposit Company funds with such servicer as designated by
and pursuant to an agreement approved by PAT. The Company's funds shall not be
commingled with funds of any other person.
ARTICLE XI
DISSOLUTION AND WINDING UP
--------------------------
11.1 Events Causing Dissolution. The Company shall dissolve upon the
--------------------------
happening of any of the following events:
(a) the Involuntary Withdrawal of a Member, unless the remaining
Members, in the ninety (90) days after the occurrence, unanimously elect to
continue the business of the Company;
(b) the sale or other disposition, whether in a single transaction or
a series of transactions, of all of the business and assets of the Company after
the Acquisition Period;
(c) the election by the Members to dissolve the Company;
(d) the expiration of the term of the Company as provided in Section
-------
2.7.
- ---
Dissolution of the Company shall be effective on the day on which the event
occurs giving rise to the dissolution, but the Company shall not terminate until
the Certificate of Limited Company is cancelled in accordance with the laws of
the State of Delaware and the assets of the Company are distributed as provided
in Section 11.2. Notwithstanding
------------
28
<PAGE>
the dissolution of the Company, prior to the termination of the Company as
aforesaid its business and the affairs of the Members, as such, shall continue
to be covered by this Agreement.
11.2 Liquidation. Upon the dissolution of the Company, the Company's
-----------
business shall be wound up and all of the Company's assets, if any, shall be
liquidated expeditiously but in an orderly and businesslike manner. The Managing
Member (or if there is no remaining Managing Member, one or more Persons
selected by a majority in interest of the Members) shall supervise and be solely
responsible for the liquidation of the Company. Before the end of the Fiscal
Year during which the liquidation of the Company occurs (or, if later, within so
days after the date of such liquidation, as determined under Regulations Section
1.704-1(b)(2)(ii)(g)), the Company shall apply and distribute the net proceeds
from its liquidation in the following order of priority:
(a) first, to pay Company indebtedness owed to creditors other than
Members (including, without limitation, any indebtedness outstanding under the
Financing Documents) and, second, to fund Reserves for contingent liabilities
relating to Company assets sold in liquidation to third parties in such amount
and for such period of time as the Managing Member shall determine;
(b) next, to pay any Company indebtedness, including without
limitation any accrued and unpaid management fees owed to the Members or any of
them, in proportion to the respective amounts owed to each Member; and
(c) next, to the Members, in accordance with their positive Capital
Account balances after giving effect to all allocations for such Fiscal Year
pursuant to Article IV and distributions of Distributable Cash and other
distributions previously made.
ARTICLE XII
AMENDMENTS
----------
Except as otherwise provided herein, this Agreement may be amended, in
whole or in part, by the unanimous written consent of the Members.
ARTICLE XIII
VOTING RIGHTS: MEETINGS
-----------------------
13.1 Meetings. Each Member shall be entitled to vote in accordance with
--------
its Percentage Interest as to each matter submitted to a vote of the Members.
Meetings of the Members may be called by either Member, for any matter on which
the Members may vote as set forth in this Agreement. The call, notice, holding
and conduct of
29
<PAGE>
meetings of the Members shall otherwise be as set forth in the Act, as the same
may be amended from time to time.
13.2 Proxies. The use of proxies in connection with any meeting of the
-------
Members shall be governed by provisions of Delaware law governing proxies in a
corporate context.
13.3 Conduct of Meetings. Each meeting of the Members shall be conducted
-------------------
by an authorized representative of the Managing Member, or such other person as
it shall appoint, pursuant to such rules for the conduct of the meeting as it
shall deem appropriate.
ARTICLE XIV
MISCELLANEOUS
-------------
14.1 Notices. All notices, consents, approvals and requests required or
-------
permitted hereunder shall be given in writing and shall be effective for all
purposes if hand delivered or sent by (a) hand delivery, with proof of attempted
delivery, (b) certified or registered United States mail, postage prepaid, (c)
expedited prepaid delivery service, either commercial or United States Postal
Service, with proof of attempted delivery, or (d) by telecopier (with answerback
acknowledged) provided that such telecopied notice must also be delivered by one
of the means set forth in (a), (b) or (c) above, addressed if to PAT at c/o
Nomura Asset Capital Corporation, Two World Financial Center, Building B, New
York, NY 10281-1198, Attn: Gregory Anderson, Telefax Number (212) 667-1522 and
if to the Company or Managing Member at G&L Realty Partnership, 439 North
Bedford, Beverly Hills, CA 90210, Attn: Mark Hamermesh, Telefax Number (310)
859-9032, or at such other address as shall be designated from time to time by
any party hereto, as the case may be, in a written notice to the other parties
hereto in the manner provided for in this Section. A copy of all notices,
consents, approvals and requests directed to PAT shall be delivered concurrently
to each of the following: (i) Jay L. Zagoren, Esquire, Dechert Price & Rhoads,
Princeton Pike Corporate Center, 997 Lenox Drive, Building Three, Suite 210,
Lawrenceville, NJ 08648, Telefax Number (609) 520-3259; (ii) Two World Financial
Center, Building B, New York, NY 10281-1198, Attn: Sheryl McAfee, Telefax Number
(212) 667-1022; and (iii) Two World Financial Center, Building B, New York, NY
10281-1198, Attn: Legal Counsel, Telefax Number (212) 667-1022. A copy of all
notices, consents, approvals and requests to G&L shall be delivered concurrently
to Martin H. Blank, Jr., Esq., Suite 1400, 11755 Wilshire Blvd., Los Angeles, CA
90025, Telefax Number (310) 444-9203. A notice shall be deemed to have been
given: (a) in the case of hand delivery, at the time of delivery; (b) in the
case of registered or certified mail, when delivered or the first attempted
delivery on a Business Day; (c) in the case of expedited prepaid delivery upon
the first attempted delivery on a Business Day; or (d) in the case of
telecopier, upon receipt of answerback confirmation, provided that such
telecopied notice was also
30
<PAGE>
delivered as required in this Section. A party receiving a notice which does not
comply with the technical requirements for notice under this Section may elect
to waive any deficiencies and treat the notice as having been properly given.
14.2 Governing Law. This Agreement, and the rights of the Members under it
-------------
shall be governed by and in accordance with the laws of the State of Delaware
without giving effect to principles of conflicts of laws.
14.3 Successors and Assigns. This Agreement shall inure to the benefit of,
----------------------
and shall be binding upon, the heirs, executors, administrators or other
representatives, successors, and assigns of the Members.
14.4 Entire Agreement. This Agreement constitutes the entire understanding
----------------
and agreement of the Members and supersedes all other prior understandings and
agreements, written or oral, among the Members.
14.5 Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed an original but all of which shall constitute one
and the same instrument. Facsimile signatures shall be binding upon the
signatories.
14.6 Members Not Agents. Nothing contained in this Agreement shall be
------------------
construed to constitute any Member the agent of another Member, except as
specifically provided in this Agreement.
14.7 Specific Performance. The parties recognize that irreparable injury
--------------------
will result from a breach of any provision of this Agreement and that money
damages will be inadequate to fully remedy the injury. Accordingly, in the event
of a breach or threatened breach of one or more of the provisions of this
Agreement, any party who may be injured (in addition to any other remedies which
may be available to that party) shall be entitled to one or more preliminary or
permanent orders (i) restraining and enjoining any act which would constitute a
breach or (ii) compelling the performance of any obligation which, if not
performed, would constitute a breach.
14.8 Attorneys Fees. In any dispute arising in connection with this
--------------
Agreement, the prevailing party shall be entitled to reasonable attorneys fees.
31
<PAGE>
IN WITNESS WHEREOF, the Members have executed this Agreement on the
date set forth above.
G&L REALTY PARTNERSHIP, L.P.
By: G&L Realty Corp., as
General Partner
By: /s/ Mark Hamermesh
--------------------
Name: Mark Hamermesh
Title: Sr. Vice-President
PROPERTY ACQUISITION TRUST I
By: /s/ Sheryl McAfee
-------------------
Name: Sheryl McAfee
Title: Designated Officer
JOINDER
-------
Nomura Asset Capital Corporation hereby joins in this Limited
Liability Company Agreement of GLN Capita1 Co., LLC solely to agree to advance
the NACC Loan as set forth in Article III and Schedule 1.1 hereof and to agree
to repayment of the NACC Loan as set forth in Article IV hereof.
NOMURA ASSET CAPITAL
CORPORATION
By: /s/ Gregory Anderson
----------------------
Name: Gregory Anderson
Title: Vice President
32
<PAGE>
SCHEDULE 1
Members, Percentage Interests, Capital Contributions,
Committed Capital and NACC Loan Amounts
---------------------------------------
<TABLE>
<CAPTION>
Initial Aggregate
Percentage Capital Committed
Member Interest Contribution Capital
- ------ ---------- ------------ ---------
<S> <C> <C> <C>
G&L Realty Partnership, L.P. 49.9% $125,000 $10,000,000
Property Acquisition Trust I 50.1% $125,000/1/ $10,000,000/2/
</TABLE>
- -------------------
1. In addition, NACC has funded $250,000 on the NACC Loan.
2. NACC shall advance up to $20,000,000 on NACC Loan.
33
<PAGE>
SCHEDULE 2
MEMBER ADDRESS
- ------ -------
G&L REALTY PARTNERSHIP, L.P. 439 North Bedford
Beverly Hills, California 90210
Property Acquisition Trust I 2 World Financial Center
Building B
New York, New York 10281-1198
34
<PAGE>
EXHIBIT 10.39
LIMITED LIABILITY COMPANY AGREEMENT
OF
GL/PHP, LLC,
a Delaware limited liability company
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Definitions....................................................... 1
2. Formation......................................................... 6
3. Name.............................................................. 6
4. Registered Office; Principal Place of Business.................... 6
5. Term.............................................................. 6
6. Purpose........................................................... 6
7. Capital Contributions............................................. 7
8. Capital Accounts; Allocations..................................... 10
9. Distributions..................................................... 12
10. Books and Records................................................. 13
11. Bank Accounts; Certain Payments................................... 15
12. Rights and Obligations of Members................................. 15
13. Rights and Obligations of the Manager............................. 20
14. Transfer of Interests............................................. 26
15. Termination of the Company........................................ 28
16. Gain, Loss and Distributions on Liquidation....................... 29
17. Sale of Assets.................................................... 30
18. Further Assurances................................................ 30
19. Notices........................................................... 31
20. Limited Buy-Sell.................................................. 32
21. Amendment......................................................... 32
22. Captions; Contents................................................ 33
23. Variation of Pronouns............................................. 33
24. Governing Law..................................................... 33
25. Successors and Assigns............................................ 33
26. Counterparts...................................................... 33
27. Negation of Third-Party Beneficiaries............................. 33
28. Arbitration....................................................... 33
29. Severability...................................................... 34
</TABLE>
Exhibit A - Initial Capital Contributions and Interests of Members
<PAGE>
GL/PHP, LLC
LIMITED LIABILITY COMPANY AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT is made as of February 26,
1997 by and among G&L Realty Partnership, L.P., a Delaware limited partnership,
as the sole Manager ("the Manager"), G&L Realty Partnership, L.P., a Delaware
limited partnership, as a Member ("G&L Member"), PHP Healthcare Corporation, a
Delaware corporation, as a Member ("PHP Member" and, together with G&L Member,
collectively called the "Members").
In consideration of the mutual benefits and covenants contained herein, the
undersigned hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms have the
-----------
meanings set forth below:
1.1. "Act" means the Delaware Limited Liability Company Act, as
amended, Del. Code Ann. title. 6, (S)18-101 et seq.
------
1.2. "Additional Capital Contribution" has the meaning set forth in
Section 7.2.
- -----------
1.3. "Additional Capital Contribution Date" has the meaning set forth
in Section 7.2.
-----------
1.4. "Adjusted Capital Account Balance" means, with respect to any
Member, the balance, if any, in such Member's Capital Account as of the end of
the relevant Year, increased by the amount of the minimum gain that such Member
is treated as being obligated to restore pursuant to the next to last sentences
of Treasury Regulation Sections 1.704-2(g)(1) and (i)(5).
1.5. "Affiliate" or "Affiliated Person" means, with respect to any
Person, any other Person controlling or controlled by or under common control
with such Person. For purposes of this definition, the term "control" when used
with respect to any Person means the power to direct the management and policies
of such Person, directly or indirectly, through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
1.6. "Agreement" means this agreement and any amendment, modification
or extension hereof.
<PAGE>
1.7. "Assets" means all of the assets of the Company including all
Property and Credit Leases owned or entered into by the Company.
1.8. "Business Day" means any day except a Saturday, Sunday or other
day which shall be in Los Angeles, California, or Reston, Virginia, a legal
holiday on which banking institutions are authorized by law or executive action
to close.
1.9. "Buy-Sell" has the meaning set forth in Section 20.
----------
1.10. "Capital Account" has the meaning set forth in Section 8.1.
-----------
1.11. "Capital Contributions" means the Initial Capital Contribution
and all Additional Capital Contributions to be made by a Member, pursuant to
Section 7.
- ---------
1.12. "Closing Date" means each date on which the Company purchases a
Property or enters into any Credit Lease.
1.13. "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
1.14. "Company" means GL/PHP, LLC, a Delaware limited liability
company, governed by this Agreement.
1.15. "Company Budget" has the meaning set forth in Section 13.2.2.
--------------
1.16. "Company Loan" has the meaning set forth in Section 7.4.
-----------
1.17. "Contributing Members" has the meaning set forth in Section 7.3.
-----------
1.18. "Credit Lease" means each bond-type net lease relating to a
particular Property approved for origination hereunder.
1.19. "Defaulted Amount" has the meaning set forth in Section 7.5.
-----------
1.20. "ERISA" means the federal Employee Retirement Income Security
Act of 1974, as amended and in force from time to time.
1.21. "Fair Market Value" means the price that would be paid by a
willing buyer for the property being sold by a willing seller in an open market
transfer with respect to which time is not of the essence.
2
<PAGE>
1.22. "Gross Income" means all items of income and gain that are
included in the definition of Net Income or Net Loss.
1.23. "Initial Capital Contribution" means the initial capital
contribution to the Company to be made by a Member in the amount shown for such
Member on Exhibit A to this Agreement.
---------
1.24. "Initiating Member" has the meaning set forth in Section 20.
----------
1.25. "Interest" means a Member's percentage interest in the
Company, as indicated in Exhibit A, as such percentage interest may be modified
---------
as specifically provided in this Agreement, including the Member's economic
interest and any right to vote or participate in management.
1.26. "Investment Company Act" means the Investment Company Act of
1940, as amended.
1.27. "Lease Documents" means each Credit Lease and each other
agreements, opinions, instruments and certificates furnished at the time of
origination of the Credit Lease in connection therewith.
1.28. "Lessee" means the lessee under a Credit Lease.
1.29. "Lessor" means the Company, as lessor under a Credit Lease.
1.30. "Majority in Interest of the Members" means the Members which
own fifty-one percent (51%) or more of the Interests.
1.31. "Manager" means G&L Realty Corp. and any other person named as
Manager hereunder from time to time under Section 13.8, if any.
------------
1.32. "Members" (singular, "Member") means collectively the Persons
listed on Exhibit A to this Agreement, and singularly, any Person listed on
---------
Exhibit A to this Agreement.
- ---------
1.33. "Net Cash Flow" means with respect to any calendar month or
other period, the gross revenues received by the Company during such period from
any source whatsoever, including, without limitation, rent of any kind and
other amounts payable under each Asset, any origination fees received from
Lessees, servicing compensation earned by the Company in connection with any
securitization and any Net Proceeds and other receipts (but excluding Capital
Contributions and any Company Loans), less the following, without duplication:
----
(i) Operating Expenses; (ii) distributions made to enable Members to pay income
3
<PAGE>
taxes in respect of their Interests; (iii) any Origination and Due Diligence
Expenses; (iv) any amounts due on or with respect to the indebtedness of the
Company (exclusive of secured debt owed to PHP Member) including, without
limitation, any costs associated with the Company hedging interest rate risks or
other exposures in connection therewith; (v) all reasonable and necessary cash
expenditures (including the establishment and funding of reserves, if deemed
necessary by the Manager, but excluding the amounts described in the preceding
clauses (i), (ii), (iii), (iv) and (v) and expenditures from established
reserves); and (vi) amounts used to fund the origination of Credit Leases or
purchase of Property or to pay or reimburse expenses associated therewith. Net
Cash Flow shall be determined separately for each calendar month or other
period, and shall not be cumulative.
1.34. "Net Income" and "Net Loss" mean, respectively, an amount equal
to the Company's taxable income or loss, respectively, for federal income tax
purposes, determined in accordance with Section 703 (a) of the Code (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Section 703 (a) (1) of the Code shall be included in
taxable income or loss), with the following adjustments: (i) any income of the
Company that is exempt from federal income tax and not otherwise taken into
account in computing Net Income or Net Loss pursuant hereto shall be included in
income; (ii) any expenditures of the Company described in Section 705 (a) (2)
(B) of the Code or treated as Section 705 (a) (2) (B) of the Code expenditures
pursuant to Treasury Regulation Section 1.704-1(b) (2) (iv) (i) and not
otherwise taken into account in computing Net Income or Net Loss pursuant
hereto, shall be deducted from income; and (iii) income, gain, loss and
deduction of the Company shall be computed as if the Company had (A) purchased
any property contributed by a Member on the date of such contribution at a price
equal to its Fair Market Value on such date, and (B) sold any property
distributed to a Member on the date of such distribution at a price equal to its
Fair Market Value on such date.
1.35. "Net Proceeds" means the gross proceeds received by the Company
from the sale, partial sale, financing, securitization (including any proceeds
received as a result of the Company's ownership of any residual interest and/or
security issued in any securitization) of or realization on all or any portion
of the Assets less any sales, financing, securitization or collection expenses
incurred in connection any such sale, financing, securitization or realization.
1.36. "Non-Contributing Members" has the meaning set forth in
Section 7.3.
- -----------
1.37. "Offer" has the meaning set forth in Section 14.1.3.
--------------
1.38. "Operating Expenses" means all reasonable and necessary
out-of-pocket expenses incurred by the Manager and the Members in the
administration and operation of the Company and the ownership of the Company's
Assets, including, without limitation, accounting fees, legal fees and expenses
and such other expenses of the Manager and the Members if and to the extent
approved pursuant to this Agreement. The Company shall reimburse each Member
4
<PAGE>
and any Affiliates of such Member for such Operating Expenses, subject to, and
only if and to the extent approved by, a Majority in Interest of the Members;
provided, however, that any Operating Expense that is in excess any line item of
the Company Budget plus 5% shall require the approval of each of the Members.
Operating Expenses, however, shall not include any overhead costs of the Manager
or any Member.
1.39. "Origination and Due Diligence Expenses" shall include the
following expenses incurred by or on behalf of the Company directly and
exclusively in connection with (a) the negotiation and documentation of this
Agreement, (b) the organizational costs of the Company and (c) the origination
or purchase of any Assets, including, without limitation, the following:
(i) legal, printing, and other third-party out-of-pocket expenses incurred in
connection with the negotiation and documentation of this Agreement, (ii) the
organizational and qualification costs of the Company and (iii) expenses
incurred in connection with the origination or purchase or proposed origination
or purchase of an Asset and any indebtedness with respect thereto, including
documentation and negotiation of the Lease Documents, such indebtedness, review
and analysis of organizational documents of each Lessee, related documents and
court proceedings, if any, relating to the origination or purchase and any
financing of the Credit Leases or any portion thereof and the determination of
the rates and terms to be offered in any origination or purchase of any Credit
Lease, and any legal and other third-party and out-of-pocket costs associated
with the due diligence review with respect to any Asset, in every case.
1.40. "Person" means an individual, partnership, limited partnership,
limited liability partnership, trust, estate, association, corporation, limited
liability company, or other entity, whether domestic or foreign.
1.41. "Prime Rate" means the rate of interest announced from time to
time by The Bank of America as its prime rate of interest.
1.42. "Property" means collectively or singularly, as the context
requires, the real property purchased by the Company and subjected to a Credit
Lease hereunder.
1.43. "Reduction Notice" has the meaning set forth in Section 7.5.
-----------
1.44. "Removal Date" has the meaning set forth in Section 13.8.1.
--------------
1.45. "Securities Act" means the Securities Act of 1933, as amended.
1.46. "Service" has the meaning set forth in Section 10.5.2.
--------------
1.47. "Termination Notice" has the meaning set forth in
Section 13.8.1.
- --------------
5
<PAGE>
1.48. "Treasury Regulations" means the regulations (including any
temporary regulations) issued under the Code by the Department of the Treasury,
as they may be amended from time to time, or any applicable successor
regulations. Reference herein to any particular section of the Treasury
Regulations shall be deemed to refer to the corresponding provision of any
applicable successor regulations.
1.49. "Year" means the taxable year of the Company which will be based
on a calendar year.
2. Formation. The Company shall be formed as of the date of the filing
---------
of the Certificate of Formation for the Company with the Secretary of State of
the State of Delaware as a limited liability company pursuant to the provisions
of the Act.
3. Name. The business of the Company shall be conducted under the name
----
"GL/PHP, LLC".
4. Registered Office; Principal Place of Business. The Company's
----------------------------------------------
registered office in the State of Delaware shall be located at 12090 Orange
Street, Newcastle County, Wilmington, Delaware 19805 and the Company's
registered agent for service of process in the State of Delaware shall be
The Corporation Trust Company. The principal office of the Company shall be
c/o G&L Realty Corp., 439 North Bedford Drive, Beverly Hills, CA 90210.
5. Term. The Company, as a limited liability company, shall commence as
----
of the date of the filing of the Certificate of Formation for the Company with
the Secretary of State of the State of Delaware and shall continue until
December 31, 2046, unless terminated earlier as hereinafter provided or as
provided in the Act.
6. Purpose. The business and purpose of the Company shall be to
-------
(a) accomplish any lawful business or activity conducive to or expedient for the
protection or benefit of the Company and its Assets and related (directly or
indirectly, including but not limited to origination, purchase, disposition,
financing, and securitization of Property and/or the Credit Leases) to (i) the
acquisition of Property and the origination of Credit Leases approved pursuant
hereto; (ii) the sale, assignment, disposition or securitization of any of the
Property and/or the Credit Leases; (iii) incurring indebtedness and obtaining
financing for the Company to acquire the Property and originate Credit Leases,
including interest or other hedging facilities; (iv) the servicing and managing
of the Assets; and (v) taking such other activities that are performed by
operating finance companies having the foregoing purposes, (b) exercise all
other powers necessary to or reasonably connected with the Company's business
which may be legally exercised by a limited liability company under the Act, and
(c) engage in all activities necessary, customary, convenient, or incidental to
any of the foregoing.
6
<PAGE>
7. Capital Contributions.
---------------------
7.1. Each Member hereby agrees to contribute as its Initial Capital
Contribution the amount shown on Exhibit A to this Agreement. The capital
---------
requirements to be funded out of such Initial Capital Contributions will consist
of all Origination and Due Diligence Expenses relating to the organization of
the Company, the negotiation and documentation of this Agreement and the
purchase by the Company of real property so long as each such properties will be
simultaneously subject to a Credit Lease and for any other purpose contemplated
hereunder.
7.2. If at any time the Manager determines that additional funds
("Additional Capital Contributions") are required by the Company for any Company
purpose, the Manager shall give notice to the Members (i) stating the aggregate
amount of such Additional Capital Contributions (which Additional Capital
Contributions, together with aggregate amount of all their outstanding Capital
Contributions with respect to the Company as a whole, shall not exceed
$4,500,000), (ii) stating in reasonable detail the reasons such Additional
Capital Contributions are required, (iii) stating the date proposed for payment
of such Additional Capital Contributions to the Company (which date, the
"Additional Capital Contribution Date", shall not be less than ten (10) Business
Days after the date on which such notice is given), and (iv) requesting that
each of the Members approve such Additional Capital Contributions. On or before
the date which is five (5) Business Days after the date on which such notice was
given, the Members shall respond to the Manager indicating whether or not it
approves such Additional Capital Contributions. In the case of Additional
Capital Contributions being so requested, any such Member not so responding
within such five (5) Business Day period shall be deemed not to have given its
approval of such Additional Capital Contributions. If all Members approve such
Additional Capital Contributions, the Manager shall (not less than (5) days
prior to the Additional Capital Contribution Date) provide a notice so stating
to each Member, and each Member shall be obligated to contribute to the Company
on the Additional Capital Contribution Date in cash, an amount equal to such
Member's Interest multiplied by the aggregate amount of the Additional Capital
Contributions to be made on the Additional Capital Contribution Date. If any
Member fails to pay to the Company on the Additional Capital Contribution Date
its entire share of any Additional Capital Contribution required pursuant to
this Section 7.2, the sole remedy of the other Members shall be to proceed in
-----------
accordance with Section 7.3. No Member shall be entitled or required to make
-----------
any Capital Contributions to the Company other than under Section 7.1 or as
-----------
required by this Section 7.2.
-----------
7.3. In the event that Additional Capital Contributions are required
to be made by the Members under Section 7.2, and one or more Members (the
-----------
"Contributing Members") have tendered their entire share of the required
Additional Capital Contributions on or before the Additional Capital
Contribution Date, and one or more other Members (the "Non-Contributing
Members") have failed to tender their entire share of the required Additional
Capital
7
<PAGE>
Contributions on or before the Additional Capital Contribution Date, the
Interests of the Members shall be adjusted in accordance with Section 7.5 and
-----------
the Manager shall proceed to call for Company Loans in accordance with
Section 7.4.
- -----------
7.4. In the event that one or more Members fail to make any required
Additional Capital Contributions, the Manager shall, within five (5) Business
Days after the applicable Additional Capital Contribution Date, by notice to
all other Members (other than any Non-Contributing Members), inform such other
Members of such failure, and of the amount of the Non-Contributing Members'
required Additional Capital Contributions, and request that such other Members
(or their Affiliated Persons) make loans (each a "Company Loan") in the amount
of such required Additional Capital Contributions of the Non-Contributing
Members; provided, however, that no Member shall be required to make any such
Company Loan. Each such other Member receiving such notice shall promptly give
notice to the Manager indicating the amount (not to exceed the required
Additional Capital Contributions) it (or its Affiliated Person) is willing to
lend. In the event that the aggregate amount which Members are willing to lend
hereunder exceeds such required Additional Capital Contributions, the lending
Members (or their Affiliated Persons) shall make such loans in the proportions
that their respective Interest bear to one another. Each Company Loan shall, to
the fullest extent permitted by law, bear interest at an annual rate, determined
monthly and compounded monthly, equal to the Prime Rate plus three percent (3%)
and otherwise consistent with then prevailing market terms for comparable
unsecured borrowings. Any such Company Loan shall be paid (if not sooner paid),
out of Net Cash Flow and Net Proceeds in accordance with Article 9. If no Member
---------
or Members are willing to make a Company Loan to meet the additional capital
needs of the Company, Additional Capital Contributions shall be called for and
required pursuant to, and subject to the limitations set forth in, Section 7.2.
-----------
7.5. If at any time a Non-Contributing Member fails to make an entire
Additional Capital Contribution required of such Member pursuant to Section 7.2,
-----------
the Interest of such Non-Contributing Member shall immediately be reduced,
effective as of the Additional Capital Contribution Date, with respect to any
portion of the Additional Capital Contribution not so contributed by such
Non-Contributing Member (such unpaid portion, the "Defaulted Amount"). Such
reduction shall be in an amount equal to the percentage obtained by dividing (a)
the Defaulted Amount, by (b) the aggregate amount of Capital Contributions
required to have been made as of the date of such calculation by all Members,
including such Additional Capital Contribution, pursuant to Sections 7.1 and
------------
7.2.
- ---
7.5.1 As an example, assume (i) that Member X's Interest is ten percent
(10%), and that Member X has made an Initial Capital Contribution to the
Company pursuant to Section 7.1 of $9,500,000, where the aggregate Initial
-----------
Capital Contributions made by all Members to the Company is equal to
$95,000,000, (ii) that a (first-ever) call is made for Additional Capital
Contributions from all Members of $2,000,000, (iii) that Member X is obligated
to advance ten percent (10%) of the Additional Capital Contributions, (iv)
that
8
<PAGE>
Member X does not make any portion of its required Additional Capital
Contribution, and (v) that all the other Members make their required
Additional Capital Contributions. Under the first paragraph of this Section
-------
7.5, the reduction of the Non-Contributing Member's (Member X's) Interest,
---
expressed as a percentage, would equal $200,000/$97,000,000, or .206186%.
Accordingly, Member X's Interest would be reduced from 10.00% to 9.793814%.
7.5.2 Any reduction in the Interest of a Member under this Section 7.5
-----------
shall be reflected in a simultaneous increase of the aggregate Interests of
the Contributing Members in a like amount. Any such aggregate increase in
Interests of the Contributing Members shall be shared among the Contributing
Members in proportion to their respective Interest immediately prior to such
increase.
7.5.3 Any adjustments in Interests pursuant to this Section 7.5 shall be
-----------
automatic and without the necessity of any further action by any Member.
Notwithstanding the foregoing, each Member agrees to execute such documents
and take such additional actions as may be necessary to effectuate or evidence
such adjustments and each such Member hereby constitutes and empowers the
Manager (and its managers or its officers, as applicable), acting singly, to
act alone as the attorney-in-fact of all Members with authority to execute,
acknowledge, swear to and deliver such instruments as may be necessary or
appropriate to carry out the foregoing provisions of this Section 7.5.
-----------
7.5.4 The Manager shall give Notice (a "Reduction Notice") to all the
Members within thirty (30) days of the reduction of any Member's Interest
pursuant to this Section 7.5, informing the Members of such reduction, and of
-----------
their revised Interest after giving effect to such reduction.
7.5.5 In the event that the Interest of a Member is reduced pursuant to
this Section 7.5, any Contributing Member may elect, by notice to the Manager
-----------
and the other Members given not more than thirty (30) days after the date of
the related Reduction Notice, to cause the Assets to be valued as of the date
of the Reduction Notice, and to the extent the net worth of the Company (net
of liabilities) as of such date is more or less than the Capital Account
balances of the Members as of such date (after reflection in such Capital
Accounts of all adjustments thereto which would be necessitated by all other
Company transactions for the taxable year of the Company in which such
valuation occurs, all in accordance with Article 8), the difference shall be
---------
deemed to be Net Income or Net Loss incurred by the Company which shall be
credited or charged to the Capital Accounts of the Members based upon their
Interests immediately prior to any dilution under this Section 7.5. The net
-----------
worth of the Company shall be determined by the Manager on the basis of the
Fair Market Value of the Assets.
9
<PAGE>
8. Capital Accounts; Allocations.
-----------------------------
8.1. A separate book capital account (a "Capital Account") shall be
established and maintained for each Member in accordance with the regulations
promulgated under Section 704 of the Code. The Capital Account of each Member
as of the close of each month of each Year shall be: (a) credited with (i) the
amount of cash and the agreed-upon Fair Market Value of any property contributed
by such Member to the Company during such month (net of liabilities secured by
such contributed property that the Company is considered to assume or take
subject to under Section 752 of the Code), including cash contributed by a
Member as such Member's Initial Capital Contribution, (ii) such Member's share
of any Net Income during such month allocated to it under this Agreement, and
(iii) such Member's share of other items required to be credited thereto under
Treasury Regulation Section 1.704-1(b)(2)(iv); and (b) shall be debited with (i)
the amount of cash and the Fair Market Value of any property distributed to such
Member during such month (net of liabilities secured by such distributed
property that such Member is considered to assume or take subject to under
Section 752 of the Code), (ii) such Member's share of any Net Loss during such
month allocated to it under this Agreement, and (iii) such Member's share of
other items required to be debited thereto under Treasury Regulations Section
1.704-1(b)(2)(iv). Any adjustments to the tax basis of the Company property
under Sections 732, 734 or 743 of the Code will be reflected as adjustments to
the Capital Accounts of the Members only in the manner and to the extent
provided in Treasury Regulations Section 1.704-1(b)(2)(iv)(m). If any Asset is
to be distributed in kind, such Asset shall be distributed on the basis of its
Fair Market Value after the Members' Capital Accounts have been adjusted to
reflect the manner in which any unrealized gain or loss with respect to such
Asset (that has not been previously reflected in the Capital Accounts) would be
allocated among the Members if there were a taxable disposition of the Asset for
its Fair Market Value in the manner provided in Treasury Regulation Section
1.704-1(b)(2)(iv)(e). These provisions and other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Treasury Regulations Section 1.704-1(b), and shall be interpreted and applied in
a manner consistent with such section of the Treasury Regulations.
8.2. If any interest in the Company is transferred, the proportionate
Capital Account and Interest attributable to such interest in the Company shall
continue to be attributable to such interest in the Company.
8.3. After giving effect to the special allocations set forth in Sections
--------
8.1, 8.4 and 8.7, if any, Net Income or Net Loss for a Year shall be allocated
- -------- ---
among the Members in accordance with their respective Interests.
8.4. Notwithstanding anything to the contrary contained in this Article 8:
---------
8.4.1 If during any Year of the Company there is a net decrease in Company
minimum gain (as such term is defined by Treasury Regulation Section
1.704-2(d) with
10
<PAGE>
respect to partnership minimum gain), then each Member shall be allocated
Gross Income for such Year (and, if necessary, for subsequent Years) in the
manner provided in Treasury Regulation Sections 1.704-2(f) and 1.704-2(j)(2).
This Section 8.4.1 is intended to comply with the Company minimum gain
-------------
chargeback requirements of Treasury Regulation Section 1.704-2.
8.4.2 If during any Year of the Company there is a net decrease in Member
nonrecourse debt minimum gain (as such term is defined by Treasury Regulation
Section 1.704-2(i) with respect to partner nonrecourse debt minimum gain) then
each Member shall be allocated Gross Income for such year (and, if necessary,
for subsequent Years) in the manner provided in Treasury Regulation Sections
1.704-2(i) and 1.704-2(j)(2). This Section 8.4.2 is intended to comply with
-------------
the Member nonrecourse debt minimum gain chargeback provisions of Treasury
Regulation Section 1.704-2(i).
8.4.3 Member nonrecourse deductions (as defined in Treasury Regulation
Section 1.704-2(i)(2) with respect to partner nonrecourse deductions) shall be
allocated as prescribed in Treasury Regulation Section 1.704-2(i)(1).
8.5. Taxable income, gain, loss or deduction of the Company (as well as any
credits and the basis of property to which such credits apply) as determined for
federal income tax purposes shall be allocated in the same manner as the
corresponding income, gain, loss or deduction is allocated for purposes of
adjusting Capital Accounts hereunder.
8.6. Subject to Section 706 of the Code and to any applicable Treasury
Regulations, Net Income, Net Loss and items of income, gain, loss, deduction or
credit for federal income tax purposes for a Year that are attributable to any
interest in the Company that is transferred or assigned during such Year shall
be allocated between the portion of the Year during which such interest was held
by the transferor and the portion of the Year during which such interest was
held by the transferee on the basis of the number of days of the year such
interest was held by each.
8.7. Any Net Loss otherwise allocable to a Member with, or which would
produce, a deficit balance in such Member's Adjusted Capital Account Balance
shall be allocated to the extent of the aggregate of and in proportion to the
positive Adjusted Capital Account Balances of other Members. In the event that
at any time any Member receives any adjustments, allocations, or distributions
described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(5) or
1.704-1(b)(2)(ii)(d)(6) that create or increase a deficit balance in their
Adjusted Capital Account Balances, then the next allocation of Gross Income that
would otherwise have been allocated to the other Members shall be specially
allocated to such Member in an amount and a manner sufficient to eliminate the
deficit balance in such Adjusted Capital Account Balance created by such
adjustments, allocations, or distributions as quickly as possible. The
preceding sentence is intended to comply with the qualified income offset
provision in
11
<PAGE>
Treasury Regulations Section 1.704-1(b)(2)(ii)(d). In addition, to the extent
not otherwise required by the preceding sentences, if any Member would otherwise
have a deficit Adjusted Capital Account Balance as of the last day of a Year or
other period, items of Gross Income shall be specially allocated to such Member
so as to eliminate such deficit as quickly as possible. Any special allocations
pursuant to this Section 8.7 shall be taken into account in computing subsequent
-----------
allocations pursuant to this Article 8, so that the allocations of Net Income
---------
and Gross Income allocated to each Member pursuant to this Article 8 shall be
---------
equal to the allocations of Net Income and Gross Income that would have been
allocated to each Member pursuant to the provisions of this Article 8 if the
---------
adjustments, allocations, or distributions and the resulting special allocations
pursuant to this Section 8.7 had not occurred.
-----------
8.8. In accordance with Code Section 704(c) and the Treasury Regulations
thereunder, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Company shall, solely for income tax purposes,
be allocated among the Members so as to take account of any variation between
the adjusted basis of such property to the Company for federal income tax
purposes and its Fair Market Value at the time of contribution. Any elections or
other decisions relating to such allocations shall be made by the Manager in a
manner that reasonably reflects the purpose and intention of this Agreement. In
the event of any adjustments to Capital Accounts pursuant to Section 7.5.5, the
-------------
principles of Code Section 704(c) shall be applied with respect to such
adjustments. Allocations pursuant to this Section 8.8 are solely for purposes of
-----------
federal, state, and local taxes and shall not affect, or in any way be taken
into account in computing, any Member's Capital Account or share of Net Income,
Net Loss or distributions pursuant to any provision of this Agreement.
9. Distributions
-------------
9.1. All Net Cash Flow, if any, attributable to each calendar month of each
Year (or portion thereof) and distributable other than in connection with the
liquidation of the Company shall be applied and distributed as follows:
9.1.1 first, to the Members (or their Affiliated Persons) in full payment
-----
of any Company Loans and accrued interest with respect thereto in proportion
to the outstanding balances of such Company Loans (amounts so paid to be
applied first to interest accrued and unpaid, and then to outstanding
principal); and
9.1.2 the balance, to the Members, in accordance with their respective
-----------
Interests provided, however, that so long as (i) a default has occurred and is
continuing following the expiration of any applicable cure periods under a
Credit Lease in which PHP Member acts as the Lessee thereunder and (ii) such
Credit Lease remains an Asset of the Company, such Net Cash Flow shall be
applied and distributed first to G&L Member until G&L Member has received a
return of its Capital Contribution with respect to such Asset, second, to PHP
Member until PHP Member has received a return of its Capital
12
<PAGE>
Contribution with respect to such Asset, and the balance to the Members in
accordance with their respective Interests.
9.2. The Manager shall make all distributions of Net Proceeds under Section
-------
9.1 as promptly as practicable after the transaction giving rise to such Net
- ---
Proceeds. The Manager shall make distributions of all other Net Cash Flow under
Section 9.1 within thirty (30) days after the end of each calendar month during
- -----------
any Year (if and to the extent of available cash and not otherwise) on the basis
of estimated Net Cash Flow for such calendar month (or the applicable portion
thereof), after taking into account any remaining discrepancy between actual and
estimated Net Cash Flow for any preceding month. Thirty (30) days following
final determination of actual Net Cash Flow for such Year, there shall be a
final distribution to the Members to the extent that actual Net Cash Flow for
such Year exceeds interim distributions of estimated Net Cash Flow, or the
Members shall recontribute their respective shares of the excess of any interim
distributions of estimated Net Cash Flow over the actual Net Cash Flow for such
Year. Except as may be otherwise required by law, no distribution of property in
kind by the Company shall be permitted without the prior written consent of the
Manager and each of the Members.
9.3. Amounts owed on secured debt held by PHP Member shall be paid in
accordance with the terms of the debt instrument prior to any payment described
in Section 9.1 or 9.2 at all times that PHP Member is not in default as tenant
----------- ---
under a Credit Lease. At any time that PHP Member is in default as tenant under
a Credit Lease, amounts owed on secured debt of the Company held by PHP Member
shall be paid only after payment in full to G&L Member and Manager (and their
Affiliates, if applicable) of their Company Loans (if any) and an amount equal
to G&L Member's and Manager's Capital Contribution to the Company.
10. Books and Records
-----------------
10.1 The Manager shall keep or cause to be kept full and true books of
accounts, in which shall be entered each financial transaction of the Company
and a record of ownership of Interests in the Company.
10.2 All of said books of account, as well as records and reports of the
Company, together with an executed copy of the Certificate of Formation and
Limited Liability Company Agreement of the Company and any amendments thereto,
and all such other information regarding the Company as any Member may
reasonably request from time to time, shall at all times be maintained at the
principal office of the Company, or at such other office of the Company as may
be designated for such purpose by the Manager, and shall be open to the
inspection, examination and audit of the Members or their representatives during
reasonable business hours, who shall be entitled to make copies or extracts
thereof.
13
<PAGE>
10.3. The Manager shall cause to be prepared and distributed to the
Members and the Manager within one hundred and twenty (120) days after the end
of each Year an audited financial statement of the Company for such Year,
prepared in accordance with generally accepted accounting principles by a
nationally recognized accounting firm. The Manager shall also cause to be
prepared and distributed to each Member and the Manager within twenty-five (25)
days after the end of each month an unaudited financial statement for the
Company for such month, prepared in accordance with generally accepted
accounting principles.
10.4. The Manager shall also furnish to each Member and the Manager
within one hundred and twenty (120) days after the end of each Year any
statement or forms required to be furnished pursuant to applicable provisions of
the Code (including a copy of the Schedule K-1, or corresponding schedules
relating to such Member required to be filed with the Company's U.S. Return of
Company Income and a copy of the Company's U.S. Return of Company Income).
10.5. Tax Matters Member.
------------------
10.5.1 The Manager shall be the "tax matters partner" as that term
is defined in Section 6231 of the Code.
10.5.2 Each Member shall give prompt notice to the tax matters
partner upon receipt of advice that the Internal Revenue Service (the
"Service") intends to examine any Company income tax returns. The tax
matters partner shall promptly notify the Members of the commencement of
any administrative or judicial or similar proceedings involving the tax
treatment of items of Company income, loss, deductions and credits, and
shall further keep the Members fully informed of all material developments
involved in such proceedings. Each Member shall have the right to
participate in any such actions and proceedings to the extent provided for
under the Code and regulations promulgated thereunder.
10.5.3 Nothing in this Section shall limit the ability of the
Members to take any action in their individual capacity relating to tax
audit matters that is left to the determination of an individual Member
under Sections 6222 and 6223 of the Code.
10.5.4 The tax matters partner shall cause to be prepared for each
Year the federal, state and local income tax returns and information
returns, if any, which the Company is required to file, copies of which
returns shall be available for inspection and examination by the Members at
any time and such Members shall be entitled to make copies or extracts
thereof. Where the Members are required to file state and local income tax
returns by reason of their interest in the Company, the tax matters partner
shall cause them to be furnished with copies of the relevant returns filed
by the Company. The tax
14
<PAGE>
matters partner shall act in the interests of all of the Members in the
preparation of any such statements, forms or returns.
10.5.5 The tax matters partner shall not initiate any action or
proceeding in any court, extend any statute of limitations, or take any
other action contemplated by Sections 6222 through 6232 of the Code that
would legally bind any other member of the Company without the approval of
each Member. If the tax matters partner proposes that any material
adjustment to any tax return be approved, the tax matters partner shall not
concede such adjustment without the prior approval of each Member.
10.6. The actual out-of-pocket costs of keeping the Company's books
and preparing the reports, statements and returns referred to in this Article 10
----------
shall be an expense of the Company.
11. Bank Accounts; Certain Payments.
-------------------------------
11.1. All funds of the Company shall be deposited in the Company name
in an appropriate bank account or accounts to be maintained by the Company as
the Manager may designate. Withdrawals from any such bank account or accounts
shall be made only in the regular course of the Company's business. Persons
employed by the Manager having authority with regard to such account or accounts
shall be subject to the approval of a Majority in Interest of the Members;
provided that, at all times (i) authorized signatories shall include two
employees of the Manager and (ii) withdrawals of amounts in excess of any line
item of an approved Company Budget plus 5% shall require signatures of two
authorized signatories and the approval of each of the Members.
11.2. The Manager may pay from such bank account or accounts, when
due or against receipt of invoices therefor, the following amounts, without
duplication, to the extent such amounts have been approved in any line item of
the Company Budget plus 5% or have been otherwise approved by the Members: (i)
Operating Expenses; (ii) distributions made to enable Members to pay income
taxes in respect of their Interest; (iii) any Origination and Due Diligence
Expenses; (iv) any amounts due on or with respect to any indebtedness of the
Company; (v) interest and principal payments on account of Company indebtedness
(other than principal payments on account of Company Loans), together with any
fees or other payments then due thereunder; (vi) all reasonable and necessary
cash expenditures (including the establishment and funding of reserves, but
excluding the amounts described in the preceding clauses (i), (ii), (iii), (iv),
(v) and (vi) and expenditures from established reserves) contemplated by the
Manager; and (vii) amounts used to fund the origination or proposed origination
of Credit Leases and the purchase or proposed purchase of Property. The Manager
may also pay from such bank account or accounts any payments or distributions
required by Section 9.
---------
12. Rights and Obligations of Members.
---------------------------------
15
<PAGE>
12.1. Liability of Members. No Member shall be personally liable for
--------------------
any of the debts, liabilities, obligations or contracts of the Company or of any
other Member, nor shall a Member be required to lend any funds to the Company.
Each Member shall only be liable to make payment of such Member's Capital
Contributions as and when due hereunder. If and to the extent a Member's
Capital Contributions shall be fully paid, the Member shall not, except as
required by the express provisions of Section 7.2 or as required by the express
-----------
provisions of the Act regarding repayment of sums wrongfully distributed to any
such Member, be required to make any further contributions to the Company.
Except as otherwise provided in the Act, by law or expressly in this Agreement,
no Member shall have any fiduciary or other duty to another Member with respect
to the business and affairs of the Company, and no Member shall be liable to the
Company or any other Member for acting in good faith reliance upon the
provisions of this Agreement. No Member shall have any responsibility to
restore any negative balance in its Capital Account or to contribute to or in
respect of the liabilities or obligations of the Company or return distributions
made by the Company except as required by the Act or other applicable law;
provided, however, that Members shall be responsible for their failure to make
required Capital Contributions hereunder. The failure of the Company to observe
any formalities or requirements relating to the exercise of its powers or the
management of its business or affairs under this Agreement or the Act shall not
be grounds for making its Members or the Manager responsible for the liabilities
of the Company.
12.2. No Participation by the Members. The Members other than the
-------------------------------
Manager shall not participate in the management or control of the business of,
or transact any business for, the Company. The Members shall not have power to
sign for or bind the Company. The Members shall, however, have the approval
rights expressly set forth elsewhere in this Agreement, as well as the approval
rights set forth in Sections 12.3, 12.4 and 13.2.1 below.
------------------- ------
12.3. Approval by the Members. The following matters shall be
-----------------------
subject to the prior written approval of each of the Members.
(a) any amendment of the Limited Liability Company Agreement or the
Certificate of Formation of the Company and any merger or
consolidation of the Company with any other entity;
(b) any secured or unsecured borrowings by the Company (and any
refinancing thereof);
(c) except as otherwise specifically provided in Section 20, a sale
----------
of all or substantially all of the Assets;
(d) any dispositions or financings by the Company relating to more
than one Asset, or securitized transactions involving the
Assets;
16
<PAGE>
(e) the making of any loan by the Company to another Person;
(f) any material decision by the Company which is not made in the
ordinary course of its business including, without limitation,
commencement or response to any litigation, any foreclosure
action, workout or restructuring of an Asset;
(g) any transaction between the Company and any Member, or any
Affiliated Person as to any Member (provided that all such
transactions shall be conducted on an arm's length basis), other
than transactions expressly contemplated by this Agreement;
(h) any reimbursement of the Manager or a Member by the Company for
Operating Expenses other than as contemplated by this Agreement;
(i) any other action requiring the approval of the Members under the
Act which cannot be varied by this Agreement;
(j) the termination of the Company pursuant to Section 15.3;
------------
(k) any origination of any Credit Lease or acquisition (by purchase,
lease or otherwise) of any Property by the Company which shall be
accomplished in accordance with Section 13.2.1);
--------------
(l) any issuance of membership interests or rights, options,
warrants, convertible debt or equity instruments that provide any
right to subscribe for, purchase or otherwise acquire membership
interests;
(m) any dividend or distribution of cash or other property in respect
of any membership interests, except as contemplated by Section
9.1 and Section 16.2;
(n) any redemption, purchase or other acquisition of membership
interests;
(o) any entry into a line of business other than the acquisition of
Property and the origination of Credit Leases;
(p) any assignment by the Company of a Credit Lease or other material
contract to which the Company is a party;
17
<PAGE>
(q) any incurrence of indebtedness for borrowed money or any
guarantee of third party obligations in excess of $25,000
and any modification of the terms of any such indebtedness
or guarantee not in the ordinary course of business; and
(r) the Company Budget, including updates thereto provided to
the Members in accordance with Section 13.2.2.
--------------
12.4. Manner of Consent. Except as otherwise specifically provided
-----------------
in this Agreement, the Manager shall solicit the approval of the Members as to
any matter requiring Member approval hereunder as follows: the Manager shall
give to each of the Members a notice requesting any such approval, accompanied
by a description in reasonable detail of the matters as to which such approval
is requested. In such case, any Member which does not communicate by notice to
the Manager its approval of any matters described in the notice requesting such
approval within seven (7) Business Days of the date of such notice shall be
deemed to have disapproved such matters.
12.5. PHP Member Not to Own Equity Securities of Affiliates of G&L
------------------------------------------------------------
Member. PHP member represents that, at the date hereof, it does not own,
- ------
directly or indirectly, any equity securities of G&L Realty, Inc., and covenants
and agrees that, so long as this Agreement is in effect, it will not acquire,
directly or indirectly, any equity securities of G&L Realty, Inc.
12.6. Representations of Members.
--------------------------
12.6.1 Each Member, by execution hereof, represents and warrants it
is neither: (i) an employee benefit plan within the meaning of Section 3(3)
of ERISA (whether or not it is subject to the provisions of Title I of
ERISA); (ii) a plan described in Section 4975(e)(1) of the Code; (iii) an
entity the assets of which include plan assets pursuant to Department of
Labor Regulations at 29 C.F.R. (S) 2510.3-101 by reason of the investment
(direct or indirect) in such entity by an entity described in the preceding
clauses (i) or (ii) of this sentence; nor (iv) a "benefit plan investor"
within the meaning of 29 C.F.R. (S) 2510.3-101.
12.6.2 Non-Foreign Status. Each Member, by execution hereof,
------------------
represents and warrants that it is a United States person within the
meaning of Section 7701(a)(30) of the Code.
12.6.3 Securities Act; Investment Company Act. Each Member, by
--------------------------------------
execution hereof, represents and warrants that:
18
<PAGE>
(a) such Member's Interest in the Company has not been and will
not be registered until the Securities Act, in reliance upon
the exemption provided in Section 4(2) of the Securities Act,
or registered or qualified under the securities law of any
jurisdiction;
(b) such Member (i) has such knowledge, sophistication and
experience in financial and business matters as to be capable
of evaluating the merits and risks of an investment in its
Interest in the Company, (ii) is able to bear the economic
risk of an investment in its Interest in the Company, and
(iii) constitutes an "accredited investor" as defined in
Regulation D under the Securities Act;
(c) such Member is acquiring for its own account, or for accounts
as to which it exercises sole investment discretion, for
investment purposes only and not with a view to distribution,
subject, nevertheless, to the understanding that the
disposition of such Member's property shall at all times be
and remain within such Member's control;
(d) upon acquisition of its Interest in the Company, (i) the
number of "beneficial owners" (as defined in Section 3 of the
Investment Company Act) owning such Member's Interest is one;
and (ii) the Company, as a result thereof, will not be
required to register as an investment company under the
Investment Company Act;
(e) it is not a bank, within the meaning of Section 881(c)(3)(A)
of the Code or if it is such a Bank that it is incorporated
under the laws of the United States or any state thereof
(including the District of Columbia);
12.6.4 Valid Organization; Authority; Execution; Enforceability:
--------------------------------------------------------
Each Member, by execution hereof, represents and warrants that:
(a) it is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization and is
duly qualified and in good standing in the jurisdiction of its
principal place of business (if not organized therein);
(b) such Member has full corporate or other applicable power and
authority to execute and agree to this Agreement and to
perform its obligations hereunder and all necessary actions by
the board of directors, shareholders, members, partners or
other Persons necessary for the due authorization, execution,
delivery and performance of this Agreement by that Member have
been duly taken;
19
<PAGE>
(c) such Member has duly executed and delivered this Agreement;
(d) such Member's authorization, execution, delivery and
performance of this Agreement do not conflict in any material
respect with any other agreement or arrangement to which that
Member is a party or by which it is bound or with any law or
regulation to which that Member is subject; and
(e) this Agreement constitutes a valid, binding and enforceable
agreement of that Member, subject to general equitable
principles and except as the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws of general application
relating to creditors' rights.
12.7. Grant of Right of First Offer. Each of G&L Member and PHP
-----------------------------
Member hereby grant, and agree to cause their Affiliates to grant, to the
Company an exclusive right of first offer to purchase real property subject or
to be subjected to a Credit Lease from such Member or its Affiliate or from a
third party sponsored by such Member or its Affiliate (in such capacity, a
"Sponsor"). Such purchase or assumption terms shall be based on market terms and
pricing which would be offered at an arm's-length transaction for property and
leases of such nature, term and rent payable by lessees of similar credit
standing, which terms and pricing shall be determined by the Manager and shall
be set forth in a written offer from the Company, delivered to the Sponsor in a
timely and efficient manner. Such Member, if it is the Sponsor, shall accept, or
shall otherwise cause its Affiliate to accept, any such offer meeting the terms
of this Section 12.7.
------------
13. Rights and Obligations of the Manager.
-------------------------------------
13.1. General Responsibilities.
------------------------
13.1.1 Except as otherwise specifically provided in this Agreement
requiring Member consent or approval, permitting Member action or
direction, as described in this Agreement, the Manager shall have full
responsibility and exclusive and complete discretion in the management and
control of the business and afffairs of the Company for the purposes herein
stated, shall make all decisions affecting the Company's affairs and
business, and shall have full, complete and exclusive discretion to take
any and all action that the Company is authorized to take and to make all
decisions with respect thereto. Until such time as the Company shall employ
its own personnel, the Manager shall provide such personnel as may be
necessary to accomplish the origination, purchase, ownership and
disposition of the Assets and the operation and management of the Company.
With the consent of each of the Members, the Manager may delegate the
20
<PAGE>
performance of its functions to any of their respective Affiliated Persons,
but shall remain primarily liable therefor to the Company and the Members.
The Manager will be responsible for the compensation and other overhead
costs incurred in connection with its employment of such personnel. In no
event shall any personnel be employed by the Manager or the Company if such
personnel could be considered employees of either Member or their
respective Affiliates.
13.1.2 The Manager shall be required to devote only such time, effort
and attention to the business of the Company as is reasonably necessary to
the accomplishment of the Company's purposes.
13.1.3 Prior to the Company conducting business in any jurisdiction
other than the State of Delaware, the Manager shall cause the Company to
comply, to the extent procedures are available, with all requirements
necessary to qualify the Company as a foreign limited liability company in
such jurisdiction. Each Member shall execute, acknowledge, swear to and
deliver all certificates and other instruments conforming to this Agreement
that are necessary or appropriate to qualify, or, as appropriate, to
continue or terminate such qualification of, the Company as a foreign
limited liability company in all such jurisdictions in which the Company
may conduct business.
13.2. Management. The Manager shall supervise the operations of the
----------
Company and, in such capacity, shall take such steps as may be reasonably
necessary to ensure that the operations of the Company are conducted in
compliance with applicable law and with the terms of this Agreement.
13.2.1 Originations and Purchases. Subject to Section 12.7, any
-------------------------- ------------
Member may submit to the Manager proposals for originations of Credit
Leases or acquisition (by purchase, lease or otherwise) of any Property.
Each proposal shall require the approval by each Member prior to any
origination of any Credit Lease or acquisition (by purchase, lease or
otherwise) of any Property on behalf of the Company. A proposal for such
origination or acquisition will be deemed (i) rejected if any Member
rejects or fails to approve such proposal within 10 Business Days after
receipt of the proposal, and (ii) approved if each Member approves such
recommendation within 10 Business Days after such receipt. Once a proposal
for origination is approved, the Manager will be authorized to consummate
such origination or purchase on behalf of the Company.
13.2.2 Company Budget. No later than March 31, 1997, the Manager
--------------
shall prepare and shall submit to the Members a budget (the "Company
Budget") representing the Company's overall operating budget which shall
include the annual operating budget for the Company, including projections
of income and expense by major line item, any expected capital calls and
borrowing needs with respect thereto, startup and ongoing out of pocket
third party expenses (including without limitation, legal, accounting and
21
<PAGE>
auditing costs) and other operating costs and such operating and overhead
costs expected to be incurred by the Company in connection therewith. The
Company Budget will be updated quarterly; provided, however, that any
material changes to the operating budget prior to the quarterly update will
require the approval of the Members in the same manner as the original
Company Budget.
13.3. Other Business; Reimbursement.
-----------------------------
13.3.1 Subject to Section 12.7, the Members and any Affiliated Person
------------
of any Member may engage in or possess an interest in other business
ventures of every kind and description, independently or with others.
Neither the Company nor the other Members shall have any rights in or to
such independent ventures or the income or profits therefrom by virtue of
this Agreement.
13.3.2 The Company shall from time to time reimburse the Manager for
the Manager's reasonable out-of-pocket expenditures incurred in connection
with the performance of its duties hereunder; provided, however, that any
such reimbursement of expenses shall be subject to the approval of the
Members as provided in Section 12.3.
------------
13.4. Authority of the Manager.
------------------------
13.4.1 Election. The Members, by execution of this Agreement, elect
--------
the Manager as the manager of the Company. Except as otherwise specifically
provided in this Agreement, the Manager shall have full and complete power
to do any and all things necessary or incidental to carrying out the
objects and purposes of the Company set forth in Section 6 hereof and to
---------
perform all acts and enter into and perform all contracts and other
undertakings which it may deem necessary or advisable or incidental
thereto, including, without limitation, the power to manage and conduct the
Company business.
13.4.2 Determination by the Manager. Except as otherwise specifically
----------------------------
provided in this Agreement, any action, direction or consent to be taken by
the Manager hereunder shall be evidenced by a writing signed by the
Manager. The Manager agrees to execute such documents and take such actions
as so directed by each of the Members, provided any such direction is not
in violation of an express provision of this Agreement and that the
Manager may lawfully do so. In the event the Manager refuses to so execute
such documents or take such action, may be removed by the Members as set
forth in Section 13.8. The Members hereby agree that any action undertaken
------------
by the Manager at the direction of each of the Members shall be deemed
consistent with the fiduciary obligations of the Manager with respect
thereto and shall not constitute a breach of the Manager's fiduciary duty
to the Members, provided, however, that the foregoing does not relieve the
Manager of its own negligence or willful misconduct in connection with any
such action.
22
<PAGE>
13.4.3 Execution of Documents. Subject to the express provisions of this
----------------------
Agreement, the Manager shall have the authority to execute on behalf of the
Company such agreements, guarantees, contracts, instruments and other
documents as it shall from time to time approve, such approval to be
conclusively evidenced by its execution and delivery of any of the foregoing,
including, without limitation: (a) all such solicitations, offers, agreements,
instruments, certificates or other documents as shall be necessary or
appropriate in connection with the origination of Credit Leases or purchase of
Property by the Company; (b) checks, drafts, notes and other negotiable
instruments; (c) assignments and transfer documents, and (d) loan agreements,
mortgages, security agreements, guarantees, lease assignments, pledge
agreements and financing statements. The signatures of the Manager on all such
instruments, agreements, guarantees, contracts, conveyances or documents, and
upon any checks, drafts, notes and other negotiable instruments, shall be
sufficient to bind the Company in respect thereof and conclusively evidence
the authority of the Manager with respect thereto, and no third person need
look to the application of funds or authority to act or require joinder or
consent of any other party.
13.4.4 Reliance on Certificate. Any Person dealing with the Company or the
-----------------------
Manager may rely on a certificate signed by the Manager:
(a) as to who is the Manager or a Member of the Company;
(b) as to the existence or nonexistence of any fact or facts which
constitute conditions precedent to acts by the Manager or are in any
other manner germane to the affairs of the Company;
(c) as to who is authorized to execute and deliver any instrument or
document on behalf of the Company;
(d) as to the authenticity of any copy of this Agreement and amendments
hereto; or
(e) as to any act or failure to act by the Company or as to any other
matter whatsoever involving the Company or any Member.
13.5. Dealings with Members and the Manager. The Company may enter into
-------------------------------------
agreements with the Manager or any Member or Affiliated Person with respect
thereto for the acquisition of property or rendition of services; provided,
however, that the acquisition of such property from, or the rendition of such
services by, the Manager or such Member or Affiliated Person has previously been
approved by each of the Members (and is on an arm's length basis) in accordance
with Section 12.3(g) or is expressly set forth in this Agreement. The Manager or
---------------
23
<PAGE>
each Member shall in each case disclose in advance the existence of any such
affiliation to the other Members.
13.6. Liability of the Manager. Except to the extent otherwise required by
------------------------
applicable law or as set forth in written agreements among the Manager or its
Affiliated Persons which are binding on the party against whom enforcement of
any such agreement is sought, the Manager and its Affiliated Persons shall have
no liability to the Company or to any Member or to any other Manager for any
loss suffered by the Company which arises out of any action or inaction of the
Manager or its Affiliated Persons, if the Manager or its Affiliated Persons
determined in good faith that such course of conduct was in the best interests
of the Company or the Members consistent with the fiduciary obligations of the
Manager with respect thereto, and such course of conduct did not constitute
negligence or willful misconduct of such Person or a material breach of this
Agreement.
13.7. Indemnification.
---------------
(a) To the fullest extent permitted by applicable law, each of the
Manager, the Members and their officers, employees, directors,
shareholders, members, partners, agents, legal representatives and
permitted assigns ("indemnitees") shall be entitled to
indemnification from the Company for any loss, damage or claim by
reason of any act or omission performed or omitted by them on behalf
of the Company and in a manner reasonably believed to be within the
scope of the authority conferred on any of them by this Agreement,
except that no indemnitee shall be entitled to be indemnified in
respect of any loss, damage or claim incurred by it by reason of its
negligence, willful misconduct or breach of its fiduciary duty, if
any, with respect to such acts or omissions; provided, however, that
any indemnity under this Section 13.7.2 shall be provided out of and
--------------
to the extent of Company assets only, and no Member shall have
personal liability on account thereof. The fulfillment by the
Company of indemnification obligations will be considered expenses
of the Company.
(b) To the fullest extent permitted by law, each Member shall indemnify
the Company and the other Members and hold them harmless from and
against any and all losses, costs, liabilities, damages and expenses
(including costs of suit and reasonable attorneys' fees) they may
incur on account of any breach of any provision of this Agreement by
such Member.
24
<PAGE>
13.8. Removal of the Manager.
----------------------
13.8.1 Right to Remove. By mutual agreement of each of the Members, the
---------------
Members shall have the right:
(a) to appoint, and (if desired) cause the admission to the Company of,
one or more new Managers, and to determine such new Manager's or
Managers' economic interest in the Company, if any; provided, however,
that such new Manager's or Managers' economic interest, if any, shall
not reduce the interests of the Members in the Company other than in a
manner proportionate to their respective Interests; and
(b) after admission of one or more new Managers pursuant to clause (a), to
----------
cause the removal of one or more of the Managers.
Each of the Members shall exercise the removal right contained in this Section
-------
13.8.1 in good faith based upon such Manager's gross negligence or willful
------
misconduct of such manager. In no event shall the Members exercise the removal
right set forth in this Section 13.8.1 solely to cause a reduction in such
--------------
manager's economic interest in the Company or amounts distributable under
Section 13.7 hereof. The Members shall exercise such rights by giving notice
------------
thereof (a "Termination Notice") to the subject Manager. Any removal of a
Manager pursuant to this Section 13.8.1 shall be effective as of the date (the
--------------
"Removal Date") which is thirty (30) days after the date of the Termination
Notice or, if later, the date on which all third-party consents required for
such removal are obtained and the new Manager, appointed by the Members and
any Manager which is not then the subject of removal, has accepted such
appointment. The Manager agrees to execute and deliver such further
instruments and do such further acts and things as may be required to carry
out the intent of this Section 13.8.1, including without limitation
--------------
effectuating the appointment of any new Manager.
13.8.2 No Right to Withdraw, Assign or Delegate. No Manager shall have the
----------------------------------------
right to withdraw as Manager hereunder, assign its rights hereunder nor
delegate its duties hereunder without the prior approval of each of the
Members and unless and until a new Manager has accepted appointment as a
Manager hereunder.
13.8.3 Consequences of Removal or Withdrawal of a Manager. After the
--------------------------------------------------
withdrawal of any Manager or after the removal of any Manager pursuant to this
Section 13.8, the new Manager shall have all of the authority and power of the
------------
Manager hereunder and may take any action, direction or consent which is
required to be or may be taken by the Manager hereunder.
25
<PAGE>
13.9 Representations of the Manager.
------------------------------
(a) The Manager, by execution hereof, represents and warrants that it is
neither: (i) an employee benefit plan within the meaning of Section 3(3) of
ERISA (whether or not it is subject to the provisions of Title I of ERISA); (ii)
a plan described in Section 4975(c)(1) of the Code; (iii) an entity the assets
of which include plan assets pursuant to Department of Labor Regulations at 29
C.F.R. (S) 2510.3-101 by reason of the investment (direct or indirect) in such
entity by an entity described in the preceding clauses (i) or (ii) of this
sentence; nor (iv) a "benefit plan investor" within the meaning of 29 C.F.R.
Section 2510.3-101.
(b) The Manager represents that it is not an Affiliate of any Member other
than G&L Member.
14. Transfer of Interests.
---------------------
14.1 Restrictions on Transfer.
------------------------
14.1.1 Members. No Member shall suffer or permit any transfer of or
-------
encumbrance upon such Member's Interest in the Company, without, in each
instance, obtaining the prior approval of the non-transferring Member, which
approval the non-transferring Member may withhold in its sole discretion.
Notwithstanding the foregoing provisions of this Section 14.1.1, the following
--------------
transfers shall be permitted: any Member may transfer its respective interests
to a wholly owned subsidiary of such transferring Member without the approval of
the non-transferring Member if the transferring Member at all times retain not
less than one hundred percent (100%) share of the direct and indirect beneficial
interest and direct voting control thereof. In any event, the Members shall be
provided with prior written notice of any proposed transfer of interests
pursuant to this Section 14.1.1, whether or not the Members' approval is
--------------
required with respect to such transfer.
14.1.2 Other Restrictions on Transfer. No Member shall suffer or permit any
------------------------------
transfer of or encumbrance upon such Member's Interest in the Company which
would adversely affect the status of the Company as a partnership for federal
tax purposes or which would require the Company to register as an "investment
company" under the Investment Company Act. No Interest may be sold or
transferred if, at the time of such sale or transfer, such sale or transfer
would result in the aggregate number of "beneficial owners" (as defined in
Section 3 of the Investment Company Act) of Interests to exceed 100. No Interest
may be sold or transferred unless the transferee represents to the Company, the
Members and the Manager, the matters contained in Section 12.7.
------------
26
<PAGE>
14.1.3 Right of First Offer. Subject to the foregoing, if a Member receives
--------------------
a bona fide offer, in writing, from an unaffiliated third party to purchase its
Interest and desires to sell its Interest on the terms set forth in the offer,
then prior to transferring its interest, the transferring Member shall notify
each other Member in writing of its proposed transfer and shall make an offer
(the "Offer") to sell its Interest to each other Member on the same terms as the
third-party offer. Each Member which is not the transferring party, shall have a
right to accept the Offer, which acceptance must be made within five (5)
Business Days after delivery of such notice. If any non-transferring Member
timely notifies the transferring Member in writing of its acceptance of the
Offer, then such transferring Member shall sell such Interest to such Member on
the closing date specified by the purchasing Member which closing date shall
occur no later than thirty (30) Business Days after delivery of such notice of
transfer. If more than one non-transferring Member timely notifies the
transferring Member in writing of its acceptance of the Offer, such transferring
Member shall conduct a private auction for such Interest having as a floor the
terms of the Offer and using a sealed bid procedure, which auction shall occur
no later than ten (10) Business Days after delivery of such notice of transfer.
If no non-transferring Member elects to timely accept the Offer, the
transferring Member may sell its Interest within thirty (30) days after delivery
of such notice to any Person on substantially the same terms as those contained
in the Offer, such sale to be evidenced by a binding purchase commitment of the
Person purchasing. If no such binding commitment is obtained within such thirty
(30) day period, or if the transferring Member desires to sell on materially
different terms than those previously offered the other Member (e.g., price is
lower than 98% of amount indicated in transferring member's notice, any change
in ratio of cash to total purchase price or in terms of any securities
contributed as a portion of the purchase price), the transferring Member must,
in each such instance, again extend the rights described above to the other
Members.
14.1.4 In the event of a permitted transfer of all or any portion of a
Member's Interest in the Company pursuant to this Section 14.1:
------------
(a) the Manager shall approve any amendment to this Agreement reasonably
requested by the transferring Member to enable such Member to transfer
a portion of its Interest permitted to be transferred pursuant to this
Section 14.1, provided that such amendment does not affect Section
------------ -------
14.1.1, 14.1.2 or 14.1.3, does not materially affect the right of the
------------------------
Manager or Members to manage the Company, does not impose any material
burden or obligation on the Manager or non-transferring Member and does
not affect the economic return of the Manager or non-transferring
Member under this Agreement; and
27
<PAGE>
(b) the tax matters partner of the Company shall, at the request of the
transferring Member cause the Company to elect, pursuant to Section 754
of the Code, to adjust the basis of the Assets.
14.2. Obligations and Rights of Transferees and Assignees. Any Person who
---------------------------------------------------
acquires in any manner whatsoever the Interest (or any part thereof) of any
Member, irrespective of whether such Person had accepted and assumed in writing
the terms and provisions of this Agreement, shall be deemed, by acceptance of
the benefit of the acquisition thereof, to have agreed to be subject to and
bound by all of the obligations of this Agreement and to have made the
representations set forth herein, with the same force and effect as any
predecessor in interest in the Company, shall have only such rights as are
provided in this Agreement, and, without limiting the generality of the
foregoing, shall not have the value of its Interest ascertained or receive the
value of such Interest, or, in lieu thereof, profits attributable to any right
in the Company, except as set forth in this Agreement.
14.3. Non-Recognition of Certain Transfers. Notwithstanding any other
------------------------------------
provision of this Agreement, any transfer, sale, alienation, assignment,
encumbrance or other disposition in contravention of any of the provisions of
this Agreement shall be void and ineffective, and shall not bind, or be
recognized by, the Company.
14.4. Required Amendments. If and to the extent any transfer of an Interest
-------------------
in the Company is permitted hereunder, this Agreement and Exhibit A hereto shall
---------
be amended to reflect the admission to the Company of the transferee Member and
the elimination of the transferor Member.
14.5. Withdrawal. Except upon transfer of a Member's entire Interest in the
----------
Company and the admission of the transferee as a substituted Member in
compliance with the terms of this Agreement, no Member shall have the right to
withdraw from the Company except with the approval of all of the Members.
14.6. Compliance with Securities Laws. Any provision of this Agreement to
-------------------------------
the contrary notwithstanding, no transfer, sale, assignment or other disposition
of any Interest in the Company may be made except in compliance with the then
applicable federal and state securities laws.
14.7. Initial Members. Initial Members become Members upon the execution
---------------
and delivery of this Agreement by all parties hereto.
15. Termination of the Company.
--------------------------
28
<PAGE>
15.1. In the event of the dissolution, bankruptcy or other withdrawal
of a Member (notwithstanding that such withdrawal is in contravention of this
Agreement), the Company shall be dissolved on the ninetieth (90th) day following
the occurrence of such event.
15.2. Notwithstanding Section 15.1, the business of the Company shall
------------
be continued after the dissolution, bankruptcy or other withdrawal of any of the
Members if within ninety (90) days after such event (i) there are at least two
remaining Members and (ii) a Majority in Interest of the Members elect to
continue the business of the Company. In the event of the failure of the Members
to continue the business of the Company as provided in Section 15.2, the
------------
Company shall be terminated forthwith.
15.3. In addition, the Company shall terminate on December 31, 2046,
and the Company may be terminated at any time with the prior approval of each of
the Members.
15.4. Upon the voluntary termination of the Company, the sale of all
or substantially all of the Assets, or any other termination of the Company in
accordance with this Agreement, the Company shall wind up its affairs and shall
then be liquidated as provided in Article 16. In such event, a Certificate of
----------
Cancellation, as required by law, shall be filed.
15.5. Each Member hereby waives any right to maintain any action for
partition with respect to any property owned by the Company or, to the extent
permitted by law, any action for dissolution other than pursuant to rights set
forth in this Agreement.
16. Gain, Loss and Distributions on Liquidation.
-------------------------------------------
Upon any termination of the Company, each of the following shall be
accomplished:
16.1. The Company's interest in the Assets shall be liquidated
promptly in an orderly and businesslike manner, so as not to involve undue
sacrifice and in accordance with Section 17.1.
------------
16.2. Net Proceeds, Net Cash Flow and all other Assets shall be
applied and distributed as follows and in the following order of priority:
16.2.1 First, to the payment of the debts and liabilities of the
Company, subject to the limitations of Section 9.3.
-----------
16.2.2 Second, to the setting up of any reserves which the Manager
determines are reasonably necessary for any contingent liabilities or
obligations of the Company or of the Members arising out of or in
connection with the Company. Such reserves may, in the discretion of the
Manager be paid over to an escrow agent selected by the Manager to be held
by such escrow agent for the purpose of disbursing such reserves in payment
of
29
<PAGE>
any of the aforementioned contingencies, and upon the expiration of such
period as the Manager may deem advisable, to distribute the balance thereof
remaining as provided in Section 16.2.3;
--------------
16.2.3 Third, subject to Section 9, to the Members in proportion to
the respective positive balances of their Capital Accounts after taking
into account all adjustments to such balances for the year of the
liquidation.
16.3. No Member shall have an obligation to restore any deficit
balance in its Capital Account following the liquidation of its interest in the
Company, except as may be required under the Act.
16.4. The Manager shall be responsible for accomplishing the
requirements of this Article 16.
17. Sale of Assets.
--------------
17.1. In the event that (a) Assets are to be liquidated pursuant to
Section 16.1, or (b) Assets have become subject to default following applicable
- ------------
cure periods, the Manager shall solicit offers from G&L Member and PHP Member to
acquire such Assets prior to any public or third party solicitation for offers.
Such solicitation shall include a list of each of the Assets of the Company and
a request that each such Member make a written offer to the Company, setting
forth the cash purchase price such Member is willing to pay therefor, within ten
(10) Business Days after receipt of such solicitation. If G&L Member and PHP
Member offers to purchase one or more of the same Assets, the Manager shall sell
such Asset or Assets to the Member offering the highest price therefor. If
either G&L Member or PHP Member, but not both, offer to purchase one or more of
the Assets, whichever of G&L Member or PHP Member is the non-offering Member
shall direct the Manager to accept or reject such offer on behalf of the
Company. With respect to any Asset for which (i) no offer was made by G&L Member
or PHP Member or (ii) an offer was made by one Member but rejected by the
non-offering Member pursuant to the preceding sentence, the Manager shall sell
such Asset to any third party on terms and conditions it deems satisfactory, but
subject to the prior written approval of G&L Member and PHP Member.
17.2. In the event any sale of one or more Assets to a third party
pursuant to Section 17.2 shall not, for any reason, close pursuant to the terms
------------
of the offer referred to therein, the terms of Section 17.1 shall apply to any
further sale of such Asset or Assets.
18. Further Assurances. Each party to this Agreement agrees to execute,
------------------
acknowledge, deliver, file and record such further certificates, amendments,
instruments and documents, and to do all such other acts and things as may be
required by law, or as may in the
30
<PAGE>
opinion of the Manager or counsel to the Company be necessary or advisable to
carry out the intents and purposes of this Agreement.
19. Notices. Unless otherwise specified in this Agreement, all notices,
-------
demands, elections, requests or other communications which any party to this
Agreement may desire or be required to give hereunder shall be in writing and
shall be given by personal delivery, by facsimile or by mailing the same (by
registered or certified first class mail, postage prepaid, return receipt
requested) addressed as follows:
19.1. To the Company or the Manager:
c/o G&L Realty Corp.
439 North Bedford Drive
Beverly Hills, CA 90210
Attention: Gary Grabel
with copies to:
PHP Healthcare Corporation
11440 Commerce Park Drive
Third Floor
Reston, VA 22091
Attention: Ben Rosenbaum, III, Esq.
Day, Berry & Howard
260 Franklin Street
Boston, MA 02110-3179
Attention: Lewis A. Burleigh, Esq.
Martin H. Blank, Jr., Esq.
11755 Wilshire Boulevard, Suite 1400
Los Angeles, California 90025-1520
or at such other address as may be designated by the Company by notice given as
provided in this Article 19 to the Members.
----------
19.2. To each Member, at its address set forth in Exhibit A to this
---------
Agreement or at such other address as may be designated by it by notice given to
the Company as provided in this Article 19.
----------
31
<PAGE>
19.3. To any person who hereafter becomes a Member of the Company,
at such address as may be designated by him or her or it by notice given to the
Company as provided in this Article 19.
----------
All notices given as provided in this Article 19 shall be deemed to have been
----------
given when received by the addressee.
20. Limited Buy-Sell. In the event the Members disagree with respect to
----------------
the transfer, redemption, encumbrance, purchase or other acquisition of a
Member's Interest in the Company, any Members holding 15% or more of an Interest
in the Company in favor of such sale or financing (the "Initiating Member"),
shall have the right to initiate a buy-sell procedure (the "Buy-Sell") which
shall operate as follows. The Initiating Member shall give notice to the
remaining Members (the "Responding Members") of its intention to exercise the
Buy-Sell with respect to the Interests in the Company of the Responding Members
or the Interests in the Company of the Initiating Member, as the case may be, at
a purchase price (the "Purchase Price") equal to the greater of One Dollar
($1.00) or the product of (i) the fair market value of the Company, taking into
consideration, among other things, the fair market value of the Assets then
owned by the Company, and (ii) the Interest of the Responding Members or the
Initiating Member, as the case may be. Each Responding Member shall be required
to respond within five (5) Business Days as to whether it will "buy" or "sell".
If any Responding Member fails to make an election within such period, such
Responding Member shall be deemed to have elected to "sell" its Interest to the
Initiating Member. If all Responding Members respond that they shall "buy", then
they shall purchase the Interest of the Initiating Members at the Purchase Price
within thirty (30) days after their response. If all Responding Members respond
that they shall "sell", then the Initiating Members shall purchase the Interests
of the Responding Members. If the Responding Members do not respond unanimously,
then the Responding Members who responded "buy" shall have an opportunity for
five (5) Business Days to reconsider. If all such Members change their responses
to "sell", then the Initiating Members shall purchase the Interests of the
Responding Members. Those Responding Members who again respond "buy" shall
purchase the Interests of all the non-purchasing Members for the Purchase Price.
In any case in which there is more than one purchasing Member, the purchasing
Members shall purchase the selling Members' Interests in proportion to the
purchasing Members' respective Interests. At the closing for such sale, the
Interests shall be conveyed, free of all liens and encumbrances thereon, and the
Purchase Price shall be paid by wire transfer of immediately available funds.
21. Amendment. Except as otherwise provided in this Amendment, the terms
---------
and provisions of this Agreement may be waived, modified or amended only with
the written consent of the Manager and all Members. The Manager shall promptly
furnish copies of any amendments to this Agreement to the Members.
32
<PAGE>
22. Captions; Contents. All section and article titles or captions
------------------
contained in this Agreement and the table of contents, if any, are for
convenience only and shall not be deemed a part of this Agreement.
23. Variation of Pronouns. All pronouns and all variations thereof shall
---------------------
be deemed to refer to the masculine, feminine or neuter, singular or plural, as
the identity of the person or persons, thing or entity may require.
24. Governing Law. The Members declare that by entering into this
-------------
Agreement they have contracted with reference to the laws of the State of
Delaware, and the terms and provisions of this Agreement and the legal relations
created by it will in all respects including, without limitation, with respect
to construction, interpretation, performance, effect and remedies, be governed
by and constructed in accordance with the internal laws of the State of Delaware
(without regard to the laws of conflict of any jurisdiction).
25. Successors and Assigns. This Agreement shall be binding upon the
----------------------
parties hereto and their respective permitted successors and assigns and shall
inure to the benefit of the parties hereto and, except as otherwise provided
herein, their respective permitted successors and assigns. The Manager may not
assign its rights under this Agreement nor delegate its duties under this
Agreement without the consent of each of the Members.
26. Counterparts. The Members may execute this Agreement on separate
------------
counterparts, all of which, collectively, shall be deemed to be a single
instrument.
27. Negation of Third-Party Beneficiaries. This Agreement and the
-------------------------------------
covenants and agreements contained herein are for the sole benefit of the
parties to this Agreement and their respective permitted successors and assigns
and may not be enforced by any person or entity not a party to this Agreement
other than a permitted successor or assign of such party.
28. Arbitration. Any dispute or controversy arising under or in
-----------
connection with this agreement may be settled by arbitration in the State of New
Jersey by three (3) arbitrators in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrators' award in any court having competent jurisdiction. The
determination of which party or parties will bear costs and expenses arising in
connection with any arbitration proceeding pursuant to this Article 29 will be
----------
determined by the arbitrators. Any party may, without violating the provisions
of this Agreement relating to exclusive arbitration of disputes and
controversies, seek a temporary restraining order or other injunctive or
equitable relief from a court of competent jurisdiction if necessary to preserve
the status quo or otherwise prevent irreparable harm pending final resolution of
the dispute or controversy on the merits through arbitration.
33
<PAGE>
29. Severability. The provisions of this Agreement are severable. The
------------
invalidity, in whole or in part, of any provision of this Agreement shall not
affect the validity or enforceability of any other of its provisions. If one or
more provisions hereof shall be so declared invalid or unenforceable, the
remaining provisions shall remain in full force and effect and shall be
construed in the broadest possible manner to effectuate the purposes thereof.
The Members further agree to replace such void or unenforceable provisions with
provisions which will achieve, to the extent possible, the economic, business
and other purposes of the void or unenforceable provisions.
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
G&L Realty Partnership, L.P., as Manager
By: G&L Realty Corp., its General Partner
By: /s/ Gary Grabel
-----------------------------------
Name:
Title:
G&L Realty Partnership, L.P., as Member
By: G&L Realty Corp., its General Partner
By: /s/ Gary Grabel
-----------------------------------
Name:
Title:
PHP Healthcare Corporation, as a Member
By: /s/ Anthony Picini
-----------------------------------
Name:
Title:
35
<PAGE>
EXHIBIT A
---------
MEMBERS
-------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
NAME AND ADDRESS AMOUNT OF INITIAL PERCENTAGE
CAPITAL
CONTRIBUTION
- ---------------------------------------------------------------
<S> <C> <C>
G&L Realty Partnership, L.P. $3,542,000 80.50%
- ---------------------------------------------------------------
PHP Healthcare Corporation $858,000 19.50%
- ---------------------------------------------------------------
$4,400,000
</TABLE>
Addresses for Notices to the Members:
PHP Member
----------
11440 Commerce Park Drive
Reston, VA 22091
Attention: Jack M. Mazur, President
with copies to:
Ben Rosenbaum, III, Esq.
Corporate Secretary and General Counsel
11440 Commerce Park Drive
Reston, VA 22091
and
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue, N.W.
Suite 800
Washington, DC 20004
Attention: Richard A. Steinwurtzel, Esq.
36
<PAGE>
G&L Member and Manager
----------------------
c/o G&L Realty Corp.
439 North Bedford Drive
Beverly Hills, CA 90210
Attention: Gary Grabel
with copies to:
Day, Berry & Howard
260 Franklin Street
Boston, MA 02110-3179
Attention: Lewis A. Burleigh, Esq.
and
Martin H. Blank, Jr., Esq.
11755 Wilshire Boulevard, Suite 1400
Los Angeles, CA 90025-1520
37
<PAGE>
EXHIBIT 10.40
FIRST AMENDMENT TO LIMITED LIABILITY COMPANY AGREEMENT
------------------------------------------------------
This First Amendment to Limited Liability Company Agreement (the
"Amendment") is entered into as of March 31, 1997 by and between G&L Realty
Partnership, L.P., a Delaware limited partnership ("G&L") and Property
Acquisition Trust I, a Delaware business trust ("PAT") for the purpose of
amending that certain Limited Liability Company Agreement (the "Agreement") of
GLN Capital Co., LLC (the "Company") dated as of November 25, 1996. All
capitalized terms not defined herein shall have the same meanings set forth in
the Agreement.
Background
----------
G&L and PAT have formed the Company on the terms stated in the Agreement.
G&L and PAT desire to amend the Agreement in certain respects in connection with
the acquisition of (i) those certain Massachusetts Industrial Finance Authority
Health Care Revenue Bonds (Hampden Nursing Homes, Inc. Project) Series 1989A(the
"1989A Bonds"), and (ii) those certain Massachusetts Industrial Finance Agency
Health Care Revenue Bonds (Hampden Nursing Homes, Inc. Project) Series 1989B
(the "1989B Bonds", and together with the 1989A Bonds, the "Bonds") by the
Company.
<PAGE>
NOW, THEREFORE, intending to be legally bound, the parties agree as
follows:
Approval of Acquisition of Bonds
--------------------------------
The Members consent to the acquisition of the Bonds by the Company.
Preferred Return With Respect to Bonds
--------------------------------------
Notwithstanding anything to the contrary contained in the Agreement, (i)
the Preferred Return on PAT's Preferred Capital Amount resulting from its
Capital Contribution with respect to the acquisition of the Bonds and (ii) the
interest rate on the NACC Loan on funds advanced by NACC to the Company to
acquire the Bonds shall be as follows:
Annual Period Preferred Return/
------------- -----------------
Interest Rate
-----------------
4/1/97 - 3/31/98 12%
4/1/98 - 3/31/99 15%
4/1/99 and thereafter 20%
Except as herein amended, the Agreement shall continue in full force and
effect, provided that the Members shall execute any agreements or other
amendments to the Agreement as are necessary to effect the purposes of this
Amendment.
<PAGE>
Capital Contributions
---------------------
Notwithstanding anything in the Agreement to the contrary, PAT's capital
contributions with respect to the Bonds shall consist of $1,500,000.00 and G&L's
capital contribution with respect to the Bonds shall consist of $3,165,000.00.
Pursuant to Section 3.7 of the Agreement NACC shall make a loan to the Company
with respect to the Bonds in the amount of $3,000,000.00.
This Amendment may be signed in several counterparts, each of which shall
be deemed an original, but all of which shall constitute one and the same
instrument. Facsimile signatures shall be binding upon the signatories.
G&L REALTY PARTNERSHIP, L.P.
By: G&L Realty Corp.,
as General Partner
By: /s/ Daniel Gottlieb
--------------------------------
Name: Daniel Gottlieb
Title: CEO
PROPERTY ACQUISITION TRUST I
By:
---------------------------------
Name:
Title:
[Signatures continued on following page]
<PAGE>
Consented to: NOMURA ASSET CAPITAL
CORPORATION
By:
--------------------------------
Name:
Title:
<PAGE>
Capital Contributions
---------------------
Notwithstanding anything in the Agreement to the contrary, PAT's capital
contributions with respect to the Bonds shall consist of $1,500,000.00 and G&L's
capital contribution with respect to the Bonds shall consist of $3,165,000.00.
Pursuant to Section 3.7 of the Agreement NACC shall make a loan to the Company
with respect to the Bonds in the amount of $3,000,000.00.
This Amendment may be signed in several counterparts, each of which shall
be deemed an original, but all of which shall constitute one and the same
instrument. Facsimile signatures shall be binding upon the signatories.
G&L REALTY PARTNERSHIP, L.P.
By: G&L Realty Corp.,
as General Partner
By:
------------------------------------
Name:
Title:
PROPERTY ACQUISITION TRUST I
By: /s/ Sheryl McAfee
------------------------------------
Name: SHERYL McAFEE
Title: DESIGNATED OFFICER
[Signatures continued on following page]
<PAGE>
Consented to: NOMURA ASSET CAPITAL
CORPORATION
By: /s/ Ray Anthony
---------------------------------
Name: Ray Anthony
Title:
<PAGE>
EXHIBIT 10.41
BOND PURCHASE AGREEMENT
Dated as of March 31, 1997
by and between
GLN Capital Co., LLC
(as Buyer)
and
G&L Realty Partnership, L.P.
(as Seller)
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I CERTAIN DEFINITIONS............................................... 1
Section 1.1 Definitions................................................. 1
ARTICLE II PURCHASE OF BONDS................................................ 7
Section 2.1 Agreement to Sell and Purchase Bonds........................ 7
Section 2.2 Payment of Purchase Price................................... 7
Section 2.3 Assumption of GMAC Debt..................................... 7
Section 2.4 Transfer of Bonds........................................... 7
Section 2.5 Bond Information Schedule................................... 7
Section 2.6 April 1, 1997 Interest Payment.............................. 7
ARTICLE III CONDITIONS PRECEDENT............................................ 7
Section 3.1 Condition Precedent to Buyer's Obligations.................. 7
Section 3.2 Condition Precedent to Seller's Obligations................. 8
ARTICLE IV REPRESENTATIONS AND WARRANTIES................................... 9
Section 4.1 Representations and Warranties of Seller.................... 9
ARTICLE V MISCELLANEOUS.................................................... 17
Section 5.1 Survival................................................... 17
Section 5.2 Governing Law.............................................. 17
Section 5.3 Modification, Waiver in Writing............................ 17
Section 5.4 Notices.................................................... 17
Section 5.5 Trial By Jury.............................................. 18
Section 5.6 Headings................................................... 18
Section 5.7 Severability............................................... 18
Section 5.8 Exhibits Incorporated...................................... 18
Section 5.9 Counterparts............................................... 18
Section 5.10 Entire Agreement.......................................... 18
Section 5.11 Further Assurances........................................ 18
Section 5.12 Indemnification.......................................... 18
i
<PAGE>
BOND PURCHASE AGREEMENT
THIS BOND PURCHASE AGREEMENT, made as of March 31, 1997, is by and between
GLN Capital Co., LLC, a Delaware limited liability company, having an address at
439 North Bedford, Beverly Hills, California 90210, Attention: Mark Hamermesh,
Telefax Number (310) 859-9032 ("Buyer"), and G&L Realty Partnership, L.P., a
-----
Delaware limited partnership with an address of c/o G&L Realty Corp., 439 North
Bedford, Beverly Hills, California, Attention: Daniel Gottlieb, Chief Executive
Officer, Telefax Number: (310) 859-9032; ("Seller").
------
RECITALS
WHEREAS, Seller is the owner (i) of those certain Massachusetts Industrial
Finance Authority Health Care Revenue Bonds (Hampden Nursing Homes, Inc.
Project) Series 1989A (the "1989A Bonds"), and (ii) of those certain
-----------
Massachusetts Industrial Finance Agency Health Care Revenue Bonds (Hampden
Nursing Homes, Inc. Project) Series 1989B (the "1989B Bonds", and together with
-----------
the 1989A Bonds, the "Bonds"); and
-----
WHEREAS, Seller is desirous of selling the Bonds, and Buyer is desirous of
purchasing the Bonds on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of premises and the covenants, agreements,
representations and warranties set forth in this Agreement, and for other good
and valuable consideration, the receipt and adequacy of which is acknowledged
hereby, the parties hereby covenant, agree, represent and warrant as follows:
ARTICLE I
CERTAIN DEFINITIONS
-------------------
Section 1.1 Definitions. For all purposes of this Agreement:
-----------
(a) the capitalized terms defined in this Article I have the meanings
---------
assigned to them in this Article I, and include the plural as well as the
singular;
(b) the words "herein", "hereof", and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section, or other subdivision; and
(c) the following terms have the following meanings:
<PAGE>
"Accounts" means, collectively, the Bond Fund Series A Principal Account,
--------
the Bond Fund Series B Principal Account, the Bond Fund Series A Interest
Account, the Bond Fund Series B Interest Account, the Debt Service Reserve Fund
Series A Account, the Debt Service Reserve Fund Series B Account, the Project
Fund General Account, the Project Fund Option Exercise Account, the Renovations
Fund, the Arbitrage Rebate Fund and the Escrow Account.
"Accounts Receivable Indebtedness Liens" means those certain liens on
--------------------------------------
certain of the Corporation's accounts receivable, securing indebtedness pursuant
to that certain Loan and Security Agreement dated September 12, 1996 by and
between Corporation and Healthpartners Funding, L.P., a Delaware limited
partnership.
"Agreement" means this Bond Purchase Agreement as amended, modified or
---------
supplemented from time to time.
"Additional Parity Indebtedness" shall have the meaning set forth in the
------------------------------
Loan Agreement.
"Agency" means Massachusetts Industrial Finance Agency.
------
"Amendment" shall mean that certain First Amendment to Limited Liability
---------
Company Agreement by and between Seller and Property Acquisition Trust I, a
Delaware business trust.
"Arbitrage Rebate Fund" shall have the meaning set forth in the Indenture.
---------------------
"Bond Collateral Security Agreements" means collectively (i) the Loan
-----------------------------------
Agreement, (ii) the Mortgage, (iii) the Security Agreement, (iv) the Escrow
Agreement, (v) the Working Capital Loan Agreement, (vi) the Tax Regulatory
Agreement, (vii) the Subordination Agreement, and (viii) all other agreements,
instruments, certificates and documents executed or delivered by or on behalf of
Corporation which constitute collateral for the Bonds.
"Bond Fund Series A Interest Account" and "Bond Fund Series B Interest
----------------------------------- ---------------------------
Account" shall have the respective meanings set forth in the Indenture.
- -------
"Bond Fund Series A Principal Account" and "Bond Fund Series B Principal
------------------------------------ ----------------------------
Account" shall have the respective meanings set forth in the Indenture.
- -------
"Bond Information Schedule" shall mean the information concerning the Bonds
-------------------------
set forth on Exhibit A.
"Bond Files" means all agreements, reports, correspondence, financial
----------
2
<PAGE>
statements and all other documents received by Seller in connection with or
related to the Bonds or the Collateral.
"Bonds", "1989A Bonds" and "1989B Bonds" shall have the respective meanings
----- ----------- -----------
set forth in the recitals to this Agreement.
"Buyer" shall have the meaning set forth in the recitals to this Agreement.
-----
"Closing Date" means the date of this Agreement.
------------
"Collateral" means all Collateral which constitutes security for the Bonds,
----------
as described more fully in the Indenture and the Bond Collateral Security
Agreements.
"CON" shall have the meaning set forth in Section 4.1(AH)(ii).
---
"Corporation" means Hampden Nursing Homes, Inc.
-----------
"Debt Service Reserve Fund Series A Account" and "Debt Service Reserve Fund
------------------------------------------ -------------------------
Series B Account" shall have the respective meanings set forth in the
- -----------------
Indenture.
"Determination of Taxability" shall have the meaning set forth in the Loan
---------------------------
Agreement.
"DOH" shall have the meaning set forth in Section 4.1(AH)(i).
---
"Entity" means with respect to each party (a) corporation, if such party is
------
listed as a corporation in the first paragraph of this Agreement, (b) limited
partnership, if such party is listed as a limited partnership in the first
paragraph of this Agreement or (c) limited liability company, if such party is
listed as a limited liability company in the first paragraph of this Agreement.
"Environmental Laws" means any and all applicable federal, state, local
------------------
and foreign laws, rules, regulations or municipal ordinances, each as amended
from time to time, any judicial or administrative orders, decrees, settlement
agreements or judgments thereunder, and any permits, approvals, licenses,
registrations, filings and authorizations, in each case as in effect as of the
relevant date, relating to the environment, health or safety, or the release or
threatened release of Hazardous Substances into the indoor or outdoor
environment including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata, or otherwise relating to the
presence or use of Hazardous Substances.
"Escrow Account" shall have the meaning set forth in the Loan Agreement.
--------------
3
<PAGE>
"Escrow Agreement" shall have the meaning set forth in the Loan Agreement.
----------------
"Facility" shall have the meaning set forth in the Loan Agreement.
--------
"GMAC" means the GMAC Commercial Mortgage Corporation.
----
"GMAC Debt" means the outstanding principal balance as of the date hereof
---------
due under that certain promissory note in the amount of Fourteen Million Dollars
($14,000,000) dated December 5, 1995 from Seller to GMAC.
"GMAC Loan and Security Agreement" means that certain Loan and Security
--------------------------------
Agreement by and between G&L Realty Partnership, L.P. and GMAC Commercial
Mortgage Corporation, dated as of December 5, 1995.
"GMAC Security Interest" means the security interest in the Bonds held, by
----------------------
GMAC pursuant to the GMAC Loan and Security Agreement.
"Governmental Authority" means any national or federal government, any
----------------------
state, regional, local or other political subdivision thereof with jurisdiction
and any person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Hazardous Substances" means, collectively, (i) any petroleum or petroleum
--------------------
products or waste oils, explosives, radioactive materials, asbestos, urea
formaldehyde foam insulation, polychlorinated biphenyls ("PCBs"), lead in
----
drinking water, and lead-based paint, the presence, generation, use,
transportation, storage or disposal of or exposure to which (x) is regulated or
could lead to liability under any Environmental Law or (y) is subject to notice
or reporting requirements under any Environmental Law, (ii) any chemicals or
other materials or substances which are now or hereafter become defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," "contaminants," "pollutants"
or words of similar import under any Environmental Law and (iii) any other
chemical or any other material or substance, exposure to which is now or
hereafter prohibited, limited or regulated under any Environmental Law.
"Indenture" means that certain Indenture of Trust by and between Agency and
---------
Maryland National Bank as Trustee, dated as of October 1, 1989, as
supplemented, amended and modified by that First Supplemental Indenture of Trust
by and between Agency and Maryland National Bank as Trustee, dated as of
November 1, 1991.
"Issuance Cost Loan" shall have the meaning set forth in the Loan
------------------
4
<PAGE>
Agreement.
"Legal Requirements" means all statutes, laws, rules, orders, regulations,
------------------
ordinances, judgments, decrees and injunctions of Governmental Authorities
affecting Seller, the Bonds, the Corporation, the Agency, the Indenture, the
Bond Collateral Security Agreements, the Collateral or any part thereof, or the
ownership, construction, use, alteration or operation thereof, or any part
thereof, enacted and in force as of the relevant date, and all permits and
regulations relating thereto, and all covenants, agreements, restrictions and
encumbrances contained in any instruments, either of record or known to Seller,
at any time in force affecting the Collateral or any part thereof, including,
without limitation, any which (i) may require repairs, modifications, or
alterations in or to the Collateral or any part thereof, or (ii) in any way
limit the use and enjoyment thereof, and further including, without limitation,
all Environmental Laws and the Americans with Disabilities Act, as it may be
amended from time to time, together with all regulations promulgated thereto.
"Licenses" shall have the meaning set forth in Section 4.1(AH)(ii).
--------
"Loan Agreement" means that certain Loan Agreement by and between Agency
--------------
and Corporation, dated as of October 1, 1989, as supplemented, amended and
modified by that certain First Supplemental Loan Agreement by and between Agency
and Corporation, dated as of November 1, 1991.
"Management Agreement" shall have the meaning set forth in the Loan
--------------------
Agreement.
"Mortgage" shall have the meaning set forth in the Loan Agreement.
--------
"Other Indebtedness" shall have the meaning set forth in the Loan
------------------
Agreement.
"Payment Schedule" means the dates and amounts of each payment received by
----------------
Seller on account of the Bonds, as set forth on Exhibit B.
"Project Fund General Account" shall have the meaning set forth in the
----------------------------
Indenture.
"Project Fund Option Exercise Account" shall have the meaning set forth in
------------------------------------
the Indenture.
"Purchase Price" means seven million six hundred and sixty-five thousand
--------------
dollars ($7,665,000), which is the amount equal to (i) the sum of the
outstanding principal balance of the 1989A Bonds as of the Closing Date plus One
Million Dollars
5
<PAGE>
($1,000,000), less (ii) the GMAC Debt.
"Renovations Fund" shall have the meaning set forth in the Indenture.
----------------
"Repair and Replacement Fund" shall have the meaning set forth in the
---------------------------
Indenture.
"Retained Cash Flow" shall have the meaning set forth in the Loan
------------------
Agreement.
"Security Agreement" shall have the meaning set forth in the Loan
------------------
Agreement.
"Subordinated Management Fees" shall have the meaning set forth in the Loan
----------------------------
Agreement.
"Seller" shall have the meaning set forth in the recitals to this
------
Agreement.
"Subordination Agreement" shall have the meaning set forth in the Loan
-----------------------
Agreement.
"Subordinated Management Fees" shall have the meaning set forth in the Loan
----------------------------
Agreement.
"Tax Regulatory Agreement" shall have the meaning set forth in the Loan
------------------------
Agreement.
"Third Party Payor's Programs" shall have the meaning set forth in Section
----------------------------
4.1(AH)(v).
"Trustee" means as of the relevant date, the Trustee under the Indenture.
-------
"UCC" means the Uniform Commercial Code as enacted in the relevant
---
jurisdiction.
"Working Capital Loan" shall have the meaning set forth in the Loan
--------------------
Agreement.
"Working Capital Loan Agreement" shall have the meaning set forth in the
------------------------------
Loan Agreement.
6
<PAGE>
ARTICLE II
PURCHASE OF BONDS
-----------------
Section 2.1 Agreement to Sell and Purchase Bonds. Upon and subject to the
------------------------------------
terms and conditions of this Agreement, Seller agrees to sell and Buyer agrees
to purchase the Bonds.
Section 2.2 Payment of Purchase Price. Upon satisfaction of the conditions
-------------------------
precedent set forth in Section 3.1, within five (5) days of the Closing Date
the Buyer shall pay to the Seller the Purchase Price in immediately available
federal funds.
Section 2.3 Assumption of GMAC Debt. On or after the Closing Date, Buyer
-----------------------
will (if required by GMAC) assume Seller's obligations under the GMAC Loan and
Security Agreement, by the execution of appropriate documents in form and
substance acceptable to Buyer and GMAC.
Section 2.4 Transfer of Bonds. Within ten (10) days of the Closing Date,
-----------------
Seller shall have caused the Trustee to reissue the Bonds in the name of Buyer.
Section 2.5 Bond Information Schedule. Within five (5) days of the Closing
-------------------------
Date, Seller shall have provided to Buyer (i) a complete and accurate Bond
Information Schedule, (ii) a complete and accurate Payment Schedule, (iii) the
Bond Files, and (iv) such representations and warranties concerning the accuracy
and completeness of the information set forth in the Bond Information Schedule
and the Payment Schedule as is requested by Buyer.
Section 2.6 April 1, 1997 Interest Payment. Notwithstanding anything to the
------------------------------
contrary set forth herein, the parties agree that the April 1, 1997 interest
payment (which payment represents accrued interest in arrears from October 1,
1996 through March 31, 1997) made in respect of the Bonds shall remain property
of the Seller.
ARTICLE III
CONDITIONS PRECEDENT
--------------------
Section 3.1 Condition Precedent to Buyer's Obligations. As a condition
------------------------------------------
precedent to Buyer's purchase of the Bonds, Seller shall have satisfied the
following conditions (unless waived in writing by Buyer) on or before the
Closing Date.
(A) Agreement. Seller shall have executed and delivered this Agreement to
---------
Buyer.
7
<PAGE>
(B) Amendment. Seller shall have delivered a duly executed Amendment to
---------
Buyer.
(C) Trustee Instruction Letter. Within five (5) days of the Closing Date,
--------------------------
Seller shall have delivered to Buyer a letter, in form and substance
satisfactory to Buyer, instructing the Trustee to issue new Bonds in the name of
Buyer or its designee, upon surrender of the Bonds endorsed for transfer to the
Trustee.
(D) Opinions of Counsel. Buyer shall have received from counsel
-------------------
satisfactory to Buyer, legal opinions in form and substance satisfactory to
Buyer in Buyer's sole discretion. All such legal opinions will be addressed to
Buyer, dated as of the Closing Date, and in form and substance satisfactory to
Buyer and its counsel. Seller hereby instructs any such counsel, to the extent
that such counsel represents Seller, to deliver to Buyer such opinions addressed
to Buyer.
(E) Intentionally omitted.
(F) Representations and Warranties. The representations and warranties
------------------------------
herein shall be true and correct in all material respects.
(G) No Injunction. No law or regulation shall have been adopted, no order,
-------------
judgment or decree of any Governmental Authority shall have been issued, and no
litigation shall be pending or threatened, which in the good faith judgment of
Buyer would enjoin, prohibit or restrain, or impose or result in an adverse
effect upon the consummation of the transactions contemplated hereunder.
(H) Due Authority. Buyer shall have received any other evidence reasonably
--------------
required by Buyer or its counsel demonstrating that (i) Seller is an entity in
good standing under the laws of the State of its formation, and (ii) Seller's
execution and delivery of this Agreement and the other documents delivered
pursuant hereto and the consummation of the transactions contemplated hereby
have been fully authorized.
(I) Approvals. All requisite Governmental Authority approvals, as well as
---------
any other approvals required pursuant to the Indenture or any Bond Collateral
Security Agreement, if any, required to be obtained by Seller shall have been
obtained.
(J) Intentionally Omitted.
(K) Intentionally omitted.
Section 3.2 Condition Precedent to Seller's Obligations. As a condition
-------------------------------------------
precedent to Seller's sale of the Bonds, Buyer shall have satisfied the
following conditions (unless waived in writing by Seller) on or before the
Closing Date.
8
<PAGE>
(A) Agreement. Buyer shall have executed and delivered this Agreement to
---------
Seller.
(B) Payment. Within five (5) days of the Closing Date, Buyer shall have
-------
paid to the Seller the Purchase Price in immediately available federal funds.
(C) Due Authority. Seller shall have received any other evidence reasonably
-------------
required by Seller or its counsel demonstrating that (i) Buyer is an entity in
good standing under the laws of the State of its formation, and (ii) Buyer's
execution and delivery of this Agreement and the other documents delivered
pursuant hereto and the consummation of the transactions contemplated hereby
have been fully authorized.
(D) Transfer and Recordation Taxes; Other Costs. Seller shall have paid all
-------------------------------------------
(i) transfer, filing and recording fees and taxes, costs and expenses, (ii) any
state, county or city documentary taxes relating to the filing or recording of
any document or instrument contemplated hereby, and (iii) all fees required to
be paid to Trustee pursuant to the Indenture. Each of Seller and Buyer shall
sign and deliver, on the closing Date, all transfer tax and related forms
reasonably required by the other party or required by applicable law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 4.1 Representations and Warranties of Seller. Seller represents and
----------------------------------------
warrants that, as of the Closing Date:
(A) Organization. Seller (i) is a duly organized and validly existing
------------
Entity in good standing under the laws of the State of its formation, (ii) has
the requisite Entity power and authority to carry on its business as now being
conducted, and (iii) has the requisite Entity power to execute and deliver, and
perform its obligations under this Agreement.
(B) Authorization. The execution and delivery by Seller of this Agreement,
-------------
Seller's performance of its obligations hereunder and the sale of the Bonds (i)
have been duly authorized by all requisite Entity action on the part of Seller,
(ii) will not violate any provision of any applicable Legal Requirements, any
order of any court or other Governmental Authority, any organizational document
of Seller or any indenture or agreement or other instrument to which Seller is a
party or by which Seller is bound (including, without limitation, the GMAC Loan
and Security Agreement), (iii) will not be in conflict with, result in a breach
of, or constitute (with due notice or lapse of time or both) a default under,
or result in the creation or imposition of any lien of any nature whatsoever
upon any of the property or assets of Seller pursuant to, any such indenture
9
<PAGE>
or agreement or instrument and (iv) have been duly executed and delivered by
Seller. Other than those obtained or filed on or prior to the Closing Date,
Seller is not required to obtain any consent, approval or authorization from, or
to file any declaration or statement with, any Governmental Authority or other
agency, or any other Entity in connection with or as a condition to the
execution, delivery or performance of this Agreement and the transactions
contemplated hereunder, including, without limitation, GMAC.
(C) Litigation. There are no actions, suits or proceedings at law or in
----------
equity now pending and served or, to the knowledge of Seller, threatened that
would adversely affect the execution, delivery or enforceability of this
Agreement or Seller's performance of its obligations hereunder.
(D) No Bankruptcy Filing. Seller is not contemplating either the filing of
--------------------
a petition by it under any state or federal bankruptcy or insolvency laws or the
liquidation of all or a major portion of its assets or property, and Seller has
no knowledge of any person contemplating the filing of any such petition against
it.
(E) Full and Accurate Disclosure. No statement of fact made by or on behalf
----------------------------
of Seller herein or in any other document or certificate delivered to Buyer by
Seller contains any untrue statement of a material fact or omits to state any
material fact necessary to make statements contained herein or therein not
misleading.
(F) Location of Chief Executive Offices. The location of Seller's (i)
-----------------------------------
principal place of business, (ii) chief executive office, and (iii) books and
records concerning the Bonds is as follows: G&L Realty Partnership, L.P., a
Delaware limited partnership with an address of c/o G&L Realty Corp., 439 North
Bedford, Beverly Hills, California.
(G) Solvency. Seller has not entered into this Agreement or the
--------
transactions contemplated hereunder with the actual intent to hinder, delay, or
defraud any creditor. Seller has received reasonably equivalent value in
exchange for its sale of the Bonds. Giving effect to the transactions
contemplated hereby, the fair saleable value of Seller's assets exceeds and
will, immediately following the execution and delivery of this Agreement, exceed
Seller's total liabilities, including, without limitation, subordinated,
unliquidated, or disputed liabilities or contingent obligations. The fair
saleable value of Seller's assets is and will, immediately following the
execution and delivery of this Agreement and consummation of the transactions
contemplated hereunder, be greater than Seller's probable liabilities, including
the maximum amount of its contingent obligations or its debts as such debts
become absolute and matured. Seller's assets do not and, immediately following
the execution and delivery of this Agreement and consummation of the
transactions contemplated hereunder, will not, constitute unreasonably small
capital to carry out its business as conducted or as proposed to be
10
<PAGE>
conducted.
(H) Bond Files Complete. The Bond Files provided or to be provided to Buyer
-------------------
are complete. The copies of the documents included in the Bond Files are true
and correct copies of the documents they purport to be.
(I) Seller's Title to Bonds. Seller has good and marketable title to the
-----------------------
Bonds and is the sole owner and holder of such Bonds, has full right and
authority to sell and assign such bonds hereunder, and is transferring such
bonds to Buyer free and clear of any and all liens, claims, encumbrances,
participation interests, equities, pledges, charges or security interests of any
nature excepting, however, the GMAC Security Interest.
------------------
(J) Enforceability. The Bonds, the Indenture and each of the Bond
--------------
Collateral Security Agreements is the legal, valid and binding obligation of the
maker thereof, enforceable in accordance with its terms.
(K) No Defenses. There are no valid offsets, defenses, counterclaims or
-----------
rights of rescission to the Bonds, the Indenture or any Bond Collateral Security
Agreement.
(L) No Modifications and/or Releases. The terms of the Bonds, the Indenture
--------------------------------
and the Bond Collateral Security Agreements, respectively, have not been
impaired, waived, altered, subordinated, satisfied, released or modified in any
respect except by written instruments which are in the Bond Files.
(M) No Defaults, Breaches, Violations or Events or Acceleration. Except for
------------------------------------------------------------
those certain nonmonetary defaults set forth on the attached Exhibit C, there
---------
are not and have been no defaults, breaches, violations or events of
acceleration existing under any of the Bonds, the Indenture or any Bond
Collateral Security Agreement (for which notice has been given), Seller has not
waived any such default, breach, violation or event of acceleration, and no
event has occurred which, with the passing of time or the giving of notice,
would constitute such a default, breach, violation or event of acceleration.
(N) No Advances. Seller has not directly or indirectly advanced funds for
-----------
the payment of any amount required by the Bonds or the Indenture.
(O) Legal Compliance. All Legal Requirements applicable to the Bonds, the
----------------
Indenture and the Bond Collateral Security Agreements have been satisfied or
complied with.
(P) No Condemnation Proceedings; Condition of Collateral. There is no
----------------------------------------------------
11
<PAGE>
proceeding pending or threatened for the total or partial condemnation of the
Collateral. The Collateral is in good repair and free and clear of any damage
that would affect materially and adversely the value of the Collateral as
security for the use for which the Collateral was intended.
(Q) Accounts Receivable Indebtedness. The indebtedness secured by the
--------------------------------
Accounts Receivable Indebtedness Liens does not exceed, as of the date hereof,
One Million Five Hundred Thousand Dollars ($1,500,000).
(R) Taxes, Insurance (etc.) Are Current. There exists no delinquency with
-----------------------------------
respect to any taxes, governmental assessments, insurance premiums and water,
sewer and municipal charges, and ground rents, if any, which previously became
due and owing in respect of the Collateral, and all such amounts due and owing
with respect to the Collateral have been paid or an escrow of funds to cover
such payments has been established.
(S) Hazard and Liability Insurance. The Collateral is insured by hazard
------------------------------
insurance policies, commercial general liability insurance policies and, if
applicable, boiler insurance policies providing coverage against risks
ordinarily insured against by persons owning or operating like properties in the
locality of the Collateral, in an amount consistent with that which would be
required by an institutional lender in its normal commercial lending activities
with respect to similar properties in the same locality. All premiums on such
insurance policies have been paid; such insurance policies require prior notice
to the insured of termination or cancellation, and no such notice has been
received which is still in effect.
(T) Adverse Environmental Condition. There exists no material amount of
-------------------------------
Hazardous Substances on, under or at the Collateral. For purposes of this
Section, "material" shall mean an amount of Hazardous Substances in excess of
any established level of concentration or action level set forth in any rule,
policy, regulation or guideline adopted or issued by any Governmental Authority
or, in the absence of applicable action levels, in amounts that would require
removal or remediation in accordance with good industry practices. The
Collateral is not and has never been used for the storage, treatment or disposal
of Hazardous Substances.
(U) Adverse Engineering Condition. The Collateral is free of any material
-----------------------------
structural defects. For purposes hereof, a material structural defect means a
failure of a building or improvement element or system to function or operate
for its or their intended purposes (e.g., roof failure, failure of the HVAC
system to operate correctly, etc.) or any unrepaired damage by fire or other
casualty which, individually or in the aggregate with respect to the Collateral,
would cost $15,000 or more to remedy. An Adverse Engineering Condition does not
include normal wear and tear of any building or improvement system or element.
12
<PAGE>
(V) Bond Information. As of the date hereof: (i) the outstanding
----------------
principal balance of the (A) 1989A Bonds is Twenty Million Six Hundred and
Sixty-Five Thousand Dollars ($20,665,000), and (B) 1989B Bonds is Five Million
Dollars ($5,000,000) in addition to accrued and unpaid interest of not less than
Two Million Dollars ($2,000,000); (ii) the maturity date of the (A) 1989A Bonds
is October 1, 2017, and (B) 1989B Bonds is October 1, 2019; and (iii) the
interest rate of the (A) 1989A Bonds is nine and seventy-five hundredths percent
(9.75%), and (B) 1989B Bonds is nine and fifty hundredths percent (9.50%).
(W) Litigation. There is no litigation pending or threatened against the
----------
Corporation or the Collateral which would materially adversely affect the value
of the Collateral or adversely impact the ability of the Corporation to satisfy
its obligations under the Bond Collateral Security Agreements.
(X) No Impediment to Discharge of Indenture. There exists no legal or
---------------------------------------
contractual impediment to a discharge of the Indenture in the manner described
in the second paragraph of Section 7.1 of the Indenture (which is set forth on
pages 45-46 of the Indenture).
(Y) No Additional Parity Indebtedness. The Corporation has not incurred or
---------------------------------
issued any Additional Parity Indebtedness.
(Z) Tax Regulatory Agreement. There exist no defaults under the Tax
------------------------
Regulatory Agreement.
(AA) Determination of Taxability. No Determination of Taxability has
---------------------------
occurred.
(AB) Enforceable Liens on Collateral. The Bond Collateral Security
-------------------------------
Agreements create valid and enforceable first priority liens on the Collateral,
subject however, to the Accounts Receivable Indebtedness Liens.
- ------- -------
(AC) Title Insurance. That portion of the Collateral which is encumbered
---------------
by the Bond Collateral Mortgage is covered by an American Land Title Insurance
Company (or comparable) lender's title insurance policy insuring a valid first
lien on such property, which is in full force and effect, and subject only to
permitted exceptions.
(AD) Tax Exempt Bonds. The interest paid on the 1989A Bonds is exempt from
----------------
federal income taxation. The tax exempt status of the 1989B Bonds will not
hinder, interfere with or otherwise preclude a refinancing or restructuring of
the Bonds with either the Agency or the United States Department of Housing and
Urban Development.
13
<PAGE>
(AE) No Bankruptcy of Corporation. Corporation (i) has not filed and is
----------------------------
not contemplating the filing of a petition under any state or federal bankruptcy
or insolvency laws, and (ii) has not and is not contemplating the liquidation of
all or a major portion of its assets or property. Seller has no knowledge of
any person contemplating the filing of a petition under any state or federal
bankruptcy or insolvency laws against Corporation.
(AF) As of the date hereof, the GMAC Debt does not exceed Fourteen Million
Dollars ($14,000,000). Seller neither has been nor currently is in default of
its obligations under the GMAC Loan and Security Agreement.
(AG) No Consultants. The Corporation has not retained and has not been
--------------
obligated to retain a consultant pursuant to Section 7.10 of the Loan Agreement.
(AH) Use-Specific Representations.
----------------------------
(i) Compliance with Laws. The Corporation and each Facility complies
--------------------
with all applicable Legal Requirements, including, without limitation, federal,
state and local regulations, quality and safety standards, accreditation
standards and requirements of the applicable state Department of Health (each a
"DOH") and all other Governmental Authorities including, without limitation,
---
those relating to the quality and adequacy of medical care, distribution of
pharmaceuticals, rate setting, equipment, personnel, operating policies,
additions to facilities and services and fee splitting.
(ii) Licenses. All material governmental licenses, permits,
--------
regulatory agreements or other approvals or agreements necessary or desirable
for the use or operation of each Facility as intended are held by the
Corporation and are in full force and effect, including, without limitation, a
valid certificate of need ("CON") or similar certificate, license, or approval
---
issued by the DOH for the requisite number of beds, and approved provider status
in any approved provider payment program (collectively, the "Licenses").
--------
(iii) Ownership of Licenses. The Licenses, including without
---------------------
limitation, each CON:
(a) have not been, transferred to any location other than the
Facility to which such Licenses relate;
(b) have not been pledged as collateral security for any other
loan or indebtedness; and
(c) are held free from restrictions or known conflicts which
would materially impair the use or operation of each Facility as intended,
14
<PAGE>
and are not provisional, probationary or restricted in any way.
(iv) Medicare and Medicaid Compliance. To the extent applicable,
--------------------------------
each Facility and the Corporation are in compliance with all material
requirements for participation in Medicare and Medicaid, including without
limitation, the Medicare and Medicaid Patient and Program Protection Act of
1987. To the extent applicable, each Facility and the Corporation are in
conformance in all respects with all insurance, reimbursement and cost reporting
requirements, and has a current provider agreement which is in full force and
effect under Medicare and Medicaid.
(v) Third Party Payors' Programs. There is no threatened or pending
----------------------------
revocation, suspension, termination, probation, restriction, limitation, or non-
renewal affecting the Corporation or any Facility or any participation or
provider agreement with any third party payor (including Medicare, Medicaid,
Blue Cross and/or Blue Shield, and any other private commercial insurance
managed care and employee assistance program) (such programs, the "Third Party
-----------
Payors' Programs") to which the Corporation is subject. All Medicaid, Medicare,
- ----------------
and private insurance cost reports and financial reports submitted by the
Corporation have been materially accurate and complete and have not been
misleading in any material respects. No cost reports or financial reports for
any Facility remain "open" or unsettled.
(vi) Governmental Proceedings and Notices. Neither the Corporation
------------------------------------
nor any Facility is currently the subject of any proceeding by any Governmental
Authority, and no notice of any violation has been received from a Governmental
Authority that would, directly or indirectly, or with the passage of time:
(a) affect the Corporation's ability to accept and/or retain
patients or result in the imposition of a fine, a sanction, a lower rate
certification or a lower reimbursement rate for services rendered to
eligible patients;
(b) modify, limit or annul or result in the transfer,
suspension, revocation or imposition of probationary use on any License;
(c) affect the Corporation's continued participation in the
Medicaid or Medicare programs or any other of the Third Party Payors'
Programs, or any successor programs thereto, at current rate
certifications.
(vii) Physical Plant Standards. Each Facility and the use thereof
------------------------
complies in all respects with all local, state and federal building codes, fire
codes, health care, nursing facility and other similar regulatory requirements
(the "Physical Plant Standards") and no waivers of Physical Plant Standards
------------------------
exist at such Facility.
(viii) Past Violations. There is no pending uncured "Level A" (or
---------------
15
<PAGE>
equivalent) violation at any Facility. Each Facility is in material compliance
with all federal and state laws and regulations relating to, as applicable,
nursing homes, hospitals or continuing care facilities and no statement of
charges or deficiencies has been made or penalty enforcement action has been
undertaken against such Facility or against the Corporation or any officer,
director or stockholder of the Corporation or any affiliate of the Corporation
or any manager of any Facility by any Governmental Authority and there have been
no material violations which have threatened such Facility's or the
Corporation's certification for participation in Medicare or Medicaid or the
other Third Party Payors' Programs.
(ix) Audits. There are no current, pending or outstanding Medicaid,
------
Medicare or Third Party Payors' Programs reimbursement audits or appeals pending
at any Facility, and there are no years that are subject to audits.
(x) Recoupment. There are no current or pending Medicaid or Medicare or
----------
Third Party Payors' Programs recoupment efforts at any Facility. The Corporation
is not a participant in any federal program whereby any Governmental Authority
may have the right to recover funds by reason of the advance of federal funds.
(xi) Patient Records. All patient or resident records at each Facility,
---------------
including patient or resident trust fund accounts, are true and correct in all
respects.
(xii) Management Agreements. Each Management Agreement with respect to
---------------------
any Facility is in full force and effect and is not in default by any party
thereto. In the event any Management Agreement is terminated or in the event of
foreclosure of any Facility, under applicable Legal Requirements no subsequent
operator of such Facility is required to obtain a CON (or similar certificate,
license, or approval issued by the DOH for the requisite number of beds, and
approval provider status in any approved provider payment program) prior to
applying for and receiving a license to operate such Facility or prior to
receiving Medicare or Medicaid payments.
(AI) Account Balances. The balance in each Account is as set forth on
----------------
Exhibit A.
(AJ) Corporation's Representations and Warranties. Seller has no knowledge
--------------------------------------------
that any of the representations or warranties made by the Corporation in any of
the Bond Collateral Security Agreements is not true in any material respect.
16
<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
Section 5.1 Survival. This Agreement and all covenants, agreements,
--------
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the execution and delivery of this Agreement and
the transfer of the Bonds, and shall continue in full force and effect so long
as any portion of the Bonds remains outstanding and unpaid. Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party. All covenants,
promises and agreements in this Agreement contained, by or on behalf of Seller,
shall inure to the benefit of the respective successors and assigns of Buyer.
Section 5.2 Governing Law. (a) The parties agree that New York State has a
-------------
substantial relationship to the parties and to the underlying transaction
embodied hereby, and in all respects, including, without limitation, matters of
construction, validity and performance, this Agreement and the obligations
arising hereunder shall be governed by, and construed in accordance with, the
laws (but excluding the law governing choice of law) of the State of New York
applicable to contracts made and performed in such State and any applicable law
of the United States of America.
(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST ANY PARTY ARISING OUT OF
OR RELATING TO THIS AGREEMENT SHALL BE INSTITUTED IN ANY FEDERAL OR STATE COURT
IN NEW YORK, NEW YORK.
Section 5.3 Modification, Waiver in Writing. No modification, amendment,
-------------------------------
extension, discharge, termination or waiver of any provision of this Agreement
shall in any event be effective unless the same shall be in a writing signed by
Buyer and Seller, and then such waiver or consent shall be effective only in the
specific instance, and for the purpose, for which given.
Section 5.4 Notices. All notices hereunder shall be given in writing and
-------
shall be effective for all purposes if hand delivered or sent by (a) hand
delivery, with proof of attempted delivery, (b) certified or registered United
States mail, postage prepaid, (c) expedited prepaid delivery service, either
commercial or United States Postal Service, with proof of attempted delivery, or
(d) by telecopier (with answerback acknowledged) provided that such telecopied
notice must also be delivered by one of the means set forth in (a), (b) or (c)
above, addressed if to Buyer at its address set forth on the first page hereof,
and if to Seller at its address set forth on the first page hereof, or at such
other address as shall be designated from time to time by any party hereto, as
the case may be, in a written notice to the other party hereto in the manner
provided for in this Section.
-------
17
<PAGE>
SECTION 5.5 TRIAL BY JURY. BUYER AND SELLER, TO THE FULLEST EXTENT THAT
-------------
THEY MAY LAWFULLY DO SO, HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING,
INCLUDING, WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY ANY PARTY HERETO WITH
RESPECT TO THIS AGREEMENT.
Section 5.6 Headings. The Article and Section headings in this Agreement
--------
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 5.7 Severability. Wherever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
Section 5.8 Exhibits Incorporated. The information set forth on the
---------------------
cover, heading and recitals hereof, and the Exhibits attached hereto, are hereby
incorporated herein as a part of this Agreement with the same effect as if set
forth in the body hereof.
Section 5.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. In
Buyer's sole discretion, one or more counterparts of this Agreement may be
executed by telefaxed signature, which telefaxed signature shall be deemed to
constitute an original signature.
Section 5.10 Entire Agreement. This Agreement, together with the Exhibits
----------------
hereto constitutes the entire agreement among the parties hereto with respect to
the subject matter contained in this Agreement and the Exhibits hereto, and
supersedes all prior agreements, understandings and negotiations between the
parties.
Section 5.11 Further Assurances. On and after the Closing Date, upon the
------------------
reasonable request of Buyer, and without payment of further consideration to
Seller, other than reimbursement for Seller's out-of-pocket expenses, Seller
will do, execute, acknowledge and deliver, and will cause to be done, executed,
acknowledged and delivered, all such further acts, assignments, transfers,
conveyances, powers of attorney and assurances as may be reasonably required in
order to better assign, transfer, grant, convey, assure and confirm to Buyer
title and possession of the Bonds.
Section 5.12 Indemnification. Seller shall indemnify and hold Buyer and
---------------
each of its affiliates (including its officers, directors, partners, employees
and agents and
18
<PAGE>
each other person, if any, controlling Buyer or any of its affiliates) (each,
including Buyer, an "Indemnified Party") harmless against any and all losses,
-----------------
claims, damages, costs, expenses (including the fees and disbursements of
outside counsel retained by any such person) or liabilities in connection with,
arising out of or as a result of or in any way related to the Bonds and the
ownership by Seller thereof prior to the date of this Agreement, except to the
extent that it is finally judicially determined that any such loss, claim,
damage, cost, expense or liability resulted directly and solely from the fraud
or willful misconduct of such Indemnified Party. In the event that any
Indemnified Party becomes involved in any action, proceeding or investigation in
connection with any transaction or matter referred to or contemplated in this
Agreement, Seller shall periodically reimburse any Indemnified Party upon demand
therefor in an amount equal to its reasonable legal and other expenses
(including the costs of any investigation and preparation) incurred in
connection therewith to the extent such legal or other expenses are the subject
of indemnification hereunder.
[Signature pages to follow]
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their duly authorized representatives, all as of the day and
year first above written.
BUYER:
GLN CAPITAL CO. LLC, a Delaware limited
liability company
By: G&L REALTY PARTNERSHIP, L.P.
By: G&L Realty Corp.,
as General Partner
By: /s/ Daniel Gottlieb
----------------------------
Name: Daniel Gottlieb
Title: Chief Executive
Officer
By: PROPERTY ACQUISITION TRUST I
By: /s/ Sheryl McAfee
----------------------------
Name: Sheryl McAfee
Title: Designated Officer
SELLER:
G&L REALTY PARTNERSHIP, L.P., a Delaware
limited partnership
By: G&L Realty Corp.,
Its General Partner
By: /s/ Daniel Gottlieb
----------------------------
Name: Daniel Gottlieb
Title: Chief Executive
Officer
20
<PAGE>
EXHIBIT A
Bond Information Schedule
-------------------------
<TABLE>
<CAPTION>
1989A Bonds 1989B Bonds
<S> <C> <C>
Origination Date October 1, 1989 October 1, 1989
Maturity Date October 1, 2017 October 1, 2019
Coupon Rate 9.75% 9.5%
CUSIP No. 575909AE6 575909AD8
Description of Lien First Priority First Priority
Title Insurance Policy
Outstanding Principal $20,665,000 $5,000,000 in addition to
Balance 4/1/97 accrued and unpaid interest
of not less than $2,000,000
Interest Payment Dates
and Amounts
Sinking Fund Payments
Dates and Amounts
Description of Collateral
Loan to Value Ratio (as
of 3/1/97)
Debt Service Coverage
Ratio (for year ended
12/31/96)
Identity of Trustee
</TABLE>
<PAGE>
Balances (as of 3/1/97 in
the following accounts:
- - Bond Fund
Principal
Account
- - Bond Fund
Interest
Account
- - Debt Service
Reserve Fund
- - Project Fund
General
Account
- - Project Fund
Option Exercise
Account
- - Renovations Fund
- - Repair and
Replacement
Fund
- - Arbitrage Rebate
Fund
Balance (as of 3/1/97) of
the Working Capital
Loan
Retained Cash Flow as
of 12/31/96
<PAGE>
Balance (as of 3/1/97) in
the Escrow Account
Balances as of 3/1/97 of
the Issuance Cost Loan
Balance as of 3/1/97 of
any Other Indebtedness
Balance as of 3/1/97 of
any Subordinated
Management Fees
<PAGE>
EXHIBIT B
[Payment Schedule]
<PAGE>
EXHIBIT C
[Non-Monetary Default Schedule]
The following items were due The Bank of New York during 1996 but were
never furnished. Failure to deliver said requirements constitutes a technical
default under the financing documents.
1. Audited financial statements of Hampden Nursing Homes, Inc.
2. Auditors' Report of net income available for debt service and debt
service coverage ratio.
3. Certificate of no event of default from the accountant.
4. Certificate of no event of default from authorized representative
of Company.
5. Certificate of payment of taxes, government charges and utilities.
6. Calculation of the amount to be deposited into the Repair and
Replacement account within 120 days of year-end.
7. Auditors Report of retained cash flow and cash on hand adjustment.
8. Insurance Certificate for period 3/1/96 to 3/1/97.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND DECEMBER 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,231,913
<SECURITIES> 0
<RECEIVABLES> 17,565,908
<ALLOWANCES> 1,298,413
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 103,839,679
<DEPRECIATION> 10,608,618
<TOTAL-ASSETS> 135,996,285
<CURRENT-LIABILITIES> 3,104,180
<BONDS> 0
0
0
<COMMON> 40,625
<OTHER-SE> 22,407,478
<TOTAL-LIABILITY-AND-EQUITY> 135,996,285
<SALES> 0
<TOTAL-REVENUES> 25,035,548
<CGS> 0
<TOTAL-COSTS> 5,695,802
<OTHER-EXPENSES> 5,062,606
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,819,270
<INCOME-PRETAX> 9,701,444
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,701,444
<DISCONTINUED> 0
<EXTRAORDINARY> 9,310,730
<CHANGES> 0
<NET-INCOME> 9,701,444
<EPS-PRIMARY> 2.33
<EPS-DILUTED> 2.33
</TABLE>
